Assessment Information

This assignment is designed to assess learning outcomes:

1. Demonstrate an understanding of concepts and tools relevant to econometrics
2. Apply classical econometrics methodology
3. Interpret and analyse statistical results

Answer the following questions, providing full details and discussion:

You have been asked by the Government to investigate determinants of income inequality. CW2019.gdt file contains cross-sectional data for 40 countries.

You are expected to use the following models:

Model 1. GINI = f(GROWTH)
Model 2. GINI = f(GROWTH, EDUCATION)

Both models should be estimated with a constant. Present regression output for each model above.

1. Can we omit GROWTH variable in Model 2?

This requires you to: state the null and alternative hypotheses, determine a critical value at 10% significance level, calculate the F statistic and present your decision.

2. Based on the Ramsey's RESET test (squares only version), is Model 2 misspecified?

This requires you to: state the null and alternative hypotheses used, determine a critical value at the 1% significance level; calculate F statistic and present your decision.

3. Are the residuals from Model 2 normally distributed?

This requires you to: state the null and alternative hypotheses, determine a critical value at 10% significance level, calculate the Jarque-Bera statistic and present your decision.

4. What is the interpretation of the estimated coefficient for GROWTH in Model 2?

5. Are the signs of the GROWTH and EDUCATION estimated coefficients in Model 2 in line with the expectations based on the theory? Justify your answer with some academic references.

6. How could those models be improved? Illustrate your answer with reference to the relevant academic literature. 500 words maximum.

Attachment:- Coursework.rar