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Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term

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  • Olena Nizalova

    ()
    (University of Kent, Kyiv School of Economics)

  • Irina Murtazashvili

    ()
    (Drexel Universit)

Abstract

Whether interested in the differential impact of a particular factor in various institutional settings or in the heterogeneous effect of policy or random experiment, the empirical researcher confronts a problem if the factor of interest is correlated with an omitted variable. This paper presents the circumstances under which it is possible to arrive at a consistent estimate of the mentioned effect. We find that if the source of heterogeneity and omitted variable are jointly independent of policy or treatment, then the OLS estimate on the interaction term between the treatment and endogenous factor turns out to be consistent.

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File URL: http://repec.kse.org.ua/pdf/KSE_dp37.pdf
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Bibliographic Info

Paper provided by Kyiv School of Economics in its series Discussion Papers with number 37.

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Date of creation: Mar 2011
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Handle: RePEc:kse:dpaper:37

Note: Revised and resubmitted to the Journal of Econometric Methods
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Keywords: treatment effect; heterogeneity; policy evaluation; random experiments; omitted variable bias;

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References

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  1. Banerjee, Abhijit & Cole, Shawn & Duflo, Esther & Linden, Leigh, 2006. "Remedying Education: Evidence from Two Randomized Experiments in India," CEPR Discussion Papers 5446, C.E.P.R. Discussion Papers.
  2. Paul Glewwe & Michael Kremer & Sylvie Moulin, 2007. "Many Children Left Behind? Textbooks and Test Scores in Kenya," NBER Working Papers 13300, National Bureau of Economic Research, Inc.
  3. Blank, Rebecca M, 1991. "The Effects of Double-Blind versus Single-Blind Reviewing: Experimental Evidence from The American Economic Review," American Economic Review, American Economic Association, vol. 81(5), pages 1041-67, December.
  4. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February.
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Cited by:
  1. Bun, Maurice J.G. & Harrison, Teresa D., 2014. "OLS and IV estimation of regression models including endogenous interaction terms," School of Economics Working Paper Series 2014-3, LeBow College of Business, Drexel University.
  2. Axel Dreher & Anna Minasyan & Peter Nunnenkamp, 2013. "Government Ideology in Donor and Recipient Countries: Does Political Proximity Matter for the Effectiveness of Aid?," Kiel Working Papers 1870, Kiel Institute for the World Economy.
  3. Ippolito, Filippo & Ozdagli, Ali K. & Perez, Ander, 2013. "Is bank debt special for the transmission of monetary policy? Evidence from the stock market," Working Papers 13-17, Federal Reserve Bank of Boston.
  4. Filippo Ippolito & Ali K. Ozdagli & Ander PĂ©rez Orive, 2013. "Is bank debt special for the transmission of monetary policy? Evidence from the stock market," Economics Working Papers 1384, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Axel Dreher & Vera Eichenauer & Kai Gehring, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo Group Munich.
  6. Filippo Ippolito & Ali K. Ozdagli & Ander Perez, 2013. "Is Bank Debt Special for the Transmission of Monetary Policy? Evidence from the Stock Market," Working Papers 721, Barcelona Graduate School of Economics.

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