You will replicate and extend the work reported in Acemoglu, Johnson, and Robinson

(2001). The authors provided an expanded set of controls when they published their 2012 extension and posted the data on the AER website. This dataset is AJR2001 on the textbook website.

(a) Estimate the OLS regression (12.86), the reduced form regression (12.87), and the 2SLS regression

(12.88). (Which point estimate is different by 0.01 from the reported values? This is a common phenomenon in empirical replication).

(b) For the above estimates calculate both homoskedastic and heteroskedastic-robust standard errors.

Which were used by the authors (as reported in (12.86)-(12.87)-(12.88)?)

(c) Calculate the 2SLS estimates by the Indirect Least Squares formula. Are they the same?

(d) Calculate the 2SLS estimates by the two-stage approach. Are they the same?

(e) Calculate the 2SLS estimates by the control variable approach. Are they the same?

(f ) Acemoglu, Johnson, and Robinson (2001) reported many specifications including alternative regressor controls, for example latitude and africa. Estimate by least squares the equation for log-

GDP adding latitude and africa as regressors. Does this regression suggest that latitude and africa are predictive of the level of GDP?

(g) Now estimate the same equation as in (f ) but by 2SLS using log(mortality) as an instrument for risk. How does the interpretation of the effect of latitude and africa change?

(h) Return to our baseline model (without including latitude and africa). The authors’ reduced form equation uses log(mortality) as the instrument, rather than, say, the level of mortality. Estimate the reduced form for risk with mortality as the instrument. (This variable is not provided in the dataset so you need to take the exponential of log(mortality).) Can you explain why the authors preferred the equation with log(mortality)?

(i) Try an alternative reduced form including both log(mortality) and the square of log(mortality).
Interpret the results. Re-estimate the structural equation by 2SLS using both log(mortality) and its square as instruments. How do the results change?
(j) For the estimates in (i) are the instruments strong or weak using the Stock-Yogo test?
(k) Calculate and interpret a test for exogeneity of the instruments.
(l) Estimate the equation by LIML using the instruments log(mortality) and the square of log(mortality).