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Endogeneity and Heterogeneity in LDV Panel Data Models

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  • Jacob N. Arendt

    () (Institute of Local Government Studies)

Abstract

We extend three existing cross-sectional limited dependent variable (LDV) estimators, that allow for endogenous regressors, to a panel data model. We focus on estimation of effects of timeinvariant endogenous regressors, since to our knowledge, besides joint maximum likelihood, no other alternative consistent parametric estimators than the ones suggested here exist. We compare their small sample performance of estimates of marginal effects to i.i.d. LDV estimators as well as to linear estimators by means of Monte Carlo Studies. Some notable differences in the performance of the LDV estimators appear. One estimator, the 2SIV, performs reasonably well in terms of bias, even with weak instruments. Another type, the AGLS estimators, have a large small sample bias when no endogeneity is present. The 2SCML estimators seem to perform reasonable in most scenarios even under some types of misspecification. In addition, 2SLS performed relatively well, but had a substantial MSE with weak instruments and substantial bias in misspecified scenarios. Although potentially important because of heterogeneity bias, our extension of LDV models to the panel case did not give improvements in small sample performance over the cross-sectional estimators.

Suggested Citation

  • Jacob N. Arendt, 2002. "Endogeneity and Heterogeneity in LDV Panel Data Models," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D6-1, International Conferences on Panel Data.
  • Handle: RePEc:cpd:pd2002:d6-1
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    File URL: http://econpapers.repec.org/cpd/2002/38_NielsenArendt.pdf
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    References listed on IDEAS

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    Cited by:

    1. Arendt, Jacob Nielsen, 2005. "Does education cause better health? A panel data analysis using school reforms for identification," Economics of Education Review, Elsevier, vol. 24(2), pages 149-160, April.
    2. John Gilbert & Reza Oladi, 2012. "Net campaign contributions, agricultural interests, and votes on liberalizing trade with China," Public Choice, Springer, vol. 150(3), pages 745-769, March.
    3. Beyene, Abebe D. & Mekonnen, Alemu & Gebreegziabher, Zenebe, 2014. "Natural Resource Collection and Children’s Literacy: Empirical Evidence from Panel Data in Rural Ethiopia," Discussion Papers dp-14-18-efd, Resources For the Future.
    4. Swaminathan, Hema & Findeis, Jill L., 2003. "Impact Of Credit On Labor Allocation And Consumption Patterns In Malawi," 2003 Annual meeting, July 27-30, Montreal, Canada 22118, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. J L Ford & K Park & S Sen, 2009. "All Work and No Play: Pecuniary Versus Non-Pecuniary Factors in the Labour Supply of the Elderly," Discussion Papers 09-08, Department of Economics, University of Birmingham.

    More about this item

    Keywords

    Two-Step Estimation; Panel Data; Endogenous Regressor; Time-Invariant Regressor; Linear Approximation;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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