Abstract: Testing Endogeneity in a Regression Model: An Application of Instrumental Variable Estimation

A goal of economic research is to determine the causal relationship among economic variables. This paper introduces the Hausman specification test of endogeneity, for testing the independence between the stochastic regressor and the disturbances. We describe alternative approaches to estimating simultaneous-equation systems and we present an empirical example of economic growth and health that finds health expenditure endogenous. We use different sets of instruments as exogenous determinants of health in an instrumental variables estimation.