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Basic Econometrics

Research Report Group Assignment

This is a group assignment where you are recommended to work in groups of 3-4 other students. Group sizes between 1-4 are permissible. All group members will receive the same marks for the assignment.  You must submit an electronic copy of your assignment in Canvas in pdf, doc or docx format.  Hard copies will not be accepted. Show your calculations (if any) as well as answering the questions in clear full sentences. The number of tables, graphs, calculations given in parentheses after each question are a guide.

What determines life expectancy?

For this home assignment you will be required to model life expectancy worldwide.

Please use the file: life_expectancy.Rdata (World Bank Database – 2016 values). Please read the description at the end of this document to understand the variables.  In this home assignment we are going to model life expectancy at birth (dependent variable).

You must submit the R code alongside your assignment. Without the solution code we will deem your assignment as incomplete! 

QUESTION 1

Please model the determinants of life expectancy using R: We ask that you create the log of life expectancy at birth for modelling purposes!

a) Include a minimum of 5 (five) explanatory variables in the regression equation. One of your explanatory variables must be the log of GDP per capita! Please exclude any form of the UHC service coverage index!  Please provide a scatter plot of your dependent and independent variables (5 scatter plots). (0.5 x 5 marks)

When modelling, explain each of your functional form specification choices with respect to:

· Economic or common sense behind the model - why do you pick this variable? (0.5 x 5 marks)

· Multicollinearity – are the independent variables multicollinear? (0.5 x 5 marks)

· Functional form specification- potential nonlinear relationships, eg: log-linear or quadratic relationships. Explain why you use a linear or logarithmic form of a variable. (0.5 x 5 marks)

in writing. You will be graded on model accuracy in this section. 

Use OLS standard errors.

(Subtotal: 10 marks) 1 Table [regression output] & Explanations, 5 scatter plots

b) Interpret the coefficients your 5 explanatory variables. Describe if the coefficients are elasticities or semi-elasticities, or simple level variables.

(5 marks) 

c) Interpret the statistical significance of these coefficients using the p-values OR the t-stat.  

(5 marks)

d) Test for heteroscedasticity in R using the Breusch-Pagan test and copy below the results. Interpret the results of the Breusch Pagan test.

(2 marks) 1 Table & Explanations

e) Present the results from a) using HAC robust errors!  Did any of the standard errors change significantly?

(3 marks) 1 Table & Explanations

f) Re-estimate your model from Section (a) using an instrumental variable (IV) regression instead of OLS.  Please take the UHC service coverage index as the instrumental variable for the log of GDPpc. All other variables should remain the same in the model (as in section (a)).  Present the regression results.

(5 marks)  

Interpret the coefficient on log GDPpc. How is it different to that in section (a)?

(2 marks) 

(Subtotal: 7marks)

g) Please determine if the UHC service coverage index is a good instrument for log GDPpc (in Question f) or not.  

a. calculate the correlation between these variables (2 marks)

b. support your results with a regression output (regress the log of GDPpc (depvar) on the UHC index)! Interpret the coefficient on this regression!  (3 marks)

(Subtotal: 5 marks)

h) Write a short essay (1-2 paragraphs) about the key determinants of life expectancy based on your results. What policy conclusions can you draw?  

(3 marks)

Assignment total: 40 marks

VARIABLE DESCRIPTIONS: Source: www.worldbank.org 

Access to electricity (% of population)

Access to electricity is the percentage of population with access to electricity. Electrification data are collected from industry, national surveys and international sources.

Life expectancy at birth, total (years)

Life expectancy at birth indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life.

Domestic private health expenditure per capita (current US$)

Current private expenditures on health per capita expressed in current US dollars. Domestic private sources include funds from households, corporations and non-profit organizations. Such expenditures can be either prepaid to voluntary health insurance or paid directly to healthcare providers.

Domestic general government health expenditure (% of GDP)

Public expenditure on health from domestic sources as a share of the economy as measured by GDP.

GDP per capita, PPP (constant 2017 international $)

GDP per capita based on purchasing power parity (PPP). PPP GDP is gross domestic product converted to international dollars using purchasing power parity rates. An international dollar has the same purchasing power over GDP as the U.S. dollar has in the United States. GDP at purchaser's prices is the sum of gross value added by all resident producers in the country plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in constant 2017 international dollars.

Government expenditure on education, total (% of GDP)

General government expenditure on education (current, capital, and transfers) is expressed as a percentage of GDP. It includes expenditure funded by transfers from international sources to government. General government usually refers to local, regional and central governments.

Military expenditure (% of GDP)

Military expenditures data from SIPRI are derived from the NATO definition, which includes all current and capital expenditures on the armed forces, including peacekeeping forces; defense ministries and other government agencies engaged in defense projects; paramilitary forces, if these are judged to be trained and equipped for military operations; and military space activities. Such expenditures include military and civil personnel, including retirement pensions of military personnel and social services for personnel; operation and maintenance; procurement; military research and development; and military aid (in the military expenditures of the donor country). Excluded are civil defense and current expenditures for previous military activities, such as for veterans' benefits, demobilization, conversion, and destruction of weapons. This definition cannot be applied for all countries, however, since that would require much more detailed information than is available about what is included in military budgets and off-budget military expenditure items. (For example, military budgets might or might not cover civil defense, reserves and auxiliary forces, police and paramilitary forces, dual-purpose forces such as military and civilian police, military grants in kind, pensions for military personnel, and social security contributions paid by one part of government to another.)

Compulsory education, duration (years)

Duration of compulsory education is the number of years that children are legally obliged to attend school.

Literacy rate, adult total (% of people ages 15 and above)

Adult literacy rate is the percentage of people ages 15 and above who can both read and write with understanding a short simple statement about their everyday life.

Total alcohol consumption per capita (liters of pure alcohol, projected estimates, 15+ years of age)

Total alcohol per capita consumption is defined as the total (sum of recorded and unrecorded alcohol) amount of alcohol consumed per person (15 years of age or older) over a calendar year, in litres of pure alcohol, adjusted for tourist consumption.

Suicide mortality rate (per 100,000 population)

Suicide mortality rate is the number of suicide deaths in a year per 100,000 population. Crude suicide rate (not age-adjusted).

Smoking prevalence, total (ages 15+)

Prevalence of smoking is the percentage of men and women ages 15 and over who currently smoke any tobacco product on a daily or non-daily basis. It excludes smokeless tobacco use. The rates are age-standardized.

People with basic handwashing facilities including soap and water (% of population)

The percentage of people living in households that have a handwashing facility with soap and water available on the premises. Handwashing facilities may be fixed or mobile and include a sink with tap water, buckets with taps, tippy-taps, and jugs or basins designated for handwashing. Soap includes bar soap, liquid soap, powder detergent, and soapy water but does not include ash, soil, sand or other handwashing agents.

UHC service coverage index

Coverage index for essential health services (based on tracer interventions that include reproductive, maternal, newborn and child health, infectious diseases, noncommunicable diseases and service capacity and access). It is presented on a scale of 0 to 100.

PM2.5 air pollution, mean annual exposure (micrograms per cubic meter)

Population-weighted exposure to ambient PM2.5 pollution is defined as the average level of exposure of a nation's population to concentrations of suspended particles measuring less than 2.5 microns in aerodynamic diameter, which are capable of penetrating deep into the respiratory tract and causing severe health damage. Exposure is calculated by weighting mean annual concentrations of PM2.5 by population in both urban and rural areas.