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A Control Function Approach to Estimating Dynamic Probit Models with Endogenous Regressors, with an Application to the Study of Poverty Persistence in China

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  • Giles, John T.

    ()
    (World Bank)

  • Murtazashvili, Irina

    ()
    (Drexel University)

Abstract

This paper proposes a parametric approach to estimating a dynamic binary response panel data model that allows for endogenous contemporaneous regressors. Such a model is of particular value for settings in which one wants to estimate the effects of an endogenous treatment on a binary outcome. In order to demonstrate the usefulness of the approach, we use it to examine the impact of rural-urban migration on the likelihood that households in rural China fall below the poverty line. In this application, it is shown that migration is important for reducing the likelihood that poor households remain in poverty and that non-poor households fall into poverty. Furthermore, it is demonstrated that failure to control for unobserved heterogeneity would lead the researcher to underestimate the impact of migrant labor markets on reducing the probability of falling into poverty.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6887.

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Length: 44 pages
Date of creation: Sep 2012
Date of revision:
Publication status: published as 'A Control Function Approach to Estimating Dynamic Probit Models with Endogenous Regressors' in: Journal of Econometric Methods, 2013, 2 (1), 69-87
Handle: RePEc:iza:izadps:dp6887

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Keywords: control function approach; migration; dynamic binary response models; rural China; poverty-persistence;

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References

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  1. de Brauw, Alan & Giles, John T., 2012. "Migrant Labor Markets and the Welfare of Rural Households in the Developing World: Evidence from China," IZA Discussion Papers 6765, Institute for the Study of Labor (IZA).
  2. Alan de Brauw & John Giles, 2005. "Migrant Opportunity and the Educational Attainment of Youth in Rural China," Department of Economics Working Papers, Department of Economics, Williams College 2005-05, Department of Economics, Williams College.
  3. John Giles, 2000. "Is Life More Risky in the Open? Household Risk-Coping and the Opening of China's Labor Markets," William Davidson Institute Working Papers Series 314, William Davidson Institute at the University of Michigan.
  4. Martin Biewen, 2004. "Measuring State Dependence in Individual Poverty Status: Are there Feedback Effects to Employment Decisions and Household Composition?," Discussion Papers of DIW Berlin 429, DIW Berlin, German Institute for Economic Research.
  5. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, Econometric Society, vol. 67(6), pages 1255-1294, November.
  6. Francesco Devicienti & Ambra Poggi, 2011. "Poverty and social exclusion: two sides of the same coin or dynamically interrelated processes?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(25), pages 3549-3571.
  7. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, Econometric Society, vol. 70(4), pages 1639-1657, July.
  8. Papke, Leslie E. & Wooldridge, Jeffrey M., 2008. "Panel data methods for fractional response variables with an application to test pass rates," Journal of Econometrics, Elsevier, Elsevier, vol. 145(1-2), pages 121-133, July.
  9. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, Elsevier, vol. 39(3), pages 347-366, November.
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Cited by:
  1. Ming Liu & Sumner La Croix, 2014. "A Cross-Country Index of Intellectual Property Rights in Pharmaceutical Innovations," Working Papers, University of Hawaii at Manoa, Department of Economics 201408, University of Hawaii at Manoa, Department of Economics.
  2. Ming Liu & Sumner LaCroix, 2011. "The Impact of Stronger Property Rights in Pharmaceuticals on Innovation in Developed and Developing Countries," Working Papers, University of Hawaii at Manoa, Department of Economics 201116, University of Hawaii at Manoa, Department of Economics.
  3. Alem, Yonas, 2013. "Poverty Persistence and Intra-Household Heterogeneity in Occupations: Evidence from Urban Ethiopia," Working Papers in Economics, University of Gothenburg, Department of Economics 580, University of Gothenburg, Department of Economics.
  4. Alem, Yonas, 2014. "Poverty Persistence and Intra-Household Heterogeneity in Occupations: Some Evidence from Ethiopia," Discussion Papers, Resources For the Future dp-14-05-efd, Resources For the Future.

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