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

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  • Nizalova Olena Y.

    (PSSRU/CHSS, University of Kent, George Allen Wing, Cornwallis Building, Canterbury, Kent, Ct2 7NF)

  • Murtazashvili Irina

    (School of Economics, LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA)

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.

Suggested Citation

  • Nizalova Olena Y. & Murtazashvili Irina, 2016. "Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term," Journal of Econometric Methods, De Gruyter, vol. 5(1), pages 71-77, January.
    • Handle: RePEc:bpj:jecome:v:5:y:2016:i:1:p:71-77:n:2
    DOI: 10.1515/jem-2013-0012
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    More about this item

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments

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