To Study the Determinants of Growth Between the Countries of the World

question 40

Essay

To study the determinants of growth between the countries of the world, researchers have
used panels of countries and observations spanning over long periods of time (e.g.1965-
1975, 1975-1985, 1985-1990).Some of these studies have focused on the effect that
inflation has on growth and found that although the effect is small for a given time
period, it accumulates over time and therefore has an important negative effect.
(a)Explain why the OLS estimator may be biased in this case.

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Definitions:

Risk Premium

The extra return or reward that an investor expects to receive for taking a higher risk compared to a risk-free asset.

Cost of Debt

The effective rate that a company pays on its current debt, including loans and bonds, often considered in capital structure decisions.

GDP Price Index

A measure that tracks changes in the prices of goods and services included in the Gross Domestic Product, allowing for inflation-adjusted economic assessments.

Nominal Gross Domestic Product

The measure of a country's overall economic output at current market prices, without adjusting for inflation or deflation.