1) Common econometric issues that come up in the Environmental Kuznets Curve (EK
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1) Common econometric issues that come up in the Environmental Kuznets Curve (EKC) literature are the problems of omitted variable bias and simultaneous bias. Both omitted variable bias and simultaneity bias can lead to the problem of endogeneity. One approach for testing for the problem of endogeneity is the use of the Durbin/Wu/Hausman test (sometimes called the "Hausman Test for endogeneity"). In the context of the EKC literature, what is the Hausmen Test for endogenity? What is the intuitive logic behind the Test? How would you implement the Test? How would you interpret the results of the Test?Explanation / Answer
Hausmen Test for Endogeneity is the basic test of detecting endogenous regressors in the regression model. It is basically used for finding whether the predictor variables in the regression model is an endogenous regressor. The values of endogenous variables are determined by other variables in the system.
It is sometimes used as a model of misspecification.In the field of panel data anlysis , it is used to to distinguish between fixed effects model and random effects model. In order to find out the correlations between the unique errors and regressors in the model, Hausman Test is generally being used in panel data analysis.
The interpretation of Hausman Test comes in terms of p-value. If the p-value is small (less than 0.05), the null hypothesis is rejected and the alternate hypothesis is accepted.
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