Part B: Regression Analysis (45 marks)

Consider the following regression output from a Robert Barro (1991) paper titled       “Economic Growth in a Cross Section of Countries” . The paper regresses the average private investment rate and average investment rate over the period 1970- 1985 for a  number of countries on a select set of variables.

The dependent variables are the private investment rate in the first two columns, that is,   the amount of private investment divided by total output, and the total investment rate      (including government investment) in the last two columns. The explanatory variables are real per capita GDP in 1960, SEC60 is the secondary school enrolment rate in 1960,         PRIM60 is the primary school enrolment rate in 1960, gc/y is the ratio of real government consumption to real GDP, REV is the number of revolutions per year, ASSASS is the       number of assassinations per million population per year, PPI60DEV is the magnitude of the deviation of PPI60 from the sample mean, PPI60 is the 1960 PPP value for the            investment deflator (U. S. = 1.0) (it’s a measure of inflation), Africa is a dummy =1 if the country is in sub-Saharan Africa, and LAT. AMER. is a dummy = 1 if the country is in

Latin America.

a.    Provide an economic interpretation of the coefficients (exclude the   constant term) and comment on their significance levels in column 1 (regression 20 in the table, standard errors are in parenthesis, you can assume degrees of freedom are infinite).    [26 marks]

b.   What are some of the short comings of the regressions in columns 1 to 4? [9 marks]

c.   Why do you think Barro was interested in the determinants of the private investment rate?         [3 marks]

d.   What does this paper say about the role of government austerity? Do you agree with this and why?           [7 marks]

Part C: Paper Discussion [25 marks]

You must choose one of thefollowing three papers. If you presented one of these three papers, choose one you did notpresent. If you did notpresent any of these papers,       choose either (1) or (2):

(1) “The Short-Term Impact of Unconditional Cash Transfers to the Poor:                    Experimental Evidence from Kenya”, by Johannes Haushofer and Jeremy Shapiro.

(2) “A Reassessment of the Relationship between Inequality and Growth”, by Kristin

J. Forbes.

(3) “Labor Markets and Poverty in Village Economies”, By Oriana Bandiera, Robin Burgess, Narayan Das, Selim Gulesci, Imran Rasul and Munshi Sulaiman

Provide a concise summary of the following three key points about the paper:

(a) The question(s) raised and hypothesis(es) tested in the paper.                 [5 marks]

(b) How did the authors go about answering/testing the question(s)/hypothesis(es):

1. The key variables used in the regressions;

2. The main estimation issues;

3. Their identification strategies and robustness test. [14 marks]

(c) Explain your main concerns about the paper. Also discuss your ideas to extend the paper or present ideas for your own future research. [6 marks]