Basic Econometrics

发布时间：2024-05-22

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Basic Econometrics

Research Report Group Assignment

This is a group assignment where you are allowed to work in groups of 1-4 other students. All group members will receive the same marks for the assignment, conditional that all group members participate equally. If a group member does not participate in the assignment, no marks can be awarded, if a group member does not participate equally, only partial marks can be awarded.

You must submit an electronic copy of your assignment in Canvas in pdf, doc or docx format along with your R-code copied into assignment. 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 are the drivers of GDP (PPP) internationally?

Please use the file: GDP2019.Rdata (World Bank Database – 2019 values). Please read the description at the end of this document to understand the variables. In this home assignment we are going to model GDP internationally (dependent variable).

Before you start your work, please rename the variables to a shortform!

QUESTION 1

Please model the drivers of GDP using R, and the attached dataset!

a) Include a minimum of 5 (five) explanatory variables in the regression equation and 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 (Hint: check VIF or correlation matrix)? (0.5 x 5 marks)

. nonlinear relationships, e.g.: log-linear or quadratic relationships. Explain why you use a level or a functional form specification- potential 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 on 5 explanatory variables. Describe if the coefficients are elasticities or semi- elasticities, or simple level coefficients. (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 & Explanation

e) Present the results from a) using HAC robust errors! Did any of the standard errors change significantly? (3 marks) 1 Table & Explanations

f) Create a new variable: GDPpc (calculated as total GDP/ population) and take the natural log of this variable.

Regress log GDPpc on ``Trade (% of GDP)’’, as well as regress ``Trade (% of GDP)’’ on log GDPpc.

What do you find? [ Suggest putting your regression outputs in a table here].

- Explain the concept of the reverse causality! Why can this apply to GDPpc and ``Trade (% of GDP)’’? (2 marks)

- What type of regression can be used to address this problem? (1 marks)

- Suggest an instrumental variable for ``Trade (% of GDP)’’ in modelling GDPpc! (1 marks)

- Describe the criteria for a good/valid instrument and whether your variable of choice satisfy them? (3 marks)

(Subtotal: 7 marks)

g) Write 2-4 paragraphs [ approx. 500 words] on the policy implications from your model in Question 1(a). What are the key drivers of GDP, and how can you increase GDP? (6 marks)

h) Present a functioning R code reproducing your results below! (2 marks)

Assignment total: 40 marks