1. In a famous example of instrumental variables estimation, Acemoglu, Johnson, and Robinson (2001, AER) estimate the effect of institutions on economic growth. They use the following model: GDPz' = 50 + 511N311; + ui. (I) In this case, GDP,- is the gross domestic product of country i, and I N ST,- is a measure of the quality of the institutions in that country. In particular, it may measure the strength of the legal system, and how well property rights are protected. a) In this model, what does u,- capture? Give some realworld examples of quantities captured by u,. b) The authors believe that u,- may be correlated with IN STE: Do you agree? Explain! c) If u,- is correlated with I N ST,- , is the OLS estimator for 51 unbiased? Explain