Hello all,
I'm a beginner at Stata, and not much of a pro in econometrics either. I am trying to reproduce the results of a paper on FDI and economic growth. They have the following structural equation,
growth = a + b*FDI + c*FDI*education + d*other_things ... + error
where FDI is thought to be endogenous. So you can see that the endogenous variable is interacted with an exogenous variable in the structural equation. My question is how to force Stata to do this with ivreg? I could not figure out how to get this idea into the command line.
Another question is that ivreg seems to automatically use all exogenous variables in the first stage, how can i force it to use only the instruments I specify?
I realize that I can get around these problems doing the regression manually, but I don't want to have to deal with correcting the standard errors (I'm not sure how to do that correctly).
However, if I was to do that, I found the formula (2SLS variance)/(SSTx*R^2x,z) in Wooldridge, but there isn't much explanation. Exactly what regression is SSTx coming from? Is R^2x,z just R^2 from the first stage? Is the denominator a constant or is it changing with each xi?
Thanks very much, I appreciate any help. -Kris
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