Hi everyone
I'm researching a project on the impact of child nutrition on cognitive performance and scholastic attainment. I'm using an instrumental variable strategy using maternal height and drought exposure as instruments for early childhood nutrition . This is based on reading the literature where most papers exploit fixed effects and instrumental variables.
I performed a first stage regression and did some tests of my instruments using ivreg2. Most of the tests show the right direction eg I have valid , non weak instruments which are relevant to my regressors and uncorrelated with the error term. One problem is I conducted a test of endogeneity (ivreg2). I get a test statistic of 0.13. This is above a critical value of 10% so theory would suggest I use OLS instead.
However, I strongly believe my variable is endogenous. Is there any reason that the endogeneity test could fail to be rejected and yet I still assume endogeneity and proceed with IV 2sls? Furthermore , the result of this test seems to be very sensitive to one of the controls in the regression, hovering above or below the 10% level dependent on their inclusion . Is there any precedent to proceed with instrumental variable analysis if I just barely fail to reject the null hypothesis ? Or should I always use OLS in this case?
I'm researching a project on the impact of child nutrition on cognitive performance and scholastic attainment. I'm using an instrumental variable strategy using maternal height and drought exposure as instruments for early childhood nutrition . This is based on reading the literature where most papers exploit fixed effects and instrumental variables.
I performed a first stage regression and did some tests of my instruments using ivreg2. Most of the tests show the right direction eg I have valid , non weak instruments which are relevant to my regressors and uncorrelated with the error term. One problem is I conducted a test of endogeneity (ivreg2). I get a test statistic of 0.13. This is above a critical value of 10% so theory would suggest I use OLS instead.
However, I strongly believe my variable is endogenous. Is there any reason that the endogeneity test could fail to be rejected and yet I still assume endogeneity and proceed with IV 2sls? Furthermore , the result of this test seems to be very sensitive to one of the controls in the regression, hovering above or below the 10% level dependent on their inclusion . Is there any precedent to proceed with instrumental variable analysis if I just barely fail to reject the null hypothesis ? Or should I always use OLS in this case?
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