Policy Evaluation with Nonorthogonal Instruments : Evidence from China's Family Planning

This paper revisits the long-standing quantity-quality (QQ) tradeoff hypothesis. Extant research uses exogenous variations in family size for the QQ tradeoff estimation, including twinning, gender composition, and family planning. A scrutiny of China's family planning enforcement indicates that birth control policy instruments are invalid. I develop a novel simulated instrumental variable (SIV) approach to rectify nonorthogonal instruments. When re-evaluating the QQ tradeoff, the SIV rectifies a 25%-50% downward bias in the conventional IV approach. The SIV suggests that those with more siblings perform superior in terms of socioeconomic status and no worse in terms of health status and psychometric assessment