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Consider the following regression on a cross-sectional sample of a large number of countries:
Consider the following regression on a cross-sectional sample of a large number of countries:growthi =β0 +β1·budgeti + ui where growth is rate of growth in a country’s per-capita GNP and budget is the size of governmentbudget relative to GNP. Suppose that we would like to test whether there is a negative effect of the budget on growth, ceteris paribus. Suppose that corruption affects the size of the budget in a negative way, but it also affects economic growth, negatively. a)