This question is based on the empirical papers of Acemoglu et al (2001) that estimate the population regression function of the form:Yi= B0 +B1X1+ui with the help of an instrumental variable Zi. The variables are defined as in class.

a) Briefly explain why the colonizers introduced extractive economic institutions in some colonies and inclusive ones in others.

b) Briefly explain why the form of the current institutions (extractive vs. inclusive) is highly correlated with the form of institutions introduced by the colonizers.