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st: instrument in the Heckman sample selection model


From   Agnieszka Kanas <a.kanas@maw.ru.nl>
To   statalist@hsphsun2.harvard.edu
Subject   st: instrument in the Heckman sample selection model
Date   Sat, 28 Jul 2012 15:02:03 +0200

Dear all,
I have a question about a model specification in the Heckman sample selection model. My problem is a bit more complicated but the essence can be explained as follows. I test the hypothesis that immigrants into regions within a country receive larger (earning) returns to their schooling in one region vs. the other region. One important issue that I need to address is the self-selection of immigrants into the two regions. I estimate the Heckman sample selection model. It is recommended that at least one variable that is not included in the outcome (earnings) equation to be included in the selection equation. I want to use the first region upon arrival to the host-country as an instrument in the selection equation. I assume that original location choice influences the current location, but net of the current location, it should not affect immigrants’ earnings. Thus, by including the first region variable into the selection model I control for the unobserved characteristics that influence immigrants’ current region. Is this approach - using the lagged selection variable as an instrument - statistically sound? I appreciate your comments. Agnes

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