On Testing Sample Selection Bias under the Multicollinearity Problem

Takashi Yamagata

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper examines and compares the finite sample performance of the existing tests for sample selection bias, especially under the multi-collinearity problem pointed out by Nawata (1993). The results show that under such multicollinearity problem, (i) the t-test for sample selection bias based on the Heckman and Greene variance estimator can be unreliable; (ii) the standard t-test (Heckman 1979) and the asymptotically efficient Lagrange multiplier test (Melino 1982) have correct size but very little power; (iii) however, the likelihood ratio test following the maximum likelihood estimation remains powerful.

Keywords: Sample selection bias; t-test; Wald test, likelihood ratio test, Lagrange multiplier test (search for similar items in EconPapers)
JEL-codes: C12 C24 (search for similar items in EconPapers)
Pages: 14
Date: 2005-05
New Economics Papers: this item is included in nep-ecm
Note: EM
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Citations: View citations in EconPapers (7)

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Journal Article: On Testing Sample Selection Bias Under the Multicollinearity Problem (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0522

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