I tried to rescale the endogenous variable... actually used your pick
of numbers (1000). It sure did shrink the endogenous variables
coefficient. However, it shrunk according to the scaling, so the
interpretations stays the same. And the number is way to large to make
sense in that context.
The results are below. The first coefficient is the one of interest,
and it did change as I mentioned before. However it only changed in
number, but not in terms of the real effect DP1 has on the dependent
variable. I tried rescaling the instrument also, but it didn't do
anything either.
I would first of all try ivreg2 (ssc install ivreg2) on this same
specification. Your equation is exactly identified, so the results
are heavily dependent on how good your single excluded instrument
might be in explaining the DP1 variable. Are there other plausible
instruments that might be used, so you could use an
overidentification test? I don't think this is a problem of
collinearity in any way. I would also use mfx and calculate
elasticity estimates before judging that the coefficient on this
variable is 'too large'.
