Endogeneity issues

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ThoreBischoff
Posts: 2
Joined: Fri Aug 12, 2022 2:26 pm

Endogeneity issues

Post by ThoreBischoff »

Dear all,

I have a longitudinal dataset of firms and apply a 3-level logistic regression with time as level 1, firms as level 2 and regions as level 3 using Bayesian methods with the runmlwin command in Stata. I now wonder how I can account for possible endogeneity issues in my model that might arise from correlations between level 2 firm characteristics and omitted regional variables at level 3. For example, I have a variable on the R&D expenditures of firms. However, the decision of firms on how much money they spend on R&D is likely to be influenced by regional factors that I cannot observe. Is there any established procedure how I can deal with these kind of endogeneity issues? And if so, how can I implement this with the runmlwin command?

I am happy about any help!

Best,
Thore
ChrisCharlton
Posts: 1348
Joined: Mon Oct 19, 2009 10:34 am

Re: Endogeneity issues

Post by ChrisCharlton »

I asked George about this and his reply was as follows:
I guess you could apply ideas from fixed versus random effects to panel data which are motivated by endogeneity concerns.

So you could enter region as fixed-effects dummy variables instead of as random effects.

The effects of the firm covariates will then only be pure within region comparisons.
ThoreBischoff
Posts: 2
Joined: Fri Aug 12, 2022 2:26 pm

Re: Endogeneity issues

Post by ThoreBischoff »

Thank you very much for the response! From a practical point of view, would that mean to change the model to a 2-level model with time as level 1 and firms as level 2 and then adding i.region as an additional explanatory variable to the fixed part of the model?
ChrisCharlton
Posts: 1348
Joined: Mon Oct 19, 2009 10:34 am

Re: Endogeneity issues

Post by ChrisCharlton »

That would be my interpretation of George's suggest as well.
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