Testing Exogeneity in Cross-Section Regression by Sorting Data

April 18, 2000

32 Pages Posted: 7 May 2001

See all articles by Xavier de Luna

Xavier de Luna

University of Umea - Department of Economics

Per Johansson

IFAU - Institute for Labour Market Policy Evaluation; Uppsala University - Department of Economics; IZA Institute of Labor Economics

Date Written: IFAU Working Paper No. 2000:2

Abstract

We introduce a framework to test for the exogeneity of a variable in a regression based on cross-sectional data. By sorting data with respect to a function (sorting score) of known exogenous variables, it is possible to utilize a battery of tools originally developed to detect model misspecification in a time series context. Thus, we are able to propose graphical tools for the identification of endogeneity, as well as formal tests, including a simple-to-use Chow test, needing a minimum of assumptions on the alternative endogeneity hypothesis. Models of endogenous treatment and selectivity are utilized to illustrate the methods. With Monte Carlo experiments, including continuous and discrete response cases, we compare small sample performances with existing tests for endogeneity.

Keywords: Chow test, endogenous treatment, propensity score, recursive residuals, sample selection, sorting score.

Suggested Citation

de Luna, Xavier and Johansson, Per, Testing Exogeneity in Cross-Section Regression by Sorting Data (IFAU Working Paper No. 2000:2). April 18, 2000, Available at SSRN: https://ssrn.com/abstract=269154 or http://dx.doi.org/10.2139/ssrn.269154

Xavier De Luna

University of Umea - Department of Economics ( email )

UmeƄ University
Umea, SE - 90187
Sweden

Per Johansson (Contact Author)

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden
+ 46 18 471 70 86 (Phone)
+ 46 18 471 70 71 (Fax)

Uppsala University - Department of Economics ( email )

Uppsala, 751 20
Sweden

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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