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st: Re: how to make Durbin–Wu–Hausman test for the equation?

From   Lilly <>
Subject   st: Re: how to make Durbin–Wu–Hausman test for the equation?
Date   Sun, 16 Dec 2012 13:50:19 -0800 (PST)

Hi Qian, 

I can answer your first questions about the endogeneity test.
I am assuming that chine_exp is the endogenous variable, and distance is the
instrumental variable.  
1) run OLS regression where chine_exp is the dep var and distance is the
indep var along with the rest of the variables included in your original
2) get the residuals from the regression "vhat".
3) run your equation including the residuals from the first OLS as follow
4) if the coefficient on the residuals (z) is significant then you have
endogeneity and you should run 2SLS, else there is no endogeneity and hence
no need for 2SLS. 

keep in mind that your results are as good as your instrumental varibale.
Make sure that it is a valid instrument.

Hope this helps.

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