Testing for a common latent variable in a linear regression
AbstractWe present a test of the hypothesis that a subset of the regressors are all proxying for the same latent variable. This issue will be of interest in cases where there are several correlated measures of elusive concepts such as misgovernance or corruption; in analyses where key variables such as income are not measured at all and one is forced to rely on various proxies; and where the key regressors are badly measured and one is trying to extract a stronger signal from the regression by adding additional proxies as suggested by Lubotsky and Wittenberg (2006). We apply this test in three contexts, each characterised by a different estimation challenge arising from data limitations. We reexamine Mauro's (1995) use of three institutional quality measures in his study of corruption and growth. Here several variables, each potentially measured with error, may all be proxies for a single factor: the quality of governance. Our test suggests that the latent variable is driven primarily by the “red tape” measure, rather than the “corruption” variable on which Mauro focuses. Secondly, we look at the correlates of body mass among black South African women. The key variable of interest, namely “wealth” is not measured at all. Consequently we construct an index from a series of asset variables as suggested by Filmer and Pritchett (2001). Our test shows that some assets have independent impacts on the dependent variable. Once this is recognised the “asset index” comes apart. Finally we analyse the determinants of sleep among young South Africans. The income variable in the survey is badly measured and we supplement it with asset proxies. The test again suggests that some assets are not proxying for the badly measured income variable. We can nevertheless get a substantially stronger signal on the income variable.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2550.
Date of creation: 31 Mar 2007
Date of revision:
measurement error; proxy variables; specification test; asset index;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fedderke, Johannes & Klitgaard, Robert, 1998. "Economic Growth and Social Indicators: An Exploratory Analysis," Economic Development and Cultural Change, University of Chicago Press, vol. 46(3), pages 455-89, April.
- Barry P. Bosworth & Susan M. Collins, 2003. "The Empirics of Growth: An Update," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 113-206.
- Biddle, Jeff E & Hamermesh, Daniel S, 1990.
"Sleep and the Allocation of Time,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages 922-43, October.
- Darren Lubotsky & Martin Wittenberg, 2001.
"Interpretation of Regressions with Multiple Proxies,"
- Darren Lubotsky & Martin Wittenberg, 2006. "Interpretation of Regressions with Multiple Proxies," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 549-562, August.
- Darren Lubotsky & Martin Wittenberg, 2001. "Interpretation of Regressions with Multiple Proxies," Working Papers 836, Princeton University, Department of Economics, Industrial Relations Section..
- Anne Case & Angus Deaton, 2005.
"Health and Wealth among the Poor: India and South Africa Compared,"
American Economic Review,
American Economic Association, vol. 95(2), pages 229-233, May.
- Anne Case & Angus Deaton, 2005. "Health and wealth among the poor: India and South Africa compared," Working Papers 236, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
- Anne Case & Angus Deaton, 2005. "Health and wealth among the poor: India and South Africa compared," Working Papers 169, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2000.
"The Colonial Origins of Comparative Development: An Empirical Investigation,"
NBER Working Papers
7771, National Bureau of Economic Research, Inc.
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
- Filmer, Deon & Pritchett, Lant, 1998. "Estimating wealth effects without expenditure data - or tears : with an application to educational enrollments in states of India," Policy Research Working Paper Series 1994, The World Bank.
- Szalontai, Gabor, 2006. "The demand for sleep: A South African study," Economic Modelling, Elsevier, vol. 23(5), pages 854-874, September.
- Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
- Martin Wittenberg, 2009.
"Estimating expenditure impacts without expenditure data using asset proxies,"
SALDRU Working Papers
29, Southern Africa Labour and Development Research Unit, University of Cape Town.
- Wittenberg, Martin, 2011. "Estimating expenditure impacts without expenditure data using asset proxies," Economics Letters, Elsevier, vol. 110(2), pages 122-125, February.
- Martin Wittenberg, 2009. "Weighing the value of Asset Proxies: The case of the Body Mass Index in South Africa," SALDRU Working Papers 39, Southern Africa Labour and Development Research Unit, University of Cape Town.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.