Graphical Diagnostics of Endogeneity

Umea Economic Studies Working Paper No. 553

21 Pages Posted: 9 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: February 2001

Abstract

We show that in sorting cross-sectional data, the endogeneity of a variable may be successfully detected by graphically examining the cumulative sum of the recursive residuals. An interesting case arises with a continuous or ordered (e.g., years of schooling) endogenous variable. Then, a graphical test for misspecification due to endogeneity (e.g., self selection) can be obtained without instrumental variables. Moreover, the sign of the bias implied by this endogeneity becomes deducible through such graphs.

Keywords: CUSUM plot, Recursive residuals, Return to schooling, Self selection

JEL Classification: C32, C52

Suggested Citation

de Luna, Xavier and Johansson, Per, Graphical Diagnostics of Endogeneity (February 2001). Umea Economic Studies Working Paper No. 553, Available at SSRN: https://ssrn.com/abstract=269351 or http://dx.doi.org/10.2139/ssrn.269351

Xavier De Luna

University of Umea - Department of Economics ( email )

Umeå 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
148
Abstract Views
1,216
rank
246,769
PlumX Metrics