Testing the External Effect of Household Behavior: The Case of the Demand for Children
This paper tests the external effect of household childbearing behavior by drawing on microfertility data from China. The test is executed by regressing one woman’s fertility on the average fertility of neighboring women. China’s unique affirmative birth control policy provides us with quasi-experimental fertility variation that facilities identification. We present two identification methods: (1) Testing the external effect from the dominant Han Chinese on minority women by using the fertility fine as an instrumental variable; and (2) identifying the external effect using an instrumental variable that is based on the difference-in-differences. We find that fertility has a large external effect.
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