All,
This is such a basic problem, I don't understand why I can't find the
solution, but here goes.
In preparing to muck around with some -ivreg2- test code, I've been
running some basic lagged-DV regressions in order to introduce an
instrument into an IV regression. But there's a problem, as demonstrated
by this simple model fitted to Garrett and Mitchell's (2001) data, which
is freely available on request:
. reg growthpc lgrowth trade lowwage fdi spend left
Source | SS df MS Number of obs = 542
-----------+------------------------------ F( 6, 535) = 30.72
Model | 799.307961 6 133.217994 Prob > F = 0.0000
Residual | 2320.23777 535 4.33689303 R-squared = 0.2562
-----------+------------------------------ Adj R-squared = 0.2479
Total | 3119.54573 541 5.76625828 Root MSE = 2.0825
----------------------------------------------------------------------------
growthpc | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-----------+----------------------------------------------------------------
lgrowth | .3161383 .0406073 7.79 0.000 .236369 .3959077
trade | .0173584 .0046084 3.77 0.000 .0083056 .0264113
lowwage | .0369588 .0139028 2.66 0.008 .009648 .0642696
fdi | -.1208743 .0647903 -1.87 0.063 -.2481489 .0064003
spend | -.061655 .0109351 -5.64 0.000 -.0831361 -.040174
left | .0005529 .0024729 0.22 0.823 -.004305 .0054107
_cons | 2.791203 .5986255 4.66 0.000 1.615258 3.967147
----------------------------------------------------------------------------
. predict e, resid
(70 missing values generated)
. pwcorr e lgrowth trade lowwage fdi spend left, sig
| e lgrowth trade lowwage fdi spend left
-----------+---------------------------------------------------------------
e | 1.0000
|
lgrowth | -0.0000 1.0000
| 1.0000
|
trade | -0.0000 -0.0787 1.0000
| 1.0000 0.0553
|
lowwage | 0.0000 0.1663 -0.6208 1.0000
| 1.0000 0.0000 0.0000
|
fdi | -0.0000 -0.1124 0.3373 -0.2562 1.0000
| 1.0000 0.0087 0.0000 0.0000
|
spend | 0.0000 -0.3736 0.5386 -0.4120 0.3258 1.0000
| 1.0000 0.0000 0.0000 0.0000 0.0000
|
left | 0.0000 0.0088 0.1360 -0.1353 0.0552 0.1822 1.0000
| 1.0000 0.8314 0.0007 0.0008 0.1988 0.0000
No matter how small I make the model, I keep finding that the error is
perfectly uncorrelated with the LDV (-lgrowth- in this case). Indeed, it's
perfectly uncorrelated with _everything!_ Exactly the same happens if I:
(1) restrict the model to just the first two explanatory variables; (2)
estimate it with, say, -areg- and then -predict e, resid-, or; (3) if I
change the -predict, resid- option to, say, -rstandard- (which barely
changes the values in the correlation matrix). I don't know about you, but
I think all this is odd.
Any thoughts? Ta.
CLIVE NICHOLAS |t: 0(044)7903 397793
Politics |e: [email protected]
Newcastle University |http://www.ncl.ac.uk/geps
Garrett G and Mitchell D (2001) "Globalization, Government Spending and
Taxation in the OECD" EUR J POLIT RES 39(1): 145-77. The LDV, -lgrowth-,
was created from the -growthpc- variable in their dataset.
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