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Binary Choice with Binary Endogenous Regressors in Panel Data: Estimating the Effect of Fertility on Female Labour Participation

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Raquel Carrasco (CEMFI)

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Abstract

This paper considers the estimation of binary choice panel data models with discrete endogenous regressors. We present a switching probit model which accounts for selectivity bias as well as for other forms of time invariant unobserved heterogeneity. Individual effects are allowed to be correlated with the explanatory variables, which can be predetermined as opposed to strictly exogenous. This model is applied to estimate a female participation equation with endogenous fertility and predetermined existing children and with individual effects using PSID data. We use the family sex composition as an instrument for exogenous fertility movements. The results indicate that assuming the exogeneity of fertility induces a downward bias in absolute value in the estimated negative effect of fertility on participation, although the failure to account for unobserved heterogeneity exaggerates this effect. Moreover, the estimates that deal with the endogeneity of fertility and control for fixed effects, but treat existing children as strictly exogenous produce a smaller effect of fertility than those obtained treating this variable as predetermined.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.3.

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Handle: RePEc:fem:femwpa:1999.3

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Keywords: Binary choice Panel data Endogenous variables Predetermined variables Labour force participation Fertility

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Find related papers by JEL classification:
C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth

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  1. Becker, Gary S, 1985. "Human Capital, Effort, and the Sexual Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages S33-58, January. [Downloadable!] (restricted)
  2. Rosenzweig, Mark R & Wolpin, Kenneth I, 1980. "Life-Cycle Labor Supply and Fertility: Causal Inferences from Household Models," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 328-48, April. [Downloadable!] (restricted)
  3. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October. [Downloadable!] (restricted)
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  4. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March. [Downloadable!] (restricted)
  5. Schmidt, Peter & Strauss, Robert P, 1975. "Estimation of Models with Jointly Dependent Qualitative Variables: A Simultaneous Logit Approach," Econometrica, Econometric Society, vol. 43(4), pages 745-55, July. [Downloadable!] (restricted)
  6. Alice Nakamura & Masao Nakamura, 1992. "The econometrics of female labor supply and children," Econometric Reviews, Taylor and Francis Journals, vol. 11(1), pages 1-71. [Downloadable!] (restricted)
  7. James J. Heckman & Thomas E. MaCurdy, 1985. "A Simultaneous Equations Linear Probability Model," Canadian Journal of Economics, Canadian Economics Association, vol. 18(1), pages 28-37, February. [Downloadable!] (restricted)
  8. Manski, Charles F, 1987. "Semiparametric Analysis of Random Effects Linear Models from Binary Panel Data," Econometrica, Econometric Society, vol. 55(2), pages 357-62, March. [Downloadable!] (restricted)
  9. Angrist, Joshua D & Evans, William N, 1998. "Children and Their Parents' Labor Supply: Evidence from Exogenous Variation in Family Size," American Economic Review, American Economic Association, vol. 88(3), pages 450-77, June. [Downloadable!] (restricted)
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  10. Card, David & Sullivan, Daniel G, 1988. "Measuring the Effect of Subsidized Training Programs on Movements in and out of Employment," Econometrica, Econometric Society, vol. 56(3), pages 497-530, May. [Downloadable!] (restricted)
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  11. Ben-Porath, Yoram & Welch, Finis, 1976. "Do Sex Preferences Really Matter?," The Quarterly Journal of Economics, MIT Press, vol. 90(2), pages 285-307, May. [Downloadable!] (restricted)
  12. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July. [Downloadable!] (restricted)
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  13. Arellano, M & Carrasco, R, 1996. "Binary Choice Panel Data Models with Predetermined Variables," Papers 9618, Centro de Estudios Monetarios Y Financieros-.
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  14. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September. [Downloadable!] (restricted)
  15. Browning, Martin, 1992. "Children and Household Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1434-75, September. [Downloadable!] (restricted)
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