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Instrumental Variables: Conceptual Issues and an Application Considering High School Course Taking

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Higher Education: Handbook of Theory and Research

Part of the book series: Higher Education: Handbook of Theory and Research ((HATR,volume 28))

Abstract

Policymakers are becoming increasingly adamant that the research they use to evaluate educational interventions, practices, and programs can support statements about cause and effect. An instrumental variables (IV) estimation approach, which has historically been employed by economists, can be utilized to make causal statements regarding a predictor and an outcome when randomized trials are not feasible. In this chapter, we provide an overview of the IV approach as we explore the causal relationship between taking Algebra II in high school and degree attainment in college. We discuss concepts and terminology related to conducting experimental and quasi-experimental work, present the assumptions that should be met by an IV before a researcher can use it to make causal inferences, and demonstrate several IV estimation strategies. Additionally, we provide the reader with annotated Stata code to facilitate the application of this underutilized methodological approach in higher education research.

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Notes

  1. 1.

    We use the term course taking intensity throughout the chapter to refer to the orientation of the courses students take. We use this term to be inclusive of the course taking literature, as researchers operationalize course taking in multiple ways. Examples include the highest level of coursework or number of Carnegie units taken in a particular subject (e.g., Rose & Betts, 2001); participating in curricular “tracks” (e.g., Fletcher & Zirkle, 2009); the number of college preparatory courses taken such as honors, AP, or IB (e.g., Geiser & Santelices, 2004); and indices of course taking that combine several of the aforementioned measures (e.g., Attewell & Domina, 2008).

  2. 2.

    We use the term standard regression in the literature review to refer to nonexperimental studies that employ OLS or nonlinear regression without controls for student self-selection into coursework. Following the introduction of terminology related to causal inference, subsequent sections will employ the term naïve in reference to such studies.

  3. 3.

    Cellini (2008) provides an excellent overview of omitted variable bias in education research. She also points to Angrist and Krueger (2001) for further elaboration on this topic.

  4. 4.

    Studies that controlled for urbanicity: Bishop and Mane (2004) and Rose and Betts (2001). In Toolbox Revisited, Adelman (2006) controls for whether students attended urban high schools in several regressions that were not discussed in this literature review.

  5. 5.

    The ELS:02 third follow-up survey is scheduled to occur during Summer 2012.

  6. 6.

    See Holland (1986) for a much more complete discussion of Rubin causal model and the concept of the counterfactual.

  7. 7.

    Murnane and Willett (2011) provide an excellent description and visual representation of a 2SLS framework in Chapter 10 of their Methods Matter text.

  8. 8.

    Schooling is only permitted in period 1 within our model; therefore, \( {h}_{w}^{t}\)only ever takes on the form of \( {h}_{w}^{1}\).

  9. 9.

    Whereas mathematics test scores are not the only potential measure of academic performance, they have been shown to be a strong predictor of postsecondary outcomes (Deke & Haimson, 2006) and are likely to have the highest correlation with our treatment variable. Therefore, the inclusion of this variable is likely to have the greatest impact on omitted variable bias related to academic performance.

  10. 10.

    Stock and Yogo (2005) provide another method for evaluating the strength of instruments through the use of first stage estimates. However, those test statistics are not available in Stata when robust standard errors are used to account for survey design (as in our analysis). See StataCorp (2009, p. 765) for aid in interpreting these statistics.

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Acknowledgements

The authors would like to thank Brian McCall and Stephen Porter for their helpful suggestions and feedback. All errors and omissions are, however, our own.

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Appendix: Stata syntax

Appendix: Stata syntax

/*This file will run all analysis for the IV chapter on the ELS data. The file for the NELS data is nearly identical, simply replacing the dependent variable in each model from persistence to bachelor’s degree attainment*/

/*First create global macros for the models. This allows us to insert a large number of variables into our models without having to repeatedly type the variable names.*/

/***Becausethe data used for this analysis are restricted, we will not include actual variable names,but instead will provide alternate names for the variables used***/

/*Exogenous independent variables*/

global exog1 “mathquart2 mathquart3 mathquart4 male black asian_amhisp_amnative_ammixedoth ses_q2 ses_q3 ses_q4 mom_hs mom_att2yr mom_aa mom_att4yr mom_bamom_mamom_phd born_84 born_85 born_86 born_87 unemploy_rate2004 i.hsstate”

/*Endogenous independent variable*/

global endo1 “algebra_2”

/*Instrumental variables*/

global inst1 “unemploy_rate2001 age_16_urate age_16”

/*BIVARIATE CORRELATIONS AMONG ALL VARIABLES. Here we examine the bivariate relationships between each of our variables*/

corpse_att algebra_2 unemploy_rate2001 age_16_urate age_16 mathquart2 mathquart3 mathquart4 male black asian_amhisp_amnative_ammixedoth ses_q2 ses_q3 ses_q4 mom_hs mom_att2yr mom_aa mom_att4yr mom_bamom_mamom_phd unemploy_rate2004

spearmanpse_att algebra_2 unemploy_rate2001 age_16_urate age_16 mathquart2 mathquart3 mathquart4 male black asian_amhisp_amnative_ammixedoth ses_q2 ses_q3 ses_q4 mom_hs mom_att2yr mom_aa mom_att4yr mom_bamom_mamom_phd unemploy_rate2004

/*Multivariate models of first to second-year persistence*/

/***BASELINE OR NAIVE MODEL***/

/*Linear Probability Model (LPM)*/

reg persist $endo1 $exog1, robust

/*We use the ‘eststo’ command to save the estimates from each of our final modelswhich we use later to create a publication-ready table*/

eststo OLSpersist

/***INSTRUMENTAL VARIABLES ESTIMATORS***/

*Two Stage Least Squares (2SLS)

/*First we estimate the model, using the global macros from above*/

ivregress 2sls persist $exog1 ($endo1 = $inst1), vce(robust)

/*Here we examine the model fit statistics from the first stage model in the 2SLS approach. The ‘estatfirststage’ command provides R-squared and Adjusted R-squared statistics along with partial R-squared statistics for and F tests with significance levels for each endogenous variable*/

estat firststage

/*Here we examine the overidentification tests to evaluate the exclusion restriction for our instruments. To confirm our expectation that the variables are properly excluded from the second stage model. If that is the case these test statistics will not be statistically significant*/

estat overid

/*Next we examine tests of the endogeneity of our Algebra II variable. If our variable of interest is in factendogenous, then these statistics will be statistically significant*/

estat endogenous

/*Here we store the estimates from the 2SLS model to be used to create a publication-ready table which will also allow us to compare results across the estimated models.*/

eststo SLSpersist

*Limited Information Maximum Likelihood (LIML)

/*Estimating the model*/

ivregressliml persist $exog1 ($endo1 = $inst1), vce(robust)

/*Evaluatingthe first stage model statistics*/

estatfirststage

/*Overidentification tests*/

estat overid

/*Storing estimates*/

eststo LIMLpersist

*Generalized Method of Moments (GMM)

/*Running the model*/

ivregressgmm persist $exog1 ($endo1 = $inst1), vce(robust)

/*Againexamine the first stage statistics*/

estat firststage

/*Overidentification tests*/

estat overid

/*Tests for endogeneity*/

estat endogenous

/*Storing Estimates*/

eststo GMMpersist

/*Control function with LPM and Bootstrap*/

/*In order to bootstrap the standard errors for these estimates, we need to first write a program that will run the first stage regression, save the residuals, and then include those residuals as controls in the second stage regression */

capture program drop lpmcf

program lpmcf

quietly {

/*estimate the first stage LPM*/

reg algebra_2 $exog1 $inst1, robust

/*just in case we already saved these variables we drop them*/

capture drop alg2_resid_els

/*store the residuals from the first stage */

predict alg2_resid_els, resid

/*estimate the second stage LPM*/

reg persist $endo1 $exog1 alg2_resid_els, robust

}

end

/*Now we estimate a control function model with an LPM second stage on 250 bootstrapped samples and estimate our standard errors from that*/

bootstrap _b, seed(1) r(250): lpmcf

/*Store the estimates*/

eststo CFLPMpersist

*Control function with Logit and Bootstrap

/*This program estimates the first and second stages then we conduct a bootstrap to estimate the proper standard errors*/

capture program drop logitcf

program logitcf

quietly{

/*estimate the first stage*/

reg algebra_2 $exog1 $inst1, robust

capture drop alg2_resid_els_logit

/*store residuals from first stage*/

predict alg2_resid_els_logit, resid

/*estimate the second stage logit*/

logit persist $endo1 $exog1 alg2_resid_els_logit, vce(robust)

}

end

/*Now we estimate a control function model with a logit second stage on 250 bootstrapped samples and produce standard errors from that process*/

bootstrap _b, seed(1) r(250): logitcf

/*Because the coefficients produced through Stata’s logit routine are not directly comparable to those from each of the other models that are linear probability models in the second stage, we use Stata’s ‘margins’ command to convertlogit coefficients into comparable marginal effects*/

margins, dydx(*)

/*Store the results*/

eststo CFLogitpersist

/*Finally we employ the ‘esttab’ routine to create a publication-ready table of marginal effects (b) and significance measures (p)*/

esttabOLSpersistSLSpersistLIMLpersistGMMpersistCFLPMpersistCFLogitpersist, b(3) p(3) not wide plain

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Bielby, R.M., House, E., Flaster, A., DesJardins, S.L. (2013). Instrumental Variables: Conceptual Issues and an Application Considering High School Course Taking. In: Paulsen, M. (eds) Higher Education: Handbook of Theory and Research. Higher Education: Handbook of Theory and Research, vol 28. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-5836-0_6

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