Varying Coefficient Panel Data Model in the Presence of Endogenous Selectivity and Fixed Effects

43 Pages Posted: 17 May 2014 Last revised: 23 Feb 2015

See all articles by Emir Malikov

Emir Malikov

University of Nevada, Las Vegas

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics

Yiguo Sun

University of Guelph

Date Written: September 15, 2014

Abstract

This paper considers a flexible panel data sample selection model in which (i) the outcome equation is permitted to take a semiparametric, varying coefficient form to capture potential parameter heterogeneity in the relationship of interest, (ii) both the outcome and (parametric) selection equations contain unobserved fixed effects and (iii) selection is generalized to a polychotomous case. We propose a two-stage estimator. Given consistent parameter estimates from the selection equation obtained in the first stage, we estimate the semiparametric outcome equation using data for the observed individuals whose likelihood of being selected into the sample stays approximately the same over time. The selection bias term is then "asymptotically" removed from the equation along with fixed effects using kernel-based weights. The proposed estimator is consistent and asymptotically normal. We first investigate the finite sample properties of the estimator in a small Monte Carlo study and then apply it to study production technologies of U.S. retail credit unions from 2002 to 2006.

Keywords: Credit Union, Fixed Effects, Selection, Semiparametric, Smooth Coefficient, Switching Regression, Varying Coefficient

JEL Classification: C14, C33, C34, G21

Suggested Citation

Malikov, Emir and Kumbhakar, Subal C. and Sun, Yiguo, Varying Coefficient Panel Data Model in the Presence of Endogenous Selectivity and Fixed Effects (September 15, 2014). Journal of Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2437542 or http://dx.doi.org/10.2139/ssrn.2437542

Emir Malikov (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

Yiguo Sun

University of Guelph ( email )

Guelph, Ontario
Canada

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