Intro. Econometrics Assignment

[UBS]

The explanatory variables are as follows:
gdp2000i : the level of GDP in country i in the year 2000 ('000 USD)
openi : openness, the sum of imports and exports as a proportion of GDP, average (2000 - 2010)
consi : private consumption expenditure as a proportion of GDP, average (2000 - 2010)
govti : government expenditure as a proportion of GDP, average (2000 - 2010)
investi : investment expenditure as a proportion of GDP, average (2000 - 2010)

The dependent variable is growth, the average annual percentage
growth rate in per capita GDP for each country during the years 2000 - 2010.

So, my question is, if the coefficient of Open is 0.9594 - interpreting this would it be:

'a 1 unit increase in the proportion of the sum of imports and exports over GDP, average (2000 – 2010), predicts an increase of 0.9594% in the average annual percentage growth rate in per capita GDP for each country during the years 2000 – 2010 holding the level of GDP in country i in the year 2000, private consumption expenditure as a proportion of GDP, average (2000 - 2010), government expenditure as a proportion of GDP, average (2000 - 2010) and  investment expenditure as a proportion of GDP, average (2000 - 2010) fixed.'

I'm not sure whether it's be 0.9594% or 95.94%...or neither?

[Reckoner]

The problem here comes from the difference between a "percentage increase" and "percentage point increase. Example, lets say I have a GDP growth rate of 50% some. Now lets say that rate increase by 50%...would it be 50+50=100%? Or did we interpret it as i have 50 apples, and then i increased my number of apples by 50%, so i gained an extra 25 apples giving us an answer of 75%. A percentage point increase is what we call the former (also use the term "basis points" as its less confusing), while a percent increase is the latter.

From the look of the regression, you have no logged variables, so the percent increase doesn't apply, so we're looking at the percentage point increase. However, I don't know the exact units of the dependent variable. In eViews, was a growth rate of 3% entered as "3", or "0.03"? If it were 3% then it would be "....increase by 0.9594 percentage points", while if it were 0.03 then it would be "... increase by 95.94 percentage points". I expect it would be the first one though.

Also, what units were the "openness" variable in? If they have units, best to say what they are rather than just "a 1 unit increase".

Also try to chuck the words "on average" somewhere in there.

[donkson]

also you can just say holding all else constant rather than typing out every variable.

[kinslayer]

The explanatory variables (except for gdp2000) are proportions between 0 and 1. For example, 0.5 is 50%. The dependent variable is a percentage though

If the coefficient of open_i is 0.9594, then an increase in open_i of one unit does indeed (edited) correspond to a predicted increase in growth_i of 0.9594 percentage points, holding all of the other explanatory variables in the model constant.

also you can just say holding all else constant rather than typing out every variable.

You need to be careful with this language though, since you can only control for the variables you have included in your model. Everything else is in the error term and you can't hold that constant.

edited

[Auran]

On a side note, for those doing this assignment, did anyone get the suppose growth rate of ~25 for question 3 in the table format? Was that supposed to be an example since the value I got was a lot lower than that

[UBS]

Thank you all very much, helpful!

On a side note, for those doing this assignment, did anyone get the suppose growth rate of ~25 for question 3 in the table format? Was that supposed to be an example since the value I got was a lot lower than that

You mean the intercept term? Yeah I think that's random, I got something ~6 for the full sample

btw Auran, what sort of things did you talk about in question 4b: 'In its simplest version, the convergence hypothesis implies that poorer countries will eventually catch up to richer countries because of their faster growth rates, and hence that global poverty will disappear of its own accord. Are your results consistent with this implication?'

[Auran]

btw Auran, what sort of things did you talk about in question 4b: 'In its simplest version, the convergence hypothesis implies that poorer countries will eventually catch up to richer countries because of their faster growth rates, and hence that global poverty will disappear of its own accord. Are your results consistent with this implication?'

I simply stated that the results were not consistent with the convergence hypothesis and made some comments about the intercept.

[kinslayer]

I dunno about 4b). I'm having trouble with the logic of rejecting the original convergence hypothesis just because it does not hold in a restricted sample.

My thinking is that once you restrict your sample, if you wish to keep the simple random sample assumption (which we need for OLS) then your PRF must be in a different population, so I'm not sure how you can draw conclusions from one regression to the other. Besides, the basic convergence hypothesis says that poorer countries grow more quickly. If you look only at the poorest countries, does it really matter whether the coefficient on gdp2000 affects growth?

I emailed my tutor, dunno if she will want to answer though lol.

BTW, I messed up my earlier post, sorry about that. Edited it

[Reckoner]

Anyone have a copy of the assignment? I'm curious now lol

[kinslayer]

Have fun!

[Reckoner]

Have fun!

With econometrics, there's no other way! He says after giving up on his own econometrics assignment for the night because of loss of interest

Not too sure on 4b either, although I suspect you just need to be more general in your interpretation of the convergence hypothesis. That is, does it seem that countries with lower GDPs grow faster than those with higher GDPs (as opposed to "poor" vs "rich" countries) and see if this holds for richer countries, and see if it holds for poorer countries. But to do any testing on this, I suspect you'd need to run cross equation restrictions, which would involve some sort of systems of equations modelling (or perhaps a dummy variable? idk). Covered in ETC3410, but I can't go any deeper at this stage (Only just started the topic and I'm 2 lectures behind...)

[Sam_95]

what equation did you guys use for 5a? Using the appropriate regression from question 4, calculate the estimated conditional
mean of growth for a country with these statistics, and Önd a 95% prediction interval.

The Full Sample,   Richer countries, or Poorer Countries regression

[kinslayer]

what equation did you guys use for 5a? Using the appropriate regression from question 4, calculate the estimated conditional
mean of growth for a country with these statistics, and Önd a 95% prediction interval.

The Full Sample,   Richer countries, or Poorer Countries regression

For the prediction interval you respecify the regression to give the prediction as the constant, then use the standard error and two-sided critical value to get the prediction interval. It's the same thing as we did in tutorial 5,6 etc. I think it's in the lecture notes as well.

What t-statistics did you guys get for the gdp2000 variable?

I found that it wasn't significant for the poorer countries, but it was significant in the full sample and for richer countries. I think I was supposed to find the opposite :S (convergence holds for poorer countries but not rich).

[Auran]

I found that it wasn't significant for the poorer countries, but it was significant in the full sample and for richer countries. I think I was supposed to find the opposite :S (convergence holds for poorer countries but not rich).

I got that it wasn't significant in all the 3 test. What test did you use? Two-tailed? One-tailed?

[kinslayer]

I got that it wasn't significant in all the 3 test. What test did you use? Two-tailed? One-tailed?

One tailed, with and