finance
For all questions you should provide screen print outs of Excel or STATA where necessary
to support your workings.
Question 1
The file Growth.xls contains the following variables:
country = country
isocode name
investment = average growth rate of the investment to GDP ratio between 1970
–
2010
openness = average openness ratio ({exports + imports}/GDP) between 1970
–
2010
population = average population growth rate between 1970
–
2010
gdp_1970 = real GDP i
n 1970
growth = average growth rate of real GDP ratio between 1970
–
2010
All variables are in natural logs.
1. Using Excel, obtain estimates of the OLS estimators
and
for the regression
.
(1)
2. Confirm your results from part 1 using STATA
3. The Solow model predicts that growth rates depend on the starting level of GDP, the
population growth rate and the rate of investment such that
.
(2)
Using STATA estimate the OLS estimators
and
. Comment on the sign and
significance of the coefficient estimates. Outline the economic intuition underlying your
results.
4. A recent
academic
article suggests that countries that are more open to international trade
have higher growth rates. Evaluate this hypothesis using equation (3)
.
(3)
5. For each of the following questions formulate a null hypothesis and test it.
i. Investment is the only determinant of growth
ii. The relationship between the population growth rate and
economic
growth is equal to 0.2
iii.
GDP in 1970 and po
pulation growth have the same effect on economic growth
Question 2
The file Profits.xls contains data on the profits earned by a sample of
706
firms in the
automobile manufacturing and semiconductor industries. The file contains the following
variable
s:
profits = firm profits (in millions of pounds)
wage_
firm
=
firm
wages (in millions of pounds)
exporter = dummy variable equal to 1 if the firm exports; 0 otherwise
rd = R&D expenditure (in millions of pounds)
impen = import penetration in industry
in % (import share of output)
industry = dummy variable equal to 1 if the firms is in the automobile manufacturing
industry; 0 if it is from the semiconductor industry
Use STATA to answer the following questions.
1.
Estimate the following equation
.
(
4
)
Comment on the sign and significance of the coefficient estimates. Provide economic
intuition on your findings.
2.
Using your results from part 1, how much is a one standard deviation increase in
R&D
expenditure predicted to increase/decrease firm profits?
3.
It has been hypothesised that
the returns to R&D activity differ according to whether a
firm exports
. Outline how you would test this and provide a null hypothesis. Do the
results support the
hypothesis?
4.
Consider the following equation.
.
(5)
i.
What do the results tell you about the relationship between firm profits, wages
and import penetration?
Why might these relationships exist?
ii.
Test the hypothesis that firm profits are unaffected by wages and import
penetration
5.
Conditional on the explanat
ory variables included in equation (5), do firms in the
automobile industry earn significantly different profits compared to firms in the
semiconductor industry?
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