Abstract:
Testing Endogeneity in a Regression Model: An Application of
Instrumental Variable Estimation
A goal of economic research is to determine the causal relationship among
economic variables. This paper introduces the Hausman specification test of
endogeneity, for testing the independence between the stochastic regressor
and the disturbances. We describe alternative approaches to estimating
simultaneous-equation systems and we present an empirical example of
economic growth and health that finds health expenditure endogenous. We use
different sets of instruments as exogenous determinants of health in an
instrumental variables estimation.