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st: Endogeneity + panel data


From   cs32@sussex.ac.uk
To   statalist@hsphsun2.harvard.edu
Subject   st: Endogeneity + panel data
Date   Sun, 20 Jun 2004 13:08:39 +0100

Dear all,

I am estimating two panel data regressions, which take the form:


Y1 = a + b1X1 + b2LX1 + b3L2X1 + b4Dummies

Y2 = a + c1Y1 + c2X1 + c3Dummies

In the first regression, the 1st & 2nd lag of X1 is added & the dummies 
are the same in the 1st & 2nd regression. I am using pooled OLS but 
adding the fixed effects manually (so basically replicating fixed 
effects). I am not sure what to do about endogeneity. Can I use the 
normal Durbin-Wu-Hausman test, i.e. doing the first regression as above 
& then saving the residuals, running the second regression with the 
saved residual & perform the test? Moreover, I am not sure what to do 
then (in case OLS is not consistent), as I have X1 & dummies in both 
regressions.

Thanks for your help,
Cordula
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