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

question 45

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.
(b)Explain how methods using panel data could potentially alleviate the problem.
(c)Some authors have suggested using an index of central bank independence as an instrumental. Discuss whether or not such an index would be a valid instrument.

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Definitions:

Fibroblasts

Fibroblasts are the most common type of cells found in connective tissue, producing and maintaining the matrix of collagen and other fibers.

Osteocytes

Osteocytes are mature bone cells encapsulated in the bone matrix, playing a vital role in bone strength and mineral homeostasis.

Stratified

Referring to layers; often used to describe epithelial tissues that have layers of cells stacked one upon another.

Epithelial Tissue

A type of tissue that lines the outer surfaces of organs and blood vessels, as well as the inner surfaces of cavities in many internal organs.