Consider the simple model to estimate the effect of technology investment on labor productivity of M enterprises: product = Bo + B1 ln K + B2 ln L + B3 tech + B3 size + u In which, product is the labor productivity; tech is the total technology investment value/total investment value; ln K is the natural logarithm of total capital; ln L is the logarithm of total labor; tech is total techonology investment value/total investment value; size is the size of the enterprise, the dummy variable includes four categories: 1-super small; 2-small; 3-medium; 4-large (size_1 is the base category). a. What is the endogenous problem in the regression model? b. In the model, can the variable tech be correlated with u? Explain? c. What causes endogenous problems in this case? d. Could you give some solutions to the endogenous variable problem?
Consider the simple model to estimate the effect of technology investment on labor productivity of M enterprises:
product = Bo + B1 ln K + B2 ln L + B3 tech + B3 size + u
In which, product is the labor productivity; tech is the total technology investment value/total investment value; ln K is the natural logarithm of total capital; ln L is the logarithm of total labor; tech is total techonology investment value/total investment value; size is the size of the enterprise, the dummy variable includes four categories: 1-super small; 2-small; 3-medium; 4-large (size_1 is the base category).
a. What is the endogenous problem in the regression model?
b. In the model, can the variable tech be correlated with u? Explain?
c. What causes endogenous problems in this case?
d. Could you give some solutions to the endogenous variable problem?
Step by step
Solved in 3 steps