Stephen Armah <[email protected]>:
-xtreg, fe- reports the variance of u_i and a test that they are all 0
by default; read the [R] manual entry for more detail. Note that this
does not give "an indication of the presence of endogeneity." If the
u_i are uncorrelated with X, there is no endogeneity arising from
omitting the FE when you run a pooled regression.
I would think a much bigger endogeneity problem is that aid may be
affected by political stability, and both may be related to GDP growth
through a number of causal channels running in various directions.
I.e. aid and political stability are not exogneous, even after
demeaning by country.
On Fri, Jun 5, 2009 at 9:08 AM, Stephen Armah <[email protected]> wrote:
> Dear Statalist,
> I am trying to determine how political stability influences the effect
> of aid on growth in Sub-Saharan Africa. I have 31 countries and 6
> years with some missing data so the panel is not balanced.
> I am aware that there is possible endogeneity due to country-specific
> effects. I know I can eliminate these country-specif effects by
> first-differencing, forward orthogonal differencing or by applying
> time-demeaning (the fixed effects transformation).
>
> My question is I want an indication of how large the country specific
> effects are and if they are causing significant endogeneity bias. Note
> that because have few observations, traditional Durbin-Wu_Hausman
> tests cannot pick up endogenety even if it is present so I cannot use
> tests of endogeneity to check for country specific effect endogeneity.
>
> However, according to Woolridge's book, I can use a command in STATA
> to tell me what the variance of the fixed effect is. This will give me
> an indication of the presence of endogeneity. Then I can use a formal
> Breusch-Pagan test to confirm heteroskedasticity. Does anyone know the
> STATA command for reporting the estimate of the variance of the
> time-invariant fixed effect during fixed effects estimation.
>
> Sincerely,
> Stephen E Armah
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