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1468 andrew gelman stats-2012-08-24-Multilevel modeling and instrumental variables


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Introduction: Terence Teo writes: I was wondering if multilevel models can be used as an alternative to 2SLS or IV models to deal with (i) endogeneity and (ii) selection problems. More concretely, I am trying to assess the impact of investment treaties on foreign investment. Aside from the fact that foreign investment is correlated over time, it may be the case that countries that already receive sufficient amounts of foreign investment need not sign treaties, and countries that sign treaties are those that need foreign investment in the first place. Countries thus “select” into treatment; treaty signing is non-random. As such, I argue that to properly estimate the impact of treaties on investment, we must model the determinants of treaty signing. I [Teo] am currently modeling this as two separate models: (1) regress predictors on likelihood of treaty signing, (2) regress treaty (with interactions, etc) on investment (I’ve thought of using propensity score matching for this part of the model)


Summary: the most important sentenses genereted by tfidf model

sentIndex sentText sentNum sentScore

1 Terence Teo writes: I was wondering if multilevel models can be used as an alternative to 2SLS or IV models to deal with (i) endogeneity and (ii) selection problems. [sent-1, score-0.463]

2 More concretely, I am trying to assess the impact of investment treaties on foreign investment. [sent-2, score-1.264]

3 Aside from the fact that foreign investment is correlated over time, it may be the case that countries that already receive sufficient amounts of foreign investment need not sign treaties, and countries that sign treaties are those that need foreign investment in the first place. [sent-3, score-3.144]

4 Countries thus “select” into treatment; treaty signing is non-random. [sent-4, score-0.702]

5 As such, I argue that to properly estimate the impact of treaties on investment, we must model the determinants of treaty signing. [sent-5, score-1.207]

6 I [Teo] am currently modeling this as two separate models: (1) regress predictors on likelihood of treaty signing, (2) regress treaty (with interactions, etc) on investment (I’ve thought of using propensity score matching for this part of the model). [sent-6, score-1.832]

7 Here is the (non-nested) multilevel model I have in mind: investment_{i,t} = investment_{i,t-1} + treaty_{j,i,t-1} + X_{i,t-1} + error_{i,t-1} treaty_{j,t} = political institutions_{j, t-1} + X_{j,t-1} + error_{j,t-1} Can I do this? [sent-8, score-0.224]

8 Would a Bayesian framework along the lines of chapter 16 in your book work? [sent-9, score-0.094]

9 My reply: first off, Jennifer’s the causal expert, not me, so my response will be kinda vague. [sent-10, score-0.067]

10 Second, don’t you need some sort of instrument for the treaty signing? [sent-11, score-0.597]

11 Beyond this, if you are working in a more traditional instrumental variables framework, I suspect that multilevel models will be useful for all the usual reasons. [sent-13, score-0.314]


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