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They construct a Pillars of Prosperity Index. This is done by combining data on income, state capacity and political violence. Given that these are endogenous
"They construct a Pillars of Prosperity Index. This is done by combining data on income, state capacity and political violence. Given that these are endogenous in their model, they then ask how well the exogenous variables of their model le.g. cohesive institutions] predict the index values. India and China underperform compared to their prediction [...] Singapore and Kuwait overperform". [p.254] (c) Why do you think the exogenous variables [e.g. cohesive institutions] fail to predict the income of India and China (underperformers), and of Singapore and Kuwait (overperformers)? Explain. [1.5 marks]
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