Econometrics B: L7

Question 1

Read example 1: colonial origins of development

Answer 1

now

Question 2

What did paper 1 seek to find out?

Answer 2

about the casual effect between economic institutions and LR economic performance

Question 3

Explain how institutions are endogenous to economic performance?

Answer 3

• Causality runs both ways (eg. poor countries lack resources to build institutions)
• Omitted variable bias (eg. history/geography of country may lead to both economic institutions and economic performance)

Question 4

Explain the problem encountered in paper 1 and how it was overcome?

Answer 4

The regression including R (institutions) as an explanatory variable couldn’t be used since R is endogenous, tf need a variable that fulfills both criteria; relevance and exogenity
They proposed using z, settler mortality because Europeans faced very high death rates compared with locals (see notes for full explanation)

Question 5

See example 2: fulton fish market

Answer 5

now

Question 6

What is simultaneity?

Answer 6

When one or more of the explanatory variables is jointly determined with the dependent variable (type of endogeneity of explanatory variables, third type is measurement error)