The relationship between political instability and democracy is important and likely to be quite complicated. Democracies manage conflict in a way that reduces instability, or do they stir up conflict?

Question:
The relationship between political instability and democracy is important and likely to be quite complicated. Democracies manage conflict in a way that reduces instability, or do they stir up conflict? Use the data set called instability_ps data.dta
Ch7_Exercise1_Instability.RData Download Ch7_Exercise1_Instability.RData
(a) Estimate a bivariate model with instability as the dependent variable and democracy as the independent variable. Because the units of the variables are not intuitive, use standardized coefficients to interpret.Briefly discuss the estimated relationship and whether you expect endogeneity. (1 point)
b) To combat endogeneity, include a variable for lagged GDP. Discuss changes in results, if any. (1 point)
(c) Perhaps GDP is better conceived of in log terms. Estimate a model with logged-lagged GDP and interpret the coefficient on this GDP variable. (1 point)
(d) Suppose we are interested in whether instability was higher or lower during the Cold War. Run two models. In the first, add a Cold War dummy variable to the preceding specification. In the second model,add a logged Cold War dummy variable to the above specification.Discuss what happens. (2 points)

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