How to preform Two Stage Least Square (2SLS) methods?

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Ahlam Hanash Gatea

To perform two-stage least squares (2SLS) methods, you can follow these steps:

Identify your endogenous and exogenous variables. The endogenous variable is the variable that you are interested in explaining. The exogenous variables are the variables that you believe influence the endogenous variable.

Find instrumental variables.Instrumental variables are variables that are correlated with the endogenous variable but not with the error term.

Run the first stage regression. In the first stage regression, you will regress the endogenous variable on the instrumental variables.

Use the predicted values from the first stage regression in the second stage regression. In the second stage regression, you will regress the endogenous variable on the exogenous variables and the predicted values from the first stage regression.

The coefficient on the endogenous variable in the second stage regression is the 2SLS estimate of the effect of the exogenous variables on the endogenous variable.

Here is an example of how to perform 2SLS methods in R:

Abdullah Al Zabir

Thank you so much Ahlam Hanash Gatea .Can you please give an example of how to perform 2SLS methods in R?