Instrument Diagnostics (Instrumental Variables)

Before trusting any IV estimate, we must test whether our instrument is actually valid. In this exercise you will run the standard battery of diagnostic tests on the Michler_JEEM.dta conservation agriculture IV specification.

• Using Michler_JEEM.dta (maize only), run xtivreg2 with clustered standard errors
  • Add the first option to display both first- and second-stage results
  • Add the endog(CA) option to display the Durbin-Wu-Hausman Test

1. Does wardNGO pass the standard rule-of-thumb threshold of $F > 10$ for instrument strength using the Kleibergen-Paap F-statistic?
2. Based on the endogeneity test, is CA statistically endogenous?
3. We have exactly one instrument (wardNGO) for one endogenous variable (CA). What does the Stata output say about the Hansen J-statistic?

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