Economics of Warfare - Essay Example

The inconsistency in the evaluation occurs because of the endogenous regressor that measures the magnitude of the association. In an ordinary circumstance, both the direction of causation and the magnitude provides invaluable information to the policy analysts. Therefore, the use of instrumental variable provides estimates that assist in obtaining consistent parameters. The article by Miguel et al. (2004) that assessed Economic shocks and civil conflict provides a simple and most effective way of using instrumental variables.

For that reason, the article was the most important paper to critique and use when explaining why and how to use the instrumental variable. Estimation of economic impacts from civil conflict is not a simple process because of the endogeneity and the likelihood of biases. Miguel et al (2004) used rainfall variations to simulate the instrumental variables to assess economic growth for 41 countries in Africa after the onsets of wars and civil conflict because most of the countries rely on rain-fed agriculture for economic growth.

Miguel et al. (2004) noted that instrumental variables provided credible association between conflicts like civil wars, and financial condition takes a causal relationship rather than merely a correlation (p. 726). The study reported that instrumental variables use two separate equations to define one function. Each of the equation defines and specifies a particular relationship. For instance, one of the equations will explain the existing relationship between the outcome and the independent variable.

The second equation will determine the association that exist between the outcome and the instrumental variable. For instance, if Y refers to the result, V refers to the critical independent variable that measures the policy outcome, N refers to instrumental variable, x refers to the vector of controlled variable, Q1, Q2, Q3, and Q4 signifies the parameters yet to be