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Graphical diagnostics of endogeneity

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Author Info

  • de Luna, Xavier

    ()
    (Department of Economics, Umeå University)

  • Johansson, Per

    ()
    (Office of Labour Market Policy Evaluation)

Abstract

We show that in sorting cross-sectional data, the endogeneity of a variable may be successfully detected by graphically examining the cumulative sum of the recursive residuals. An interesting case arises with a continuous or ordered (e.g., years of schooling) endogenous variable. Then, a graphical test for misspecification due to endogeneity (e.g., self selection) can be obtained without instrumental variables. Moreover, the sign of the bias implied by this endogeneity becomes deducible through such graphs.

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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 553.

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Length: 21 pages
Date of creation: 06 Feb 2001
Date of revision:
Handle: RePEc:hhs:umnees:0553

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Related research

Keywords: CUSUM plot; Recursive residuals; Return to schooling; Self selection;

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Cited by:
  1. de Luna, Xavier & Johansson, Per, 2006. "Exogeneity in structural equation models," Journal of Econometrics, Elsevier, vol. 132(2), pages 527-543, June.
  2. José Caamaño-Alegre & Santiago Lago-Peñas & Francisco Reyes-Santias & Aurora Santiago-Boubeta, 2011. "Budget Transparency in Local Governments: An Empirical Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1102, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

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