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st: Re: 2SLS with probit in the first stage regression


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: Re: 2SLS with probit in the first stage regression
Date   Sat, 16 Feb 2008 07:07:35 -0500

I guess I don't understand your setup. You're using xtreg, which is appropriate for panel data. If the original regression is

.xtreg y training meanworkplacetraining x2 x3 x4

and there is a possibility that training is endogenous, you definitely are violating the key assumption of the random-effects model, that the regressors are distributed independently of the errors. You should be estimating this equation allowing for endogeneity of the suspected variable, and need to perform a Hausman test of the appropriateness of the key assumption. You can do the Hausman test by estimating the model with -xtivreg- using RE and FE. If you find that the RE assumption cannot be maintained, then use - xtivreg2- with fixed effects and use the -endog()- option to test whether the endogeneity is an issue.


Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html


On Feb 16, 2008, at 2:33 AM, statalist-digest wrote:


Thank you, Kit. I should have mentioned also that my
original equation which has one of the RHS regressors
as potentially endogenous is a random effects GLS
model. Also I should have pointed out I am using
cross-section data. Would your kind answer still
apply?
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