Broken Instruments

133 Pages Posted: 28 Sep 2020 Last revised: 26 Aug 2021

See all articles by Trevor Gallen

Trevor Gallen

Purdue University; Krannert School of Management, Purdue University

Date Written: June 16th, 2020

Abstract

Repeated use of the same potentially related instrumental variables by a literature can "collectively invalidate" these instruments. This paper examines two ways in which this can happen. First, when instruments sharing significant sources of variation are used to instrument multiple distinct covariates, it is increasingly likely the exclusion restriction was not satisfied in any individual specification from the outset. Second, when a variable is documented to affect many outcomes that are likely to be highly or even mildly persistent, using lagged values of that variable as an instrument is likely to violate the exclusion condition. This paper produces a dataset of approximately 960 instrumental variables papers from 1995-2019 in highly-ranked economics general interest and field journals. We find six groups of commonly-used instruments whose literatures, taken together, suggest they are likely to fail the strict exogeneity condition: (i) elevation and bodies of water (ii) sibling structure (iii) ethnicity/ethnolinguistic fractionalization (iv) religion (v) weather and (vi) immigrant enclaves. Taken together, these potentially related instruments have been used in 86 “top five" publications and 317 well-ranked field or general interest journals, with 189 total uses cataloged from 2011 onwards. We propose a Hausman-like test for suspect regressions and discuss its asymptotic properties. We then apply it to two IV papers, finding little reason to be concerned about one, and tentative evidence to be concerned about the other.

Keywords: instrumental variables, commonly-used instruments, exclusion restriction, repeated-use instruments

JEL Classification: C13, C26, C36

Suggested Citation

Gallen, Trevor, Broken Instruments (June 16th, 2020). Available at SSRN: https://ssrn.com/abstract=3671850 or http://dx.doi.org/10.2139/ssrn.3671850

Trevor Gallen (Contact Author)

Purdue University

Krannert School of Management, Purdue University ( email )

West Lafayette, IN 47907-1310
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
283
Abstract Views
1,441
rank
138,497
PlumX Metrics