On the course website, you will find a data file “Growth” that contains data on average growth rates of countries over 1960-1995 for 65 countries along with political, social, and economic variables that are potentially related to growth. A detailed description of these data is given in the “Growth_Description file” available with this problem set on the course website.
A) Construct a table that shows the sample mean, standard deviation, and minimum and maximum values for the following variables: “growth”, “tradeshare”, “rgdp60”, “yearsschool”, “oil”, “rev_coups”, and “assassinations”. Include the appropriate units for all the entries.
B) Run a regression of “Growth” on “Tradeshare”, “rgdp60”, “yearsschool”, “oil”, “rev_coups”, and “assassinations”. Are these relationships large or small in a real world sense? Are they distinguishable from zero? What is your general assessment of the relationship between political turmoil and economic growth during this period?
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C) Use the regression results to predict the average annual growth rate for a country that has average values for all regressors.
D) Repeat Part C but now assume that the country’s value for “Tradeshare” is one standard deviation above the mean. How does this hypothetical case compare to the case from Part C?
E) How would you evaluate the overall quality of the model’s fit to the sample data? Why are the R-Squared and Adjusted R-Squared different?
F) Why is “oil” omitted from the regression model above? What might happen if it were included?
Documentation for “Growth” Data
“Growth” contains data on average growth rates over 1960-1995 for 65 countries, along with variables that are potentially related to growth. These data were provided by Professor Ross Levine of Brown University and were used in his paper with, Thorsten Beck and Norman Loayza “Finance and the Sources of Growth” Journal of Financial Economics, 2000, Vol. 58, pp. 261-300.
~”Country_name”- Name of country.
~”growth”- Average annual percentage growth of real Gross Domestic Product (GDP)* from 1960 to 1995.
~”rgdp60″- The value of GDP* per capita in 1960, converted to 1960 US dollars.
~”tradeshare”- The average share of trade in the economy from 1960 to 1995, measured as the sum of exports plus imports, divided by GDP; that is, the average value of (X + M)/GDP from 1960 to 1995, where X = exports and M = imports (both X and M are positive).
~”yearsschool”- Average number of years of schooling of adult residents in that country in 1960.
~”rev_coups”- Average annual number of revolutions, insurrections (successful or not) and coup d’états in that country from 1960 to 1995.
~”assassinations”- Average annual number of political assassinations in that country from 1960 to 1995 (per million population).
~”oil”- = 1 if oil accounted for at least half of exports in 1960.
= 0 otherwise.