Download Lab 12B

Lab 12B
Government and Growth
Assignment
In this lab, you will explore mechanisms through which government practices affect growth of
per capita income. The data for this lab is in an Excel spreadsheet and a Stata data set on the
textbook web page.
1. Sort the data by the growth rate of per capita income over the period 1970 to 2005 and
calculate average values for the indices of political freedom, corruption, and rule of law.
Do fast growing countries have different policy environments than slow growing
countries? Repeat the analysis, this time sorting the data by the level of income per
capita rather than the growth rate.
2. Explain how protection of property rights could affect the growth of per capita income.
Use scatter plots to examine the evidence for these theories. (Hint: Think about how
protection of property rights affects the incentives of individuals within an economy.)
3. Explain how larger governments could affect the growth rate of income. Make a scatter
plot that shows the relationship between average government spending as a percentage of
GDP and long-run growth (over the period 1970 to 2005). Do countries with bigger
governments systematically grow faster or slower than the others?
4. The textbook provides evidence that higher levels of corruption are associated with lower
per capita income. Explain how corruption could affect income and provide evidence for
these channels. (Hint: See the hint for #2.)
5. Using the results from 1 through 4 above, explain how government policy can affect
growth. What are the policy implications of your findings? What are the qualifications
to your conclusions?