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st: Modeling simultaneity

From   "Pavlos C. Symeou" <>
Subject   st: Modeling simultaneity
Date   Mon, 21 Jan 2013 10:25:49 +0200

Dear Statalisters,

warm wishes for a productive new year.

I want your insights wrt the following issue.

The very short description: I have two variables that influence one another and both of them affect a third one.

A detailed description: I am arguing that the ability of the firm to understand new knowledge (what I call Absorptive Capacity AC) influences the direction of the firm's market diversification (DIV). However, once the firm has diversified, it in turn influences the firm's ability to understand new knowledge (AC). I want to empirically account for this simultaneity when I try to examine the effect of AC and DIV on the performance of the firm.

I can use instrumental variables to model the simultaneity, but I don't know how to examine the final effects of AC and DIV on firm performance while controlling for simultaneity.

I look forward to receiving your comments.


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