5. Paper: Accmaglia, Johnson and Robinson (2001) Th answer this problem, you will have to (again) yesd a luper, titled "

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5 Paper Accmaglia Johnson And Robinson 2001 Th Answer This Problem You Will Have To Again Yesd A Luper Titled 1 (111.35 KiB) Viewed 30 times

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5. Paper: Accmaglia, Johnson and Robinson (2001) Th answer this problem, you will have to (again) yesd a luper, titled "The Coloma Origins of Comparative: Desclopmenit: An Empirical Investigation by Direin Axinoglu, Simon Johnson and James A Robinson. You have to submit a type document with Answ, figures, gragtes izid tables, ils requested below. Read the paper "The Colonial Orgins of Comparati Twipment An Empirical Instipation Anguer the following: (a) Wul key suliptions must bold for Lue law Variable appliec lu le valid for this particular application? Do you find these pas plaasitle! Carefully IE, (1) How wiki yon test a cal relatives in between development anti institutions if you could set up an ideal, though infcssihic, rxperiment? c) Can the results, btained by Aeroglu. Jolitana and Robinus, be interprete As an urge troiect effect (ATC)? What additional assimptions are needed for such interpretation! d) The put hors clim that the inclusion of an endogenous variable positively cor- related with iccome or institutions will biss the coefficient ca ictitutions dowowards Sicce cholinguistic fragmentation is likely to be endogenous with respect to development i C., echnolinguistic fragmentation tec.ds to disappear after the formation of centralized markets Veber (1976) Andersen 1983]) and is currelated with wettler metality, the winnate of 0.74 likely understates the effect of institutions on income Let the regression of interest be Y = + R + - where V, is incorre per capita in curty, and further ist Zbe endogemus,i.., Z-B1Y, 12 Lel Abe sa exigenous variable u.s. We proiecte saiul expeuprialiua measure). Fur ther, Huggice that no 0.0 <0. n > 0. More specifically, explain intuitively and derive mathematically the result that the inclusion of an endogerous variable as a control which is picitively relateri with inter institutions, biases the coefficient instit tions downwards. Analytically deriw probability limit of a estimatar. Hint: se paper's Appealix c) Now make use of the Pxcel file Institutions xlax" winich mu will find under the Tuesdi "Problem Sole" You will lid variable i lLe list low sad leis descriptivus in the sand tow. They should be self-explanatory after having on the paper. You can make use of suy preſented homeWics software 3 Start by computing correlation between economic development og GDP per capita and institutivus wing a measure of risk of expropriativa'. Plut tbe scalu plut will lite OLS regression, ic, replicate l'igure 2 from the manier. (1) Belure ouving to the Islandia walis.ween relevance direcdly by exaun- ining the scatter pilot between settler mortality and institutions. Comment on the instrument Yelow.ner is) Regilisate columns 1 i 2 of Table 4. incaring the first stage, the two-stage lesst squares and OL.S rstimates. (h) Chanceuxit was for the treatment (avexpr) and the instrument (logar) and dichotomize these variables (1.0., split into two clases, home and helow your chosen calu bewed. The calculate we uplalevuel serage belonen! ei socialed will this data. Substantiwly interpret this coefficient. Comment on the midity of this estimate
5. Paper: Acemoglu, Johnson and Robinson (2001) To answer this problem, you will have to (again) read a paper, titled "The Colonial Origins of Comparative Development: An Empirical Investigation" by Daron Acemoglu, Simon Johnson, and James A Robinson. You have to submit a typeset document with answers, figures, graphs and tables, as requested below. Read the paper "The Colonial Origins of Comparative Development: An Empirical Investigation” Answer the following: (a) What key assumptions must hold for the Instrumental Variable approach to be valid for this particular application? Do you find these assumptions plausible? Carefully argue. (b) How would you test a causal relationship between development and institutions if you could set up an ideal, though infeasible, experiment? (c) Can the results, obtained by Acemoglu, Johnson and Robinson, be interpreted as an average treatment effect (ATE)? What additional assumptions are needed for such interpretation? (d) The authors claim that "the inclusion of an endogenous variable positively cor- related with income or institutions will bias the coefficient on institutions downwards. Since ethnolinguistic fragmentation is likely to be endogenous with respect to development (i.e., ethnolinguistic fragmentation tends to disappear after the formation of centralized markets; see Weber (1976) or Andersen (1983]) and is correlated with settler mortality, the estimate of 0.74 likely understates the effect of institutions on income." Let the regression of interest be Y; = Qo+QjR; +222 + Eig where Y; is income per capita in country i, and further let Z be endogenous, i.e., Z; = Bo + BiY; + ni. Let Ri be an exogenous variable (e.g., the protection against expropriation measure). Fur- ther, suppose that Q2 < 0, B1 < 0, and Q1 > 0. More specifically, explain intuitively and derive mathematically the result that the inclusion of an endogenous variable as a control, which is positively correlated with income or institutions, biases the coefficient on institu- tions downwards. Analytically derive a probability limit of âu estimator. Hint: see paper's Appendix A. (e) Now make use of the Excel file "Institutions.xlsx" which you will find under the heading "Problem Sets". You will find variable names in the first row and their descriptions in the second row. They should be self-explanatory after having read the paper. You can make use of any preferred econometrics software. 3 Start by computing correlation between economic development using GDP per capita and institutions using a measure of "risk of expropriation". Plot the scatter plot with fitted OLS regression, i.e., replicate Figure 2 from the paper. (f) Before moving to the IV estimation, test instrument directly by exam- ining the scatter plot between settler mortality and institutions. Comment on the instrument relevance. (g) Replicate columns 1 and 2 of Table 4, including the first stage, the two-stage least squares, and OLS estimates. (h) Choose cutoff values for the treatment (avexpr) and the instrument (logem4) and dichotomize these variables (i.e., split into two classes, above and below your chosen cutoff level). Then calculate the updated local average treatment effect associated with this data. Substantively interpret this coefficient. Comment on the validity of this estimate.