Economic growth and foreign aid. This is the empirical example in Sect. 7.3 based on Bruckner (2013) who investigates the simultaneity problem between per capita GDP growth and foreign aid. The data can be downloaded from the Journal of Applied Econometrics website.

(a) Replicate Table I of Bruckner (2013) relating the effect of economic growth on foreign aid.

(b) For the FE-2SLS with both country and time dummies. Show that for this differenced model, the country dummies are jointly insignificant, while the time dummies are jointly significant.

(c) Replicate Table 7.4 in this chapter applying FE-3SLS using reg3 with time and country dummies in both equations.

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Table 7.4 Fixed Effects 3SLS for Economic Growth and Foreign Aid reg3 (D.lgdp D.laid p_index D.rain D.rain sq time* Iccode*) (D.laid D.lgdp D.polity2 war time* Iccode*) Three-stage least-squares regression D_1gdp laid I D1. I 1 P_index 1 .4760824 1 rain | D1. I 1 rain_sq I D laid Coef. 1gdp | D1. I 1 polity2 | D1. I war | .1196744 .2732289 D1. I -.0187174 cons | -.011686 -3.800951 .016687 -.0735758 Std. Err. .1493232 .2910518 .1245043 .0086531 .027273 1.900492 .0083164 .0778736 Z P> |Z| 0.80 0.423 1.64 0.102 2.19 0.028 -2.16 0.031 -0.43 0.668 -2.00 0.046 2.01 0.045 -0.94 0.345 [958 Conf. Interval] -.1729936 -.0943686 029205 -.0651401 -7.525848 -.0356772 -.0017576 .0003871 .4123425 -.2262053 1.046533 5172529 .041768 -.0760546 .032 987 .0790536