Problem 6: Finance Development (15 points) (a) Why is the innovation cost assumed to be convex, while those in last two chapters are linear? (2 points) (b) Explain in words what are speed effect, level effect and growth effect. (3 points) (c) Real the paper "The Colonial Origins of Comparative Development: An Empirical Investigation". What is their endogeneity problem. (2 points) What IV do they use to address the problem? (2 points) Why are these IV likely valid? (2 points) (d) Suppose you wound like to study how pollution affects development. Propose and justify an IV. (4 points)