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Research ArticleArticles

On the Validity of Econometric Techniques with Weak Instruments

Inference on Returns to Education Using Compulsory School Attendance Laws

Luiz M. Cruz and Marcelo J. Moreira
Journal of Human Resources, March 2005, 40 (2) 393-410; DOI: https://doi.org/10.3368/jhr.40.2.393
Luiz M. Cruz
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Marcelo J. Moreira
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Abstract

We evaluate Angrist and Krueger (1991) and Bound, Jaeger, and Baker (1995) by constructing reliable confidence regions around the 2SLS and LIML estimators for returns-to-schooling regardless of the quality of the instruments. The results indicate that the returns-to-schooling were between 8 and 25 percent in 1970 and between 4 and 14 percent in 1980. Although the estimates are less accurate than previously thought, most specifications by Angrist and Krueger (1991) are informative for returns-to-schooling. In particular, concern about the reliability of the model with 178 instruments is unfounded despite the low first-stage F-statistic. Finally, we briefly discuss bias-adjustment of estimators and pretesting procedures as solutions to the weak-instrument problem.

  • Received November 2002.
  • Accepted February 2004.

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Journal of Human Resources
Vol. 40, Issue 2
31 Mar 2005
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On the Validity of Econometric Techniques with Weak Instruments
Luiz M. Cruz, Marcelo J. Moreira
Journal of Human Resources Mar 2005, 40 (2) 393-410; DOI: 10.3368/jhr.40.2.393

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On the Validity of Econometric Techniques with Weak Instruments
Luiz M. Cruz, Marcelo J. Moreira
Journal of Human Resources Mar 2005, 40 (2) 393-410; DOI: 10.3368/jhr.40.2.393
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