Graphical diagnostics of endogeneity

Xavier de Luna () and Per Johansson
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Xavier de Luna: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 553, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: We show that in sorting cross-sectional data, the endogeneity of a variable may be successfully detected by graphically examining the cumulative sum of the recursive residuals. An interesting case arises with a continuous or ordered (e.g., years of schooling) endogenous variable. Then, a graphical test for misspecification due to endogeneity (e.g., self selection) can be obtained without instrumental variables. Moreover, the sign of the bias implied by this endogeneity becomes deducible through such graphs.

Keywords: CUSUM plot; Recursive residuals; Return to schooling; Self selection (search for similar items in EconPapers)
JEL-codes: C32 C52 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2001-02-06
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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Related works:
Chapter: Graphical diagnostics of endogeneity (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0553

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