A large policy debate revolves about the causes and consequences of child labour. Extensive child labour at early ages is often considered as harmful and there is substantial theoretical and empirical interest in determining the causes for child labour. Therefore, we would like to analyze the relationship between wealth (e.g. the number of cattle or other assets) and child labour, using household data collected in several villages in rural Africa. Suppose we have data on Y and X iv where Y, is the number of hours worked by child i in village v and X, is family wealth. a) Explain how this is related to the concept of Panel Data. b) Explain how you could estimate the relationship between wealth and child labour using pooled OLS, Random Effect (RE), Fixed Effect (FE) estimators. Write down the estimation equations and the conditions needed to guarantee consistency. Compare the FE and the OLS estimators: Is either of these two estimators based on weaker assumptions than the other? c) Describe one example how conventional exogeneity (often called "contempora- neous" exogeneity) could be violated. Could you also find an example how strict exogeneity but not conventional exogeneity could be violated?
A large policy debate revolves about the causes and consequences of child labour. Extensive child labour at early ages is often considered as harmful and there is substantial theoretical and empirical interest in determining the causes for child labour. Therefore, we would like to analyze the relationship between wealth (e.g. the number of cattle or other assets) and child labour, using household data collected in several villages in rural Africa. Suppose we have data on Y and X iv where Y, is the number of hours worked by child i in village v and X, is family wealth.
a) Explain how this is related to the concept of Panel Data.
b) Explain how you could estimate the relationship between wealth and child labour using pooled OLS, Random Effect (RE), Fixed Effect (FE) estimators. Write down the estimation equations and the conditions needed to guarantee consistency. Compare the FE and the OLS estimators: Is either of these two estimators based on weaker assumptions than the other?
c) Describe one example how conventional exogeneity (often called "contempora- neous" exogeneity) could be violated. Could you also find an example how strict exogeneity but not conventional exogeneity could be violated?
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