This is an individual assignment where you must work alone. You must submit an electronic copy of your assignment in Canvas 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 answer the questions in clear full sentences. Log referrers to natural logarithm
Use R to run a cross-sectional regression on GDP per capita for the listed countries as follows:
Ln(GDPpc) = ß0 + ß1In (conspt) + ß2 Trade + ß3 Trade + ß4popgr+u
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] Alco = Total alcohol consumption per capita (liters of pure alcohol, 15+ years of age) [SH.ALC.PCAP.LI] Popgr = Population growth (annual %) [SP.POP.GROW]
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):
2) Interpret the constant
3) Interpret the coefficient on household and NPISH consumption and its p-value (1.5 marks each).
4) Interpret the coefficient on trade and its p-value. Hint: Use a large change for trade, such as a “10% point” change for example.
5) Interpret the coefficient on alcohol consumption and carry out (meaning: calculate with the official formula) a t-test to determine the significance of the coefficient (1.5 marks each).
6) Interpret the R2 of the regression
7) Run the regression in Q1 with an additional independent variable, the quadratic form of “Popgr”.
Ln(GDPpc) = ß0 + ß1In (conspt) + ß2 Trade + ß3 Trade + ß4popgr+u
Explain if adding Popgr2 is a good idea or not. Interpret whether the relationship between Ln(GDPpc) and Popgr it is U-shaped or inverted U-shaped in Q7. Interpret the impact of population growth on the GDP per capita in Q7 when population growth is 3%.
8) Run the following regression:
Ln(GDPpc) =
ß0 + ß1Alco+u
Comment on how the coefficient on “Alco” differs from that of Q1
Why do you observe this difference and what does it mean for the (un)biasedness of the coefficient in Q8?
9) Describe each of the Gauss-Markov Assumptions and specifically explain if they are likely to hold for the regression in Q1 or not
10) Present a functioning R code reproducing the results.
