This question is based on "Does Trade Cause Growth?" by Frankel and Romer (1999).

a) Explain in no more than a few sentences how the authors construct an instrumental variable to test for the causal effect of trade openness on economic development.

b) Interpret the regression coefficients of columns 1 and 2 in Table 3 of the paper, and comment on their statistical significance.

c) List the assumptions that need to hold for a causal interpretation of the point estimates on trade openness in column 2 of Table 3.

d) List your two main concerns that you think could pose a challenge to the validity of these assumptions.

e) Suggest one way in which the authors could try to address each of your two concerns (two suggestions). Think of this as two additional robustness checks that the authors could estimate and report in their analysis to check if your concerns are relevant.

f) How would you expect the point estimates of the effect of trade openness to differ between columns 1 and 2 of Table 3? If this is not what the authors find, then what could be an explanation for the difference we observe in the table?