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

Author

Listed:
  • 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.

Suggested Citation

  • Olena Nizalova & Irina Murtazashvili, 2011. "Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term," Discussion Papers 37, Kyiv School of Economics.
  • Handle: RePEc:kse:dpaper:37
    Note: Revised and resubmitted to the Journal of Econometric Methods
    as

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    File URL: http://repec.kse.org.ua/pdf/KSE_dp37.pdf
    File Function: Revised version, June 2014
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    References listed on IDEAS

    as
    1. 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.
    2. Sylvie Moulin & Michael Kremer & Paul Glewwe, 2009. "Many Children Left Behind? Textbooks and Test Scores in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 112-135, January.
    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 1041-1067, December.
    4. Abhijit V. Banerjee & Shawn Cole & Esther Duflo & Leigh Linden, 2007. "Remedying Education: Evidence from Two Randomized Experiments in India," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1235-1264.
    Full references (including those not matched with items on IDEAS)

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    2. Langlotz, Sarah & Dreher, Axel, 2015. "Aid and growth. New evidence using an excludable instrument," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112878, Verein für Socialpolitik / German Economic Association.
    3. Dreher, Axel & Minasyan, Anna & Nunnenkamp, Peter, 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 (IfW).
    4. Bjørnskov, Christian & Rode, Martin, 2016. "And Yet It Grows: Crisis, Ideology, and Interventionist Policy Ratchets," Working Paper Series 1135, Research Institute of Industrial Economics.
    5. Axel Dreher & Shu Yu, 2016. "The Alma Mater Effect - Does Foreign Education of Political Leaders Influence Foreign Policy?," CESifo Working Paper Series 5871, CESifo Group Munich.
    6. Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley C. & Raschky, Paul A. & Tierney, Michael J., 2015. "Aid on Demand: African Leaders and the Geography of China's Foreign Assistance," CEPR Discussion Papers 10704, C.E.P.R. Discussion Papers.
    7. Filippo Ippolito & Ali K. Ozdagli & Ander Pérez 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.
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    9. Axel Dreher & Vera Eichenauer & Kai Gehring, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo Group Munich.
    10. Di Falco, Salvatore & Feri, Francesco & Pin, Paolo & Vollenweider, Xavier, 2016. "Ties that Bind: Network Redistributive Pressure and Economic Decisions in Village Economies," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236345, Agricultural and Applied Economics Association.
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    12. Bergh, Andreas & Bjørnskov, Christian, 2016. "Burying the Bumblebee Once and for All:," Working Paper Series 1119, Research Institute of Industrial Economics.
    13. Kersting, Erasmus K. & Kilby, Christopher, 2016. "With a little help from my friends: Global electioneering and World Bank lending," Journal of Development Economics, Elsevier, vol. 121(C), pages 153-165.
    14. Kleemann, Linda & Nunnenkamp, Peter & Thiele, Rainer, 2014. "Gender inequality, female leadership, and aid allocation: A panel analysis of aid for education," WIDER Working Paper Series 010, World Institute for Development Economic Research (UNU-WIDER).
    15. Dreher, Axel & Minasyan, Anna & Nunnenkamp, Peter, 2015. "Government ideology in donor and recipient countries: Does ideological proximity matter for the effectiveness of aid?," European Economic Review, Elsevier, vol. 79(C), pages 80-92.
    16. 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.
    17. Gopi Shah Goda & Matthew R. Levy & Colleen Flaherty Manchester & Aaron Sojourner & Joshua Tasoff, 2015. "The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings," NBER Working Papers 21482, National Bureau of Economic Research, Inc.
    18. repec:eee:finsta:v:33:y:2017:i:c:p:1-22 is not listed on IDEAS
    19. Anna Minasyan, 2016. "US Aid, US educated Leaders and Economic Ideology," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 215, Courant Research Centre PEG.
    20. repec:eee:deveco:v:131:y:2018:i:c:p:123-131 is not listed on IDEAS
    21. Brunello, Giorgio & Lodigiani, Elisabetta & Rocco, Lorenzo, 2017. "Does Low Skilled Immigration Cause Human Capital Polarization? Evidence from Italian Provinces," IZA Discussion Papers 11062, Institute for the Study of Labor (IZA).
    22. Lang, Valentin, 2016. "The Economics of the Democratic Deficit: The Effect of IMF Programs on Inequality," Working Papers 0617, University of Heidelberg, Department of Economics.
    23. repec:bla:coecpo:v:35:y:2017:i:3:p:518-531 is not listed on IDEAS
    24. Eichenauer, Vera Z. & Fuchs, Andreas & Brueckner, Lutz, 2018. "The Effects of Trade, Aid, and Investment on China's Image in Developing Countries," Working Papers 0646, University of Heidelberg, Department of Economics.

    More about this item

    Keywords

    treatment effect; heterogeneity; policy evaluation; random experiments; omitted variable bias;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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