Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 3

Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 3

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Lahore School of Economics MPHIL Advanced Econometrics Winter 2011 Quiz 3 Question 1. This question examine the relationship between the general level of education of citizens and the level of political corruption. The data below are cross-sectional for the 50 U.S. states on the following variables: The following questions refer to Table 1. Notes: Heteroskedasticity-robust standard errors appear in parentheses under regression coecients, and p-values appear in parentheses under F -statistics. All regressions include an estimated intercept, which is not reported. All regressions are estimated using a cross-sectional data set consisting of 50 US states. (A) Do you agree or disagree with the following statements? Explain. (i) Because immigrants are less knowledgeable about the U.S. legal system, they are more susceptible to governmental corruption. The regression results in Table 1 show that this is true: more foreign-born citizens, more corruption. (5 points)
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(ii) The regression results in Table 1 are flawed because they use heteroskedasticity-robust standard errors: if the errors really are homoskedastic, then these standard errors will be incorrect. The table should instead report standard errors that are correct even under homoskedasticity. (5 points) (B) Suppose that high levels of corruption result in low-quality public institutions, including low-quality schools, which in turn results in lower levels of education. If so, what are the implications for the estimated effect on corruption of education in Table 1? Briefly explain. (5 points) (C) Explain if and why one could use following potential instrumental variables for LowEd share in regression (3). For each proposed
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This note was uploaded on 03/23/2012 for the course ECON 201 taught by Professor Cowell during the Spring '10 term at LSE.

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Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 3

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