D. Acemoglu, S. Johnson, and J. A. Robinson in the paper “The Colonial Origins of Comparative Development: An Empirical Investigation” (2001) evaluated the effect of institutions on economic performance. According to their theory, current economic performance of former colonies depends on the type of institutions europeans introduced during the process of colonization. The type of institutions, in its own turn, depends on natural conditions in a colony.
If natural conditions in a colony were bad and caused diseases and higher mortality, europeans tended to set up ‘extractive states’ that was used only to transfer resources to the metropolitan country. In such cases colonizers did not develop high-quality institutions and thus, provided no protection for private property (Kongo). In colonies with good conditions europeans tried to settle more thoroughly and replicated European institutions with higher emphasis on the private property and the system of checks and balancies against government expropriation (Canada, New Zealand).
To find the support for the their theory, researchers used advanced methods (instrumental variables and two-staged regression), but at some steps they use ordinary least squares regressions (OLS) that were discussed in this course. In this practical task you are suggested to replicate one OLS model from the paper.
You are provided with the dataset that contains the following variables:
shortnam : abbreviation for country name;
logpgp95 : logarithm of GDP per capita in 1995;
avexpr : average protection against expropriation risk, risk of expropriation of private foreign investment by government, averaged for all years from 1985 to 1995; takes values from 0 to 10, where a higher score means less risk;
lat_abst : absolute value of the latitude of the country (a measure of distance from the equator), scaled to take values between 0 and 1, where 0 is the equator;
africa : equals 1 if a country is situated in Africa, 0 – otherwise;
asia : equals 1 if a country is situated in Asia, 0 – otherwise;
america : equals 1 if a country is situated in America, 0 – otherwise;
other : equals 1 if a country is situated on other continent (not Africa, not Asia, not America), 0 – otherwise;
As a first step of the research authors evaluate the effect of the risk of expropriation of private foreign investment by government on the logarithm of GDP capita taking into account some geographical factors – latitude and a continent where a country is situated. There are four dummies for continents, and the researchers take the America as the base category. Then researchers perform a regression.
1.1. What is the dependent variable in the model?
1.2. What are the independent variables in the model?
1.3. Reproduce the model proposed by Acemoglu et al. Provide the R code you used to perform the model.
1.4. All else equal (ceteris paribus), how does the logarithm of GDP per capita change (on average) when the indicator of risk of expropriation increases by 1 unit?
1.5. All else equal (ceteris paribus), how does the logarithm of GDP per capita differ in African and American countries?
1.6. Which of the factors significantly affect the GDP per capita? At what level of significance?
1.7. Evaluate the model quality.
Check (using at least two methods) whether multicollinearity is present in this model. Report your R code and provide your comments.
Check (using graphs with residuals) whether heteroskedasticity is present in this model. Report your R code and provide your comments.
Check whether there are influential points in this model. Report your R code and provide your comments. If yes, exclude these points (just delete from the data set or make a subset), re-run the model and compare the results. Provide your comments.
You are suggested to conduct a small research on the political self-identification before the Chilean plebiscite in 1988. Your question of interest is the following: which factors affect the people’s propensity to advocate status-quo (Pinochet being in rule)? You are provided with a dataset with the results of the survey conducted in Chile. It contains the following variables (only those that are needed for the model are listed here):
sex: a factor with levels: F, female; M, male;
age: age in years;
income: monthly income, in Pesos;
statusquo: scale of support for the status-quo.
Make a regression model that would help you to decide which factors mentioned above affect the people’s position towards status-quo.
2.1. What is the dependent variable in your model?
2.2. What are the independent variables in your model?
2.3. Run the model. Provide the R code you used to perform the model.
2.4. Which of the factors significantly affect the people’s position on the status-quo spectrum? At what level of significance?
2.5. Interpret the coefficient of the variable age, i.e. explain what happens when the age of a respondent increases by one year.
2.6. Interpret the coefficient of the variable sex, i.e. explain what happens when we move from a female respondent to a male one.
Modify the model from the previous task (Practice 2) so as to cover the differences in the effect of age on identification on the status-quo scale between men and women. In other words, use the same model as before, but consider including some specific term(s) in your model.
3.1. Write the equation of the new model.
3.2. Explain in what way the new model is different from the model from Practice 2.
3.3. Run the model. Provide the R code you used to perform the model.
3.4. Does the age affect the identification (position on a status-quo scale) differently for men and women? Explain your answer.