Question

Researchers want to determine the effect of moving from a poor neighborhood (defined as a neighbor- hood in which at least 50% of families are poor) on outcomes for children. (a) First, researchers gather data on a representative sample of children in Canada. For each, they estimate two variables: poornhd, which equals 1 if the child lives in a poor neighborhood, and 0 otherwise; and score, their score on a standardized test. They then regress: score Bo+Bipoornhd u Will their estimate of B1 be a consistent estimate of the effect of living in a poor neighborhood on this standardized test? Why or why not? (b) The researchers decide to use instrumental variables. They use parental income parinc as an instrument for poornhả Will this allow them to consistently estimate β?

Answer 1