Colonial Origins of Comparative Development
The econometric technique of instrumental variables is very important in empirical studies, especially in gender economics where social scientists try to determine the relationship between gender equality and subsequent GDP levels and growth. A great paper to start thinking about instrumental variables is James Robinson, Daron Acemoglu and Simon Johnson's paper on the colonial origins of comparative development. They use settler mortality as an instrument for current institutions of governance (measured by, for example, the risk of expropriation) in order to estimate the effect of good governance on economic growth. The paper has spawned a large literature and commentary, including much critical re-examination of the data. But that is a good thing!
The paper is also interesting as a key component in a long-running debate over the relative importance of economic and political institutions versus natural resources, geography and environment as key detemrinants of economic growth. here's a recent article on the importance of malaria, for example.
A nice introductory Powerpoint lecture on the estimation methods of "difference in difference" and instrumental variables is available from MIT.
Tuesday, May 05, 2009
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