I have been working on understanding/coding the Heckman 2SLS the past 2 days, and I have one problem I cannot solve. I thought perhaps you might have some insight?
In the second stage of Heckman 2SLS where the inverse mills ratio of my institutional investor equation is included in the estimation of investments, I cannot figure out how to include the institutional investor-recessionary interaction term due to a linearity issue.
I did include "rec" already -- is this basically the same thing as the interaction variable? I ask this because when we set up the second equation, we are imposing institutional investors = 1.
My code is:
proc qlim data = data heckit;
model dumhi = dumsp500 capx q lnat salesgrowth lev / discrete; *selection equation;
model capx q liq salesgrowth vol rec / select(dumhi=1); *equation of interest;
In an OLS or fixed effects model, I would estimate the model:
capx = dumhi rec rec*dumhi q liq salesgrowth vol
So, does rec in the Heckman model essentially tell me the same thing as rec*dumhi since we are imposing dumhi=1? Or am I not clear in my understanding of the model???