endogeneity

[basiem shattarat]

Dear ,

I would highly appreciated any help in that

The problem of endogeneity arises when the factors supposed to affect a particular outcome possibly depend themselves
on that outcome. Apart from reverse causality, endogeneity problems could also arise because of omitted variable bias and/or measurement error.

The Granger causality test is the test for causality, but it just can be applied for the time series data, while my data set is unbalanced panel, and I am looking for a way to perform this test on my data set. On the other hand, and from the second type endogeneity view, if the Housman test show that there is a correlation between the errors and the explanatory variables, what is the solution to this case if there is no instrumental variables to use in the model.
The final question, is it possible to have any sort of causality between the independent variables themselves, if this is the case what is the solution in this case?.

[wbuchanan]

basiem shattarat it is a bit difficult to follow what question(s) you need answered. With regards to the final question, your theoretical framework should provide you with guidance in that area.

[basiem shattarat]

Thank you for reply, my specific question is:

In my model, I am testing the factors that finance a firm's decision to undertake investment based on their financial position and their capacity of obtaining internal and external equity funds, their capacity of obtaining external debt funds, the firm's size and the firm's tangibility.
the dependent variable in my case is a binary variable takes a value of zero or one, and the explanatory variable are financial autonomy ( total equity/ total assets), leverage (total debt/ total equity), the size ( log total assets) and tangibility ( The net plant, property and equipment/ total assets).

My main question is how can I make a causality test for my dependent variable and the independent variables in my model (in Stata), noting that my data are the unbalanced panel and it's difficult to get any instrument variable.

[basiem shattarat]

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