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THRET: Threshold Regression with Endogenous Threshold Variables

  • Andros Kourtellos


    (University of Cyprus, Cyprus)

  • Chih Ming Tan


    (Tufts University, USA)

  • Thanasis Stengos


    (University of Guelph, Canada and The Rimini Centre for Economic Analysis, Rimini, Italy)

This paper extends the simple threshold regression framework of Hansen (2000) and Caner and Hansen (2004) to allow for endogeneity of the threshold variable. We develop a concentrated two-stage least squares (C2SLS) estimator of the threshold parameter that is based on an inverse Mills ratio bias correction. Our method also allows for the endogeneity of the slope variables. We show that our estimator is consistent and investigate its performance using a Monte Carlo simulation that indicates the applicability of the method in finite samples. We also illustrate its usefulness with an empirical example from economic growth. JEL Classifications: C13, C51

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 05-08.

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Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:rim:rimwps:05-08
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  1. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  2. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  3. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
  4. Oliver Linton & Myunghwan Seo, 2005. "A smoothed least squares estimator for threshold regression models," LSE Research Online Documents on Economics 4434, London School of Economics and Political Science, LSE Library.
  5. Chih Ming Tan, 2005. "No One True Path: Uncovering the Interplay between Geography, Institutions, and Fractionalization in Economic Development," Discussion Papers Series, Department of Economics, Tufts University 0512, Department of Economics, Tufts University.
  6. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
  7. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  8. Jesús Gonzalo & Michael Wolf, 2001. "Subsampling inference in threshold autoregressive models," Economics Working Papers 573, Department of Economics and Business, Universitat Pompeu Fabra.
  9. repec:att:wimass:9419 is not listed on IDEAS
  10. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec..
  11. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
  12. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.
  13. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October.
  14. Mamuneas, T.P. & Savvides, A. & Stengos, T., 2002. "Economic Development and the Return to Human Capital: A Smooth Coefficient Semiparametric Approach," Working Papers 2002-14, University of Guelph, Department of Economics and Finance.
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