Friday, March 03, 2006

st: Probit analysis with panel data and endogeneous explicative variables

Dear Stata-listers,

I have a very large data-set of individual earnings, with a panel data structure, covering the period 1985-2004. I would like to estimate the probabilities of transition from the status of temporary to long-term employee. So I would regress the variable y (y=1 if the individual changes status, y=0 if the individual does not change status) over his/her level of earnings, age and other demographic characteristics. In this set-up, though, earnings are an endogenous variable.

I know of a routine (PROBITIV) which estimates probit models with endogenous explicative variables, but not in a panel-data framework (am I right?). With the command XTPROBIT I can estimate probit models within panel data. Is there a way of combining probit estimation with panel data and endogenous variables?

I wonder whether I could run a 2-stage regression, such as:

1) XTREG (FE) y instruments, to get y(hat) 2) XTPROBIT y(hat) exogenous variables

Would this approach be correct? If not, do you have any suggestions? I use Stata 8.

Many thanks!

Cheers, Elena Giarda

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