Overview
Explain the concept of endogeneity in the context of regression analysis. How can instrumental variables be used to address endogeneity? Provide an example to illustrate your explanation.
Consider a scenario where you are investigating the relationship between government spending and economic growth. Discuss potential sources of endogeneity in this relationship and propose a suitable instrumental variable that could be used to address this issue. Describe how you would verify the validity of your instrumental variable and its relevance to the research question.