IV Quantile Regression for Group-Level Treatments, with an Application to the Distributional Effects of Trade

58 Pages Posted: 23 Mar 2015 Last revised: 22 Dec 2021

See all articles by Denis Chetverikov

Denis Chetverikov

University of California, Los Angeles (UCLA) - Department of Economics

Bradley Larsen

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); eBay Research Labs

Christopher Palmer

MIT Sloan; National Bureau of Economic Research (NBER)

Date Written: March 2015

Abstract

We present a methodology for estimating the distributional effects of an endogenous treatment that varies at the group level when there are group-level unobservables, a quantile extension of Hausman and Taylor (1981). Because of the presence of group-level unobservables, standard quantile regression techniques are inconsistent in our setting even if the treatment is independent of unobservables. In contrast, our estimation technique is consistent as well as computationally simple, consisting of group-by-group quantile regression followed by two-stage least squares. Using the Bahadur representation of quantile estimators, we derive weak conditions on the growth of the number of observations per group that are sufficient for consistency and asymptotic zero-mean normality of our estimator. As in Hausman and Taylor (1981), micro-level covariates can be used as internal instruments for the endogenous group-level treatment if they satisfy relevance and exogeneity conditions. An empirical application indicates that low-wage earners in the US from 1990--2007 were significantly more affected by increased Chinese import competition than high-wage earners. Our approach applies to a broad range of settings in labor, industrial organization, trade, public finance, and other applied fields.

Suggested Citation

Chetverikov, Denis and Larsen, Bradley and Palmer, Christopher, IV Quantile Regression for Group-Level Treatments, with an Application to the Distributional Effects of Trade (March 2015). NBER Working Paper No. w21033, Available at SSRN: https://ssrn.com/abstract=2583582

Denis Chetverikov (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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Bradley Larsen

Stanford University - Department of Economics ( email )

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HOME PAGE: http://www.stanford.edu/~bjlarsen/research.html

National Bureau of Economic Research (NBER) ( email )

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eBay Research Labs ( email )

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Christopher Palmer

MIT Sloan ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

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