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Correcting Standard Errors in Two-stage Estimation Procedures with Generated Regressands

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  • Michel Dumont
  • Glenn Rayp
  • Olivier Thas
  • Peter Willemé

Abstract

Feenstra and Hanson [NBER Working Paper No. 6052 (1997)] propose a procedure to correct the standard errors in a two-stage regression with generated dependent variables. Their method has subsequently been used in two-stage mandated wage models [Feenstra and Hanson, "Quarterly Journal of Economics" (1999) Vol. 114, pp. 907-940; Haskel and Slaughter, "The Economic Journal" (2001) Vol. 111, pp. 163-187; "Review of International Economics" (2003) Vol. 11, pp. 630-650] and for the estimation of the sector bias of skill-biased technological change [Haskel and Slaughter, "European Economic Review" (2002) Vol. 46, pp. 1757-1783]. Unfortunately, the proposed correction is negatively biased (sometimes even resulting in negative estimated variances) and therefore leads to overestimation of the inferred significance. We present an unbiased correction procedure and apply it to the models reported by Feenstra and Hanson (1999)and Haskel and Slaughter (2002). Copyright 2005 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 67 (2005)
Issue (Month): 3 (06)
Pages: 421-433

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Handle: RePEc:bla:obuest:v:67:y:2005:i:3:p:421-433

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References

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  1. Haskel, Jonathan & Slaughter, Matthew J, 2001. "Trade, Technology and U.K. Wage Inequality," Economic Journal, Royal Economic Society, vol. 111(468), pages 163-87, January.
  2. Haskel, Jonathan E. & Slaughter, Matthew J., 2002. "Does the sector bias of skill-biased technical change explain changing skill premia?," European Economic Review, Elsevier, vol. 46(10), pages 1757-1783, December.
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Cited by:
  1. Dumont, Michel & Rayp, Glenn & Willemé, Peter, 2012. "The bargaining position of low-skilled and high-skilled workers in a globalising world," Labour Economics, Elsevier, vol. 19(3), pages 312-319.
  2. Aslihan Arslan, 2008. "Shadow vs. market prices in explaining land allocation: Subsistence maize cultivation in rural Mexico," Kiel Working Papers 1469, Kiel Institute for the World Economy.
  3. Linda S. Goldberg & Christian Grisse, 2013. "Time variation in asset price responses to macro announcements," Working Papers 2013-11, Swiss National Bank.
  4. Yilmazkuday, Hakan, 2009. "Is the Armington Elasticity Really Constant across Importers?," MPRA Paper 15954, University Library of Munich, Germany.
  5. Ludo Cuyvers & Michel Dumont & Glenn Rayp & Katrien Stevens, 2003. "Wage and employment effects in the EU of international trade with the emerging economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(2), pages 248-275, June.
  6. D. Van den Poel, 2003. "Predicting Mail-Order Repeat Buying. Which Variables Matter?," Review of Business and Economics, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, vol. 0(3), pages 371-404.
  7. Aslihan Arslan & J. Edward Taylor, 2008. "Farmers' Subjective Valuation of Subsistence Crops: The Case of Traditional Maize in Mexico," Kiel Working Papers 1457, Kiel Institute for the World Economy.
  8. Susan Stone & Ricardo Cavazos Cepeda, 2011. "Wage Implications of Trade Liberalisation: Evidence for Effective Policy Formation," OECD Trade Policy Papers 122, OECD Publishing.

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