<p>Panel data in of itself cannot solve this problem.</p>
<p>One way to see this is that there may be some omitted variable that influences both. So even if you observe countries/firms over time if there is an omitted variable it will probably co-move as well over time. Same reasoning holds across countries/firms.</p>
<p>One way to solve this and to estimate the true relationship is to come up with some instrument(z) for which an exclusion restriction holds, i.e. that it only influences y through x.</p>

CC BY-SA 4.0
2024-01-02T14:58:29.287Z
Sorry it took some time to reply your answer. I think panel data analysis especially fixed effects model can fix self-selection problem if the bias caused by self-selection can be treated like a fixed effects term($u_i$). And from what I've looked up panel data analysis is the method which is used to deal with such problems.
guest
CC BY-SA 4.0
2023-12-18T16:30:53.090Z
2023-12-18T16:30:53.090Z
stenborg91
<p>Assume that there are two variables <span class="math-container">$x$</span> and <span class="math-container">$y$</span> and they both have trend.<br />
For example,<br />
(case 1) During covid-19, government spending(<span class="math-container">$x$</span>) and inflation(<span class="math-container">$y$</span>) are both increased<br />
(case 2) A productive firm has high labor productivity(<span class="math-container">$x$</span>) and investment(<span class="math-container">$y$</span>)<br />
and of course, they does not represent 100% of the following propositions<br />
due to the self-selection problem:<br />
(case 1) government spending increases prices<br />
(case 2) investment increases labor productivity</p>
<p>When we use times series data we must control this endogeneity.<br />
However if we use panel data this self-selection problem can be solved?<br />
If it is true how it could be possible?</p>

<time-series><paneldata><endogeneity>
Self-selection problem can be solved in panel data analysis?
guest
# Self-selection problem can be solved in panel data analysis?

(Asked by: username_0 on 2023-12-18)

Assume that there are two variables $x$ and $y$ and they both have trend.  
For example,  
(case 1) During covid-19, government spending($x$) and inflation($y$) are both increased  
(case 2) A productive firm has high labor productivity($x$) and investment($y$)  
and of course, they does not represent 100% of the following propositions  
due to the self-selection problem:  
(case 1) government spending increases prices  
(case 2) investment increases labor productivity

When we use times series data we must control this endogeneity.  
However if we use panel data this self-selection problem can be solved?  
If it is true how it could be possible?

**Tags:** time-series, paneldata, endogeneity

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## 1 answers

### Answer by username_1 on 2023-12-18. Score: 1

Panel data in of itself cannot solve this problem.

One way to see this is that there may be some omitted variable that influences both. So even if you observe countries/firms over time if there is an omitted variable it will probably co-move as well over time. Same reasoning holds across countries/firms.

One way to solve this and to estimate the true relationship is to come up with some instrument(z) for which an exclusion restriction holds, i.e. that it only influences y through x.

> **Comments:**
> **username_0**: Sorry it took some time to reply your answer. I think panel data analysis especially fixed effects model can fix self-selection problem if the bias caused by self-selection can be treated like a fixed effects term($u_i$). And from what I've looked up panel data analysis is the method which is used to deal with such problems.  

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