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Journal of Econometric Methods

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Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term

Olena Y. Nizalova
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  • PSSRU/CHSS, University of Kent, George Allen Wing, Cornwallis Building, Canterbury, Kent, Ct2 7NF
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/ Irina Murtazashvili
  • School of Economics, LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA
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Published Online: 2014-09-19 | DOI: https://doi.org/10.1515/jem-2013-0012


Whether interested in the differential impact of a particular factor in various institutional settings or in the heterogeneous effect of policy or random experiment, the empirical researcher confronts a problem if the factor of interest is correlated with an omitted variable. This paper presents the circumstances under which it is possible to arrive at a consistent estimate of the mentioned effect. We find that if the source of heterogeneity and omitted variable are jointly independent of policy or treatment, then the OLS estimate on the interaction term between the treatment and endogenous factor turns out to be consistent.

Keywords: heterogeneity; interaction term; omitted variable bias; random experiments; treatment effect


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About the article

Corresponding author: Olena Y. Nizalova, PSSRU/CHSS, University of Kent, George Allen Wing, Cornwallis Building, Canterbury, Kent, Ct2 7NF, Phone: +44 1227 824966, E-mail:

Published Online: 2014-09-19

Published in Print: 2016-01-01

Citation Information: Journal of Econometric Methods, Volume 5, Issue 1, Pages 71–77, ISSN (Online) 2156-6674, ISSN (Print) 2194-6345, DOI: https://doi.org/10.1515/jem-2013-0012.

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