Your First Candidate for a Regression to Identify the Effect

Multiple Choice

Your first candidate for a regression to identify the effect of X₁ on Y is: Y_i = β₀ + β₁X_1i + β₂X_2i + U_i, where X₂ is a control variable. Suppose a member of your consulting team suggests to you that another variable R_i should be a control that is also included in your regression, in order for you not to be worried about the endogeneity problem. What condition could you credibly test using data on Y, X₁, X₂, and R which could justify the inclusion of R_i as a control in your regression?

A) R_i has no effect per se on Y_i.
B) R_i has a strong correlation with X₂.
C) R_i is exogenous.
D) spcorr(R_i, Y_i (X_i1, X_i2) ) ≠ 0