Some Specification Tests for Probit Models Estimated on Panel Data

Abstract

Generalized score and Wald tests are proposed to examine certain aspects of the specification of panel probit models. The procedures used to detect misspecifications, such as omitted and superfluous variables, heteroscedasticity, nonnormality, and random-coefficient variations, are designed specifically for the case in which the model is estimated by sequential methods. The finite-sample distributions of the test statistics in correctly and incorrectly specified models are investigated by a Monte Carlo study. Applying the proposed procedures to the analysis of the determinants of self-employment in Germany shows that the suggested specification checks are useful instruments in applied work.

KEY WORDS:

• Binary choice models
• Limited dependent variable models
• Longitudinal data
• Nonlinear models
• Random-effects models
• Testing