======================================================== Suppose an economist wants to know whether economic institutions affect economic development. In order to do that this economist uses a simple regression of some measure of economic development (GDP per capita) against a measure of institutions, such as protection against expropriation (the strength of the property rights in a country). A simple model … Continue reading “economic development | My Assignment Tutor”
======================================================== Suppose an economist wants to know whether economic institutions affect economic development. In order to do that this economist uses a simple regression of some measure of economic development (GDP per capita) against a measure of institutions, such as protection against expropriation (the strength of the property rights in a country). A simple model to express this question can be written as:Log (yi)= βo+β1Ri+uiWhere yi is the GDP per capita in country i, Ri is a measure of institutions (the protection against expropriation measure), and ui a random error term.Part aCan the economist disentangle the effect of institutions on economic development using this specification? Explain.Part bExplain how the instrumental variable approach can be used to estimate the causal effect of institutions on economic development? What are the requirements for this instrument to be used?Part cGive an example of a possible instrumental variable. Can the economist use the prevalence of malaria as an instrument? Would this instrument be relevant? Would it be exogenous? Would it be a valid instrument?
