Methods of local instrumental variables (LIV) have been quite intensively studied by a series of papers by Heckman and Vytlacil (2000, 2001, 2004). The objective of this research is to apply LIV to several interesting empirical problems in labour economics. In particular, this research aims to study schooling, wages, and inequality taking into the account of heterogeneity, selection, and endogeneity. This will involve developing some new estimation methods that are natural applications of LIV. Specifically, the research project consists of three sub-projects, one on comparative advantage and schooling, another on wage inequality, and the third on female labour supply.