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-Basic Econometrics

Individual Assignment

This is an individual assignment where you must work alone.  You must submit an electronic copy of your assignment in pdf, doc or docx format along with your R-code. Hard copies will not be accepted. Show your calculations (if any) as well as answering the questions in clear full sentences.  Log referrers to natural logarithm!

QUESTION 1)

Use the dataset: WDI_2250.RData

1) Present descriptive statistics for the GDPpc variable (min, max, median, mean, 25^th and 75^th percentile) and describe each statistic in full sentences. Identify which are the countries with the lowest and highest GDPpc 3 marks

Subtotal: 3 marks

QUESTION 2)

Use the dataset: WDI_2250.RData

Use R to run a cross sectional regression on GDP per capita for the listed countries as follows:

Ln(GDPpc) =

The variables are defined as follows:

GDPpc = GDP per capita, PPP (current international $)

Conspc= Households and NPISHs final consumption expenditure per capita (constant 2015 US$) [NE.CON.PRVT.PC.KD]

Trade=Trade (% of GDP) [NE.TRD.GNFS.ZS]

HCI=Human capital index (HCI) (scale 0-1) [HD.HCI.OVRL]

Hightech=Medium and high-tech manufacturing value added (% manufacturing value added) [NV.MNF.TECH.ZS.UN]

You will have to take the natural log of GDPpc and Consumption per capita yourself using R!

1) Present your regression results in a table below (R output): 5 marks

2) Interpret the constant (2.5 marks) and its p-value (1.5 marks). 4 marks

3) Interpret the coefficient on household and NPISH consumption and its p-value (1.5 marks each). 3 marks

4) Interpret the coefficient on trade and its p-value (1.5 marks each). 3 marks

5) Interpret the coefficient on Human Capital Index and carry out (meaning: calculate with the official formula) a t-test to determine the significance of the coefficient (1.5 marks each). Hint: Use a lower than unit scale for HCI, such as a “0.1 scale change.” 3 marks

6) Interpret the R2 of the regression. 2 marks

7) Run the following regression and present the regression results of  Q2.7 below (2 marks):

Ln(GDPpc) =

· Comment on how the coefficient on “Trade” differs from that of Question 2.1! (1 mark)

· Why do you observe this difference and what does it mean for the (un)biasedness of the coefficient in 2.7?  (1 mark)

· What is the direction of the bias and why? (1 mark)

· Can you directly compare Eq. 2.1 and 2.7 (hint: look at the sample size of the estimates)? (1 mark) 6 marks

8) Describe each of the Gauss Markov Assumptions (2.5 marks) and specifically explain if they are likely to hold for the regression in Q 2.7 or not (2.5 marks). 5 marks

9) Present your R code reproducing all of the above calculations and outputs here! 6 marks

Subtotal: 27 marks

Assignment Total: 40 marks

FORMULA SHEET

Critical values for the standard normal distribution (z)

Formula for a t-statistic

Formula for a (1-α)% confidence interval

Logarithmic/Quadratic/Interaction specifications

For the model , the exact effect of a change in explanatory variable x₂ is:

For a quadratic specification of the form:

The turning point (maximum/minimum) is given by:

The approximation of the marginal effect of x on y is given by:

For a interaction specification of the form:

The approximation of the marginal effect of x₁ on y is given by: