Binary Choice with Binary Endogenous Regressors in Panel Data: Estimating the Effect of Fertility on Female Labor Participation

CEMFI Working Paper No. 9805

45 Pages Posted: 26 Feb 1999

See all articles by Raquel Carrasco

Raquel Carrasco

Charles III University of Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 1998

Abstract

This paper considers the estimation of binary choice panel data models with discrete endogenous regressors. We present a switching probit model which accounts for selectivity bias as well as for other forms of time invariant unobserved heterogeneity. Individual effects are allowed to be correlated with the explanatory variables, which can be predetermined as opposed to strictly exogenous. This model is applied to estimate a female participation equation with endogenous fertility and predetermined existing children and with individual effects using PSID data. We use the family sex composition as an instrument for exogenous fertility movements. The results indicate that assuming the exogeneity of fertility induces a downward bias in absolute value in the estimated negative effect of fertility on participation, although the failure to account for unobserved heterogeneity exaggerates this effect. Moreover, the estimates that deal with the endogeneity of fertility and control for fixed effects, but treat existing children as strictly exogenous produce a smaller effect of fertility that those obtained treating this variable as predetermined.

JEL Classification: C21, C23, C25, J13

Suggested Citation

Carrasco Perea, Raquel, Binary Choice with Binary Endogenous Regressors in Panel Data: Estimating the Effect of Fertility on Female Labor Participation (October 1998). CEMFI Working Paper No. 9805, Available at SSRN: https://ssrn.com/abstract=145135 or http://dx.doi.org/10.2139/ssrn.145135

Raquel Carrasco Perea (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9583 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom