On Testing Sample Selection Bias Under the Multicollinearity Problem
Takashi Yamagata and
Chris Orme ()
Econometric Reviews, 2005, vol. 24, issue 4, 467-481
This paper reviews and extends the literature on the finite sample behavior of tests for sample selection bias. Monte Carlo results show that, when the “multicollinearity problem” identified by Nawata (1993) is severe, (i) the t-test based on the Heckman-Greene variance estimator can be unreliable, (ii) the Likelihood Ratio test remains powerful, and (iii) nonnormality can be interpreted as severe sample selection bias by Maximum Likelihood methods, leading to negative Wald statistics. We also confirm previous findings (Leung and Yu, 1996) that the standard regression-based t-test (Heckman, 1979) and the asymptotically efficient Lagrange Multiplier test (Melino, 1982), are robust to nonnormality but have very little power.
Keywords: Lagrange multiplier test; Likelihood ratio test; Sample selection bias; t -test; Wald test (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:24:y:2005:i:4:p:467-481
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