Estimating Panel Data Models in the Presence of Endogeneity and Selection

Anastasia Semykina () and Jeffrey M. Woodridge ()
Additional contact information
Anastasia Semykina: Department of Economics, Florida State University
Jeffrey M. Woodridge: Department of Economics, Michigan State University
Authors registered in the RePEc Author Service: Jeffrey Wooldridge

No wp2010_10_01, Working Papers from Department of Economics, Florida State University

Abstract: We consider estimation of panel data models with sample selection when the equation of interest contains endogenous explanatory variables as well as unobserved heterogeneity. We offer a detailed analysis of the pooled two-stage least squares (pooled 2SLS) and fixed effects-2SLS (FE-2SLS) estimators and discuss complications in correcting for selection biases that arise when instruments are correlated with the unobserved effect. Assuming that appropriate instruments are available, we propose several tests for selection bias and two estimation procedures that correct for selection in the presence of endogenous regressors. The first correction procedure is valid under the assumption that the errors in the selection equation are normally distributed, while the second procedure drops the normality assumption and estimates the model parameters semiparametrically. In the proposed testing and correction procedures, the error terms may be heterogeneously distributed and serially dependent in both selection and primary equations. Correlation between the unobserved effects and explanatory and instrumental variables is permitted. To illustrate and study the performance of the proposed methods, we apply them to estimating earnings equations for females using the Panel Study of Income Dynamics data and perform Monte Carlo simulations.

Keywords: Fixed Effects; Instrumental Variables; Sample Selection; Mills Ratio; Semiparametric (search for similar items in EconPapers)
JEL-codes: C23 C24 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2010-10
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (251)

Downloads: (external link)
https://coss.fsu.edu/econpapers/wpaper/wp2010_10_01.pdf First version, 2010-10 (application/pdf)

Related works:
Journal Article: Estimating panel data models in the presence of endogeneity and selection (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fsu:wpaper:wp2010_10_01

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Department of Economics, Florida State University Contact information at EDIRC.
Bibliographic data for series maintained by Luke Rodgers ().