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A Control Function Approach to Estimating Dynamic Probit Models with Endogenous Regressorsa

Author

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  • Giles John

    (Development Research Group, The World Bank)

  • Murtazashvili Irina

    (Department of Economics and International Business, LeBow College of Business, Drexel University, 3141 Chestnut Street, Philadelphia, PA 19104, USA)

Abstract

This paper proposes a parametric approach to estimating a dynamic binary response panel data model that allows for endogenous contemporaneous regressors. Such a model is of particular value for settings in which one wants to estimate the effects of an endogenous treatment on a binary outcome. In order to demonstrate the usefulness of the approach, we use it 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.

Suggested Citation

  • Giles John & Murtazashvili Irina, 2013. "A Control Function Approach to Estimating Dynamic Probit Models with Endogenous Regressorsa," Journal of Econometric Methods, De Gruyter, vol. 2(1), pages 69-87, July.
    • Handle: RePEc:bpj:jecome:v:2:y:2013:i:1:p:69-87:n:4
    DOI: 10.1515/jem-2012-0010
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    7. Rickert, Dennis, 2016. "Consumer state dependence, switching costs, and forward-looking producers. A dynamic discrete choice model applied to the diaper market," VfS Annual Conference 2016 (Augsburg): Demographic Change 145672, Verein für Socialpolitik / German Economic Association.
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    More about this item

    Keywords

    control function approach; dynamic binary response models; migration; poverty-persistence; rural China; JEL codes: C13; C33; O15; P25;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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