finance

    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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