Question

The table below comes from a macroeconomics study where the authors were attempting to determine whether having better-defined property rights improves countries GDP per capita. Because they thought that laws around property rights might suffer from endogeneity, they decided to use an instrumental variable approach. The authors used Original Log Settler Mortality to instrument for property rights. The idea is that when settlers reached countries, they set up institutions such as property rights if the climate was hospitable to long-term living. However, in places where many settlers died, they tended to extract resources without establishing institutions. Property rights are measured on a scale of 1 to 10 (with 10 meaning more property rights). (3) Property Rights (2) Log GDP per capita (PPP) in 1995 -0.561* Log GDP per capita (PPP) in 1995 -0.620* Original Log Settler Mortality (0.131) (0.079) Property Rights 0.905* (0.153) 62 0.195 Observations 0.272 0.457 Standard errors in parentheses * p<0.05 a) Identify which of the regressions is the first stage. Interpret the coefficient. b) Identify which of the regressions is the second stage. Interpret the coefficient. c) Show that the expected equality holds (first you need to define what is it).

Answer 1

The table below comes from a macroeconomics study where the authors

The table below comes from a weird macroeconomic study where the authors were attempting to determine whether having better -defined property rights improves contries GDP per capita. Because they thought that laws around property rights might suffer from endogeneity. The authors used original Log Settler Mortality to instrument for Property rights. The idea is that when Settlers reached countries, they set up institutions such as property rights if the climate was hospitable to long- term living. However in places where many settlers died, they tended to extract resources without estiblishing institutions property rights are measured

on a scale of I to 1o (with to meaning mosle property rights). property Rights (2) Log Gop per capita (PPP) in 1995 Log GDP Pen capita Lopplin 1995 -0.620* -0.561* original Log settler Monitality (0.131) (0.079) 0.905* 10.153) 62 0.195 62 0.272 62 01457 Property Rights observations R2 standard errors in paranthesis. * p<0.05 (a) Identify which of the regressions is the first stage a Interpret the coefficient (b) Identify which of the regressions in the second stage. Interpret the coefficient.

(C) show (first that the your need expected equality holds to define what is it) Answers (a) In the first stage, we regress each endogeneous regresson on all exogeneous Variables and compute the predictions Second regression in the first stage where the coefficient interprets that for a 1% change in long GDP per capita there will (-) 0.153% change in property rights. (b) In the second stage, we requess the dependent variable on all exogeneous regressions and the predictions. First regression is the second stage where the coefficient interprets that for 17. change in Long GDP per capita keeping the property rights constant

leads to there will (-) 0.07996% change in mortality rate and for a 1% change in property rights keeping the Long term GDP per capita constant leads to there will (-) 0.13196% change in mortality rate (C) It is not a part of economica Question