Endogeneity

Abstract

One of the core issues in the econometrics literature is the endogeneity problem. Endogeneity occurs when observed variables are correlated with unobserved factors. Endogeneity can arise as a result of measurement error, autoregression with autocorrelated errors, simultaneity and omitted variables. And, there are many methods such as instrumental variable, BLP, control function and maximum likelihood approaches improved in order to overcome this issue. In this study, the issue of endogeneity will be presented and the tests to identify and the methods to solve the problem will be analyzed.