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Graphs as a Tool for the Close Reading of Econometrics (Settler Mortality is not a Valid Instrument for Institutions)

Michael Margolis

Abstract

Recently developed theory using directed graphs permits simple and precise statements about the validity of causal inferences in most cases. Applying this while reading econometric papers can make it easy to understand assumptions that are vague in prose, and to isolate those assumptions that are crucial to support the main causal claims. The method is illustrated here alongside a close reading of the paper that introduced the use of settler mortality to instrument the impact of institutions on economic development. Two causal pathways that invalidate the instrument are found not to be blocked by satisfactory strategies. The estimates in the original paper, and in many that have used the instrument since, should be considered highly suspect.

Published on 31 Mar 2017 in Economic Thought Vol 6, No 1, 2017