Mizan's suggestion on the use of panel data to solve potential
endogeneity is interesting. Can Mizan or anyone outline
steps/procedures I can follow with the panel data approach?
Thanks and Have A Great Day!
On 6/26/07, [email protected] <[email protected]> wrote:
NAM said:
May I have a question regarding using dependent variable as a denominator of one independent variable? I have searched your site but could not find a clear answer. To be specific, this is my model:
Revenue: dependent variable
Export ratio= Export / Revenue: independent variable
I treat "export ratio" as an endogenous variable and expect it to have a positive effect on "revenue".
Could you please tell me if I will be criticized to make my model like this?
I have cross-section data. Can I just use normal endogenous model to run or is there any better model?
My Reply:
I would rather take Export rather than Export ratio= Export / Revenue as an independent variable and then log-tranform both the dependent var REVENUE and the EXPORT var. The point estimate would be the elasticity of REVENUE w.r.t EXPORTS. The question of endogeneity is obvious.Note that REVENUE is a linear combination of EXPORTS for a firm i. Given that you have cross-section data, I doubt if you have a reasonable set of instruments. The problem could be well resolved in the case you have had panel data.
Mizan
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