Graphical Diagnostics of Endogeneity
Umea Economic Studies Working Paper No. 553
21 Pages Posted: 9 May 2001
Date Written: February 2001
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Chinese Public Finance Framework: A Critical Analysis
By Robert W. Scapens and Chunlei Yang
The Improved Information Environment as a Key Rationale for Freedom of Information Reform in China
By Weibing Xiao
Institutional Quality and Fiscal Transparency
By Nicolo Andreula, Alberto Chong, ...
What Drives Fiscal Transparency? Evidence from Provincial Governments in China
By Liang Ma and Jiannan Wu
Does Government Performance Really Matter? An Event History Analysis of the Promotion of Provincial Leaders in China
By Jiannan Wu and Liang Ma
Budget Transparency in Local Governments: An Empirical Analysis
By José Caamaño-alegre, Santiago Lago-peñas, ...