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In cross- sectional data, where we have to collect data on micro, small, medium and
large farms/firms, heteroscedasticity is likely to be there.
Park Test:
Obtain residuals ei and make them squared, run regression of the following form:
Convert data on all dependent and independent variables JB, DJ,PJ, IJ, INJ and AEE
into log using TRANSFORM and COMPUTE VARIABLE commands in SPSS; let the
newly log-variables have new names LJB, LDJ,LPJ, LIJ, LINJ and LAEE.
This command will estimate residuals and put those in the last column of the data
file under name RES_1. Make this variable square (as we need Lne 2i as per
equation 8.2), using TRANSFORM and COMPUTE commands.
Now you can run regression on the second equation, like (8.2); doing so:
Standardize
Unstandardized d
Coefficients Coefficients
The three coefficients (LPJ, LIJ & LAEE) are statistically insignificant while two
coefficients (LDJ & LINJ) are statistically significant, suggesting the possibility of
moderate level of heteroscadasticity problem.
Goldfeld-Quant Test:
RSS 2 df
F
RSS1 df
(8.5)
is likely to exist.
Lets run the stated test for Organizational justice and Job satisfaction case. The
aforementioned Parks test indicated that log of variable DJ was found the most
collinear with the log of the squared residuals; this suggested that we arrange data
in ascending order using DJ variable as the base, and then omit central 14
observations, which will leave 250 observation to be equally divided in two parts of
150 observation each.
Remove the 14 central observations, and save data in two separate files, one
having Group 1 data (the first 150 observations) and the second having Group II
data (having 150 later observations).
Then running the required two regressions gives the following TWO ANOVA tables:
GROUP I: ANOVAb
Sum of Mean
Model Squares Df Square F Sig.
Sum of Mean
Model Squares Df Square F Sig.
F = (RSSII/DF) / (RSSI/DF)
= (19.605/119) / 54.995/119
= 0.3565 (8.6)
F-calculated = 0.3565 < F-tabulated = 1.29 (at p = 0.05), suggesting there exists no
heteroscadasticity.
Unlike the GoldfeldQuandt test, which requires reordering the observations with
respect to the
Step 1: Given the data, we estimate (8.7) and obtain the residuals, ui.
Step 2: We then run the following (auxiliary) regression:
where df is the number of regressors (excluding the constant term) in the auxiliary
regression. In our example, there are 5 df since there are 5 regressors in the
auxiliary regression.
Step 4. If the chi-square value obtained in (8.9) exceeds the critical chi-square
value at the chosen level of significance, the conclusion is that there is
heteroscedasticity. If it does not exceed the critical chi-square value, there is no
heteroscedasticity.
Gujarati (2007, pp.422) advises caution in using the White test; he says: the White
test can be a test of (pure) heteroscedasticity or specification error or both. It has
been argued that if no cross-product terms are present in the White test procedure,
then it is a test of pure heteroscedasticity. If cross-product terms are present, then it
is a test of both heteroscedasticity and specification bias.
Remedies:
technique, i.e.,
Yi 1 X i ei
i 0 i 1 i i
(8.7)
2) Log -transformation:
Ln Yi 0 1 Ln X i i
(8.8)
3) Other transformations:
Yi
0 i
Xi
i
Xi Xi X i Xi
a) (8.9)
After estimating the above model, both the sides are then multiplied by X i.
Yi Xi i
0 1 1
Yi Yi Yi Yi
b) (8.10)