Graph the two democracy series on different graphs using the individual cross-sectional unit option.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

ASSIGNMENT/PROJECT

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Part I

(35 marks)

Acemoglu et al. (2005) investigate whether education promotes democracy. Arguments in the literature are based on the assumption that education broadens one’s outlook and increases the ability to make rational electoral choices.

In this study, you will use two measures of democracy. The first one is the Freedom House Political Rights Index (FHP). This index is based on the political rights for individuals in a country (free and fair elections, whether those who are elected rule, whether there are competitive parties or other political groupings, whether the opposition plays an important role and has actual power, and whether minority groups have reasonable self-government or can participate in the government through informal consensus). It is transformed to lie between 0 and 1. The value 1 corresponds to the most democratic set of institutions. The second index is the Polity IV (Polity4) index. The Polity Democracy Index ranges from zero to ten and is derived from coding the competitiveness of political participation, the openness and competitiveness of executive recruitment, and constraints on the chief executive. To facilitate comparison with the Freedom House score, we normalize the composite Polity index to lie between zero and one.

You are also given the countries PPP GDP per capita in log (lrgdp) and education as average total years of schooling in the population age 25 years and over (educ).

The data file DEMO_8015.xlsx includes data on 60 countries for the sample period 1960– 2000 and each observation corresponds to five-year intervals.

We consider the following econometric model:

𝑑𝑖𝑖𝑡 = 𝛽1𝑖𝑖 + 𝛾𝛾𝑡 + 𝛽2𝑑𝑖𝑖,𝑡−1 + 𝛽3𝑒𝑑𝑢𝑐𝑖𝑖𝑡 + 𝑒𝑖𝑖𝑡 (1) where dit is the democracy score of country i in period t.

1. Graph the two democracy series on different graphs using the individual cross-sectional unit option.

Comment on the graphs. (5 marks)

2. Using FHP as the democracy index estimate equation (1) using FE (both cross-sections and periods) and 2SLS (use the following instruments educ(-1 to -2) and lrgdp(-1 to - 2) @EXPAND(@YEAR,@DROPFIRST) C for 2SLS).

Comment on the results. (10 marks)

3. Estimate equation (1) using FHP as the democracy index and Arellano-Bond. Use the following instruments: @DYN(FHP,-2) @DYN(EDUC, -2) @DYN(LRGDP,-2) @LEV(@EXPAND(@YEAR,@DROPFIRST)).

Comment on the results. (10 marks)

4. Estimate equation (1) using Polity4 as the democracy index and Arellano-Bond. Use the following instruments: @DYN(Polity4,-2) @DYN(EDUC,-2) @DYN(LRGDP,-2) @LEV((@(EXPAND(@YEAR,@DROPFIRST)).

Comment on the results. (10 marks)

Attachments:

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