Open AccessEstimating the Returns to Schooling: A Comparison of Fixed Effects and Selection Effects Models for Twins
Author(s) -
Adelaide Agyeman
Publication year - 2020
Language(s) - English
Resource type - Journals
ISSN - 0855-1448
DOI - 10.4314/gjs.v61i1.2
Subject(s) - fixed effects model , econometrics , goodness of fit , earnings , selection (genetic algorithm) , economics , model selection , statistics , regression analysis , regression , set (abstract data type) , econometric model , mathematics , panel data , computer science , accounting , artificial intelligence , programming language
Strong empirical links exist between the number of years spent schooling and earnings. However, the relationship may be masked due to the effect of unobserved factors that influence both wages and schooling. Two of the main econometric models, namely fixed-effects and selection-effects, used to analyse returns to schooling were compared using monozygotic and dizygotic twins’ datasets in Ghana. The efficiency of the models was assessed based on the standard errors associated with the return to schooling estimates. Goodness of fit measures was used as a basis for comparison of the performance of the two models. The results revealed that based on their standard errors, the regression estimates from the selection effects model (MZ = 0.1014±0.0197; DZ = 0.0947±0.0095) were more efficient than the regression estimates from the fixed-effects model (MZ = 0.1115±0.0353; DZ = 0.082±0.0127). However, the AICc values of the fixed effects model (MZAICc = 57.8 and DZAICc = 105.4) were smaller than the AICc values of the selection effects model (MZAICc = 151.6 and DZAICc = 221.6). Findings from the study indicate that, although both models produced consistent estimates of the economic returns to schooling, the fixed effects model provided a better fit to the twins’ data set.