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- interpreting dummy variable in Heckman 2SLS

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02-18-2017 02:02 PM

**I APOLIGIZE FOR DOUBLE POSTING THIS QUESTION,** but I am getting no bites on the other board. My question is regarding interpreting the output of a Heckman 2SLS.

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;

run;

In an OLS or fixed effects model, I would estimate the model:

capx = dumhi rec __rec*dumhi__ q liq salesgrowth vol

where the coefficient on the interaction term is the coefficient of interest.

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. No?

'

Any help or thoughts is appreciated.

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02-18-2017 05:25 PM

It's a statistical methodology question, you should probably post on CrossValidated (stats.stackexchange.com) as well.

There are several very smart statisticians on here, but the statistical questions have a longer response time.

I'm going to move this to statisical procedure forum though it rarely affects response time.

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02-18-2017 05:33 PM

Thank you for the direction, Reeza!!!