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A Note on Parametric and Nonparametric Regression in the Presence of Endogenous Control Variables

  • Frölich, Markus

    ()

    (University of Mannheim)

This note argues that nonparametric regression not only relaxes functional form assumptions vis-a-vis parametric regression, but that it also permits endogenous control variables. To control for selection bias or to make an exclusion restriction in instrumental variables regression valid, additional control variables are often added to a regression. If any of these control variables is endogenous, OLS or 2SLS would be inconsistent and would require further instrumental variables. Nonparametric approaches are still consistent, though. A few examples are examined and it is found that the asymptotic bias of OLS can indeed be very large.

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File URL: http://ftp.iza.org/dp2126.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2126.

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Length: 13 pages
Date of creation: May 2006
Date of revision:
Publication status: published in: International Statistical Review, 2008, 76 (2), 214-227
Handle: RePEc:iza:izadps:dp2126
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  1. Black, Dan A. & Smith, J.A.Jeffrey A., 2004. "How robust is the evidence on the effects of college quality? Evidence from matching," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 99-124.
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  8. Glewwe, Paul & Kremer, Michael & Moulin, Sylvie & Zitzewitz, Eric, 2004. "Retrospective vs. prospective analyses of school inputs: the case of flip charts in Kenya," Journal of Development Economics, Elsevier, vol. 74(1), pages 251-268, June.
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  16. Victor Lavy, 2002. "Evaluating the Effect of Teachers' Group Performance Incentives on Pupil Achievement," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1286-1317, December.
  17. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
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