Question: Use the data in OPENNESS for this exercise. (i) Because log(pcinc) is insignificant in both (16.22) and the reduced form for open, drop it from

Use the data in OPENNESS for this exercise.

(i) Because log(pcinc) is insignificant in both (16.22) and the reduced form for open, drop it from the analysis. Estimate (16.22) by OLS and IV without log(pcinc). Do any important conclusions change?

(ii) Still leaving log(pcinc) out of the analysis, is land or log(land) a better instrument for open?

(Hint: Regress open on each of these separately and jointly.)

(iii) Now, return to (16.22). Add the dummy variable oil to the equation and treat it as exogenous.

Estimate the equation by IV. Does being an oil producer have a ceteris paribus effect on inflation?

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