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Logit analysis in a rotating panel context and an application to self-employment decisions

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  • Gonzalez, Patricio Aroca*Maloney, William F.

Abstract

The authors derive a methodology for analyzing logit models in a rotating panel context. They then apply the technique to test two theories of why and when salaried workers enter the informal self-employed sector. In the traditional view, workers fired from formal jobs queue in the informal sector to reenter the formal sector. The authors argue that for many, self-employment is a desirable goal, but that credit constraints often dictate that they work in the formal sector until enough start-up capital is accumulated. They model the decision to move as a stopped Markov process in which, in each period, the worker compare accumulated savings with the target level for switching sector dictated by the forecasted stream of discounted utility arising from employment labor and capital in each sector. They test and find support for the model using the new logit methodology and rotating panel data from Mexico.

Suggested Citation

  • Gonzalez, Patricio Aroca*Maloney, William F., 1999. "Logit analysis in a rotating panel context and an application to self-employment decisions," Policy Research Working Paper Series 2069, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2069
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    References listed on IDEAS

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    1. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    2. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-1120, December.
    3. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
    4. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    5. Nijman, Theo & Verbeek, Marno & van Soest, Arthur, 1991. "The efficiency of rotating-panel designs in an analysis-of-variance model," Journal of Econometrics, Elsevier, vol. 49(3), pages 373-399, September.
    6. Biorn, Erik & Jansen, Eilev S, 1983. " Individual Effects in a System of Demand Functions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(4), pages 461-483.
    7. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    8. Baltagi, Badi H., 1985. "Pooling cross-sections with unequal time-series lengths," Economics Letters, Elsevier, vol. 18(2-3), pages 133-136.
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    Citations

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    Cited by:

    1. Robert Duval Hernández & Pedro Orraca, 2008. "A Cohort Analysis of Labor Participation in Mexico, 1987-2008," Working papers DTE 440, CIDE, División de Economía.
    2. Maloney, William F., 1999. "Self-employment and labor turnover - cross-country evidence," Policy Research Working Paper Series 2102, The World Bank.
    3. Christian Weller, 2010. "Have Differences in Credit Access Diminished in an Era of Financial Market Deregulation?," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 1-34.
    4. Olivier Bargain & Prudence Kwenda, 2010. "Is informality bad? Evidence from Brazil, Mexico and South Africa," Working Papers 201003, School of Economics, University College Dublin.

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