What is the solution?

1. (20 points) Consider the following graph, from Acemoglu and Robinson (2001) 10 HKG SGP USA AUS CAN NZ Log GDP per capita, PPP, 1995 ARG MLBHS CHL PAN HAVEN MEX GREYS GTM PER DONGS 8 SLV BOIGUY EGYMAX COG HTI CIV NE SD NGA KEN TGO 6 TZA Average Expropriation Risk 1985-95 FIGURE 2. OLS RELATIONSHIP BETWEEN EXPROPRIATION RISK AND INCOME (a) (5 marks) Explain what it tries to capture, in the context of our discussion about geography vs. institutions. (b) (15 marks) Is this evidence causal? Explain