Econometric Methods Assignment -

Description of the Project: Does Economic Development Improve the Infrastructure?

The aim of this assignment is to find and assess the goodness of the econometric model that describes the relationship between country's economic development measured by GDP per capita and infrastructure. The data come from World Economic Forum. Use the data on the following variables:

To obtain the dataset, use gciget command in Stata. First, command gciget needs to be installed by typing in Stata ssc install gciget

See the help for gciget for more information on its usage. Second, get the extract form the Global Competitiveness Index 2017-2018 by typing gciget year cnNumber countrycode country imfincgroup imfregion wefregion GCI_A_02 GDPPC

The dataset in Stata memory can now be saved locally for later use.

1. Describe the underlying data.

2. Work with data for year 2010. Fit a level-level model.

y_i = β₀ + β₁x_i + β₃D_i + u_1i, (1)
where D_i is a dummy variable for country i

Report the estimated equation (1). Interpret the estimated intercept β^{^}₀. What is the estimated effect of economic development on infrastructure? Discuss the interpretation and statistical significance of β^{^}₃. Relate the magnitudes of effects to your discussion in part 1.

3. Work with data for year 2010. Fit a level-log model.

y_i = γ₀ + γ₁lnx_i + γ₃D_i + u_2i, (2)

where D_i is defined in part 2.

Report the estimated equation (2). Interpret the estimated intercept γ^{^}₀. Why is it so different to estimated intercept β^{^}₀ in question 2? What is the estimated effect of economic development on infrastructure? Discuss the interpretation and statistical significance of γ^{^}₃. Relate the magnitudes of effects to your discussion in part 1.

4. Work with data for year 2010. Fit a level-reciprocal model.

y_i = δ₀ + δ₁(1/x_i) + δ₃D_i + u_3i, (3)
3Di + u3i; (CW.3)

where D_i is defined in part 2.

Report the estimated equation (3). Interpret the estimated intercept δ^{^}₀.  What is the estimated effect of economic development on infrastructure? Discuss the interpretation and statistical significance of δ^{^}₃. Relate the magnitudes of effects to your discussion in part 1.

5. Work with data for year 2009. Fit level-reciprocal models for three samples

(i) all countries available in 2009.

(ii) all countries available in 2009 excluding Zimbabwe.

(iii) all countries available in 2009 excluding Zimbabwe and Burundi.

Discuss if Zimbabwe and Burundi are potentially outliers. If they are, what can be done?

Proceed with all available data in 2010.

6. Test, discuss and remedy if necessary the heteroskedasticity issue in models estimated in parts 2, 3, and 4.

7. Perform the RESET test in models estimated in parts 2, 3, and 4 and discuss implications of the testing results.

8. Which of the three models estimated in parts 2, 3, and 4 is preferred from the econometric point of view?

Proceed with the model chosen in part 8.

9. [10 marks] Estimate the model that has difference in slope (by the D variable defined in part 2) in addition to the model with intercept shift (1, 2, or 3). What are your conclusions based on the heteroskedasticity and RESET tests now?

10. Explain which specification to address the research question "Does Economic Development Improve the Infrastructure?" is preferred after all.

Attachment:- Assignment File.rar