Dear Statalist Community,
I am trying to run a 2SLS using ivreg2. My dependent variable (Y) is voteshare by municipality, and my endogenous variable (X) is number of workers in a municipality. However, my instrumental variable (Z) is a dummy variable corresponding to risk of worker deaths. Municipalities with higher risk of deaths would =1; and lower risk of deaths=0. My data is not panel data, it's simply cross-sectional, I just have data for one period and multiple municipalities (N=6,497).
I noticed that when I included a province dummy, the following regression wouldn't run:
ivreg2 voteshare `controls' prov_dummy*(workers=deaths_dummy), cluster(agrarianzone) first
I would get the error:
"Warning - collinearities detected
Vars dropped: prov_dummy87 deaths_dummy
equation not identified; must have at least as many instruments
not in the regression as there are instrumented variables"
I believe this error may be occurring because I am possibly running a "forbidden regression", considering that my instrument is a dummy. I tried to read Angrist and Pischke's section on "Forbidden Regressions" in MHE, but I don't know if there is a way out of this problem without having to operationalize a new continuous instrument.
Is there any way I could still use my dummy instrument? Is it possible to operationalize a dummy IV?
Thank you so much for your precious help in advance.
Best,
Cat
I am trying to run a 2SLS using ivreg2. My dependent variable (Y) is voteshare by municipality, and my endogenous variable (X) is number of workers in a municipality. However, my instrumental variable (Z) is a dummy variable corresponding to risk of worker deaths. Municipalities with higher risk of deaths would =1; and lower risk of deaths=0. My data is not panel data, it's simply cross-sectional, I just have data for one period and multiple municipalities (N=6,497).
I noticed that when I included a province dummy, the following regression wouldn't run:
ivreg2 voteshare `controls' prov_dummy*(workers=deaths_dummy), cluster(agrarianzone) first
I would get the error:
"Warning - collinearities detected
Vars dropped: prov_dummy87 deaths_dummy
equation not identified; must have at least as many instruments
not in the regression as there are instrumented variables"
I believe this error may be occurring because I am possibly running a "forbidden regression", considering that my instrument is a dummy. I tried to read Angrist and Pischke's section on "Forbidden Regressions" in MHE, but I don't know if there is a way out of this problem without having to operationalize a new continuous instrument.
Is there any way I could still use my dummy instrument? Is it possible to operationalize a dummy IV?
Thank you so much for your precious help in advance.
Best,
Cat
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