Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term

Whether interested in the differential impact of a particular factor in various institutional settings or in the heterogeneous effect of policy or random experiment, the empirical researcher confronts a problem if the factor of interest is correlated with an omitted variable. This paper presents the circumstances under which it is possible to arrive at a consistent estimate of the mentioned effect. We find that if the source of heterogeneity and omitted variable are jointly independent of policy or treatment, then the OLS estimate on the interaction term between the treatment and endogenous factor turns out to be consistent.treatment effect; heterogeneity; policy evaluation; random experiments; omitted variable bias

A control function approach to estimating dynamic probit models with endogenous regressors, with an application to the study of poverty persistence in China

This paper proposes a parametric approach to estimating a dynamic binary response panel data model that allows for endogenous contemporaneous regressors. This approach is of particular value for settings in which one wants to estimate the effects of an endogenous treatment on a binary outcome. The model is next used to examine the impact of rural-urban migration on the likelihood that households in rural China fall below the poverty line. In this application, it is shown that migration is important for reducing the likelihood that poor households remain in poverty and that non-poor households fall into poverty. Furthermore, it is demonstrated that failure to control for unobserved heterogeneity would lead the researcher to underestimate the impact of migrant labor markets on reducing the probability of falling into poverty.Rural Poverty Reduction,Population Policies,Achieving Shared Growth,Debt Markets,Regional Economic Development

Two-Sample Nonparametric Estimation of Intergenerational Income Mobility

We estimate intergenerational income mobility in the USA and Sweden. To measure the degree to which income status is transmitted from one generation to another we propose a nonparametric estimator, which is particularly relevant for cross-country comparisons. Our approach allows intergenerational mobility to vary across observable family characteristics. Furthermore, it ts situations when data on fathers and sons come from di fferent samples. Finally, our estimator is consistent in the presence of measurement error in fathers' long-run economic status. We fi nd that family background captured by fathers' education matters for intergenerational income persistence in the USA more than in Sweden suggesting that the character of inequality in the two countries is rather di fferent

Two-Sample Nonparametric Estimation of Intergenerational Income Mobility

We estimate intergenerational income mobility in the USA and Sweden. To measure the degree to which income status is transmitted from one generation to another we propose a nonparametric estimator, which is particularly relevant for cross-country comparisons. Our approach allows intergenerational mobility to vary across observable family characteristics. Furthermore, it ts situations when data on fathers and sons come from di fferent samples. Finally, our estimator is consistent in the presence of measurement error in fathers' long-run economic status. We fi nd that family background captured by fathers' education matters for intergenerational income persistence in the USA more than in Sweden suggesting that the character of inequality in the two countries is rather di fferent

Exogenous treatment and endogenous factors: vanishing of omitted variable bias on the interaction term

Whether interested in the differential impact of a particular factor in various institutional settings or in the heterogeneous effect of policy or random experiment, the empirical researcher confronts a problem if the factor of interest is correlated with an omitted variable. This paper presents the circumstances under which it is possible to arrive at a consistent estimate of the mentioned effect. We find that if the source of heterogeneity and omitted variable are jointly independent of policy or treatment, then the OLS estimate on the interaction term between the treatment and endogenous factor turns out to be consistent

Does past unemployment experience explain the transition happiness gap?

The profound economic and political changes of the 1990s had detrimental social effects in many domains of life in post-socialist countries, including diminishing life expectancy and growing unhappiness. Despite economic improvements in the second decade of transition, research has documented that happiness lagged behind. We test whether past unemployment experience can explain this “transition happiness gap in the context of Ukraine”, a country with a painful delayed transition from planned to market economy. We analyze unique longitudinal data for the period 2003–2012. Current unemployment substantially reduces subjective wellbeing, and the effect is roughly 50% larger for men than for women. The effect of past unemployment is significant, but small in magnitude compared to the effect of current unemployment. However, it does correspond to around 8% of the ‘’transition happiness gap” found by Guriev and Melnikov (2017), suggesting that past unemployment experience can be considered as a partial explanation

Local Linear GMM Estimation of Functional Coefficient IV Models with Application to the Estimation of Rate of Return to Schooling

We consider the local linear GMM estimation of functional coefficient models with a mix of discrete and continuous data and in the presence of endogenous regressors. We establish the asymptotic normality of the estimator and derive the optimal instrumental variable that minimizes the asymptotic variance-covariance matrix among the class of all local linear GMM estimators. Data-dependent bandwidth sequences are also allowed for. We propose a nonparametric test for the constancy of the functional coefficients, study its asymptotic properties under the null hypothesis as well as a sequence of local alternatives and global alternatives, and propose a bootstrap version for it. Simulations are conducted to evaluate both the estimator and test. Applications to the 1985 Australian Longitudina