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How Much of Observed Economic Mobility is Measurement Error? IV Methods to Reduce Measurement Error Bias, with an Application to Vietnam

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  • Paul Glewwe

Abstract

Research on economic growth and inequality inevitably raises issues concerning economic mobility because the relationship between long-run inequality and short-run inequality is mediated by income mobility; for a given level of short-run inequality, greater mobility implies lower long-run inequality. But empirical measures of both inequality and mobility tend to be biased upward due to measurement error in income and expenditure data collected from household surveys. This paper examines how to reduce or remove this bias using instrumental variable methods, and provides conditions that instrumental variables must satisfy to provide consistent estimates. This approach is applied to panel data from Vietnam. The results imply that at least 15 percent, and perhaps as much as 42 percent, of measured mobility is upward bias due to measurement error. The results also suggest that measurement error accounts for at least 12 percent of measured inequality. Copyright 2012, Oxford University Press.

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  • Paul Glewwe, 2012. "How Much of Observed Economic Mobility is Measurement Error? IV Methods to Reduce Measurement Error Bias, with an Application to Vietnam," The World Bank Economic Review, World Bank, vol. 26(2), pages 236-264.
    • Handle: RePEc:oup:wbecrv:v:26:y:2012:i:2:p:236-264
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    File URL: http://hdl.handle.net/10.1093/wber/lhr040
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    Cited by:

    1. Li, Hao & Millimet, Daniel L. & Roychowdhury, Punarjit, 2019. "Measuring Economic Mobility in India Using Noisy Data: A Partial Identification Approach," IZA Discussion Papers 12505, Institute of Labor Economics (IZA).
    2. Dwayne Benjamin & Loren Brandt & Brian McCaig, 2017. "Growth with equity: income inequality in Vietnam, 2002–14," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(1), pages 25-46, March.
    3. Hai‐Anh Dang & Dean Jolliffe & Calogero Carletto, 2019. "Data Gaps, Data Incomparability, And Data Imputation: A Review Of Poverty Measurement Methods For Data‐Scarce Environments," Journal of Economic Surveys, Wiley Blackwell, vol. 33(3), pages 757-797, July.
    4. Ian K. McDonough & Manan Roy & Punarjit Roychowdhury, 2020. "Exploring the dynamics of racial food security gaps in the United States," Review of Economics of the Household, Springer, vol. 18(2), pages 387-412, June.
    5. Ian K. McDonough & Punarjit Roychowdhury & Gaurav Dhamija, 2021. "Measuring the Dynamics of the Achievement Gap Between Public and Private School Students During Early Life in India," Journal of Labor Research, Springer, vol. 42(1), pages 78-122, March.
    6. Merfeld, Joshua D., 2023. "Air Pollution and Agricultural Productivity in a Developing Country," IZA Discussion Papers 16316, Institute of Labor Economics (IZA).
    7. Daniel L. Millimet & Hao Li & Punarjit Roychowdhury, 2020. "Partial Identification of Economic Mobility: With an Application to the United States," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(4), pages 732-753, October.
    8. Dang,Hai-Anh H. & Lanjouw,Peter F. & Swinkels,Robertus A & Dang,Hai-Anh H. & Lanjouw,Peter F. & Swinkels,Robertus A, 2014. "Who remained in poverty, who moved up, and who fell down ? an investigation of poverty dynamics in Senegal in the late 2000s," Policy Research Working Paper Series 7141, The World Bank.
    9. World Bank, 2020. "Ethiopia Poverty Assessment," World Bank Publications - Reports 33544, The World Bank Group.
    10. Chenhong Peng & Paul Siu Fai Yip & Yik Wa Law, 2019. "Intergenerational Earnings Mobility and Returns to Education in Hong Kong: A Developed Society with High Economic Inequality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 143(1), pages 133-156, May.
    11. Dang, Hai-Anh & Lanjouw, Peter & Luoto, Jill & McKenzie, David, 2014. "Using repeated cross-sections to explore movements into and out of poverty," Journal of Development Economics, Elsevier, vol. 107(C), pages 112-128.

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