ECON F241 / F244

Akshay Bhat
Karthik Menon
Tushit Thakkar

Austria

Bangladesh

Bolivia

China

Czech Republic

Egypt

Growth

Investment

Openness

Education

Life
Expectancy

What We Had Done Before

In A

Austria
Year

Number of
observations Mean

Life
Growth Investment Openness Education Expectancy

1970-1975

19.75

27.36

42.51

1975-1980

18.93

24.68

49.29

1980-1985

7.72

27.13

55.133

1985-1990

13.98

23.54

60.065

1990-1995

6.75

25.96

66.29

1995-2000

14.52

27.06

76.76

2000-2005

7.51

25.88

94.323

2005-2010

6.73

24.61

106.26

6.29
6.86
7.28
7.66
8.02
8.58
8.98
9.27

70.7

Standard
Variance Deviation

Min

Max

Growth Rate

11.99

30.31

5.50

6.73

19.75

Investment

25.78

1.94

1.39

23.54

27.36

Openness

68.83

494.17

22.23

42.51

106.26

Education

7.87

1.09

1.044

6.29

9.27

Life Expectancy

75.38

11.06

3.33

70.7

80.1

72
73.1
74.8
Growth

76.1
77.4
78.8
80.1

Growth

Investment

Life
Education Expectancy

Openness

Investment

0.0448

Openness

-0.673

-0.2329

Education

-0.7083

-0.2261

0.9677

Life Expectancy

-0.7022

-0.2441

0.973

0.9967

Austria
120

100

80

60

40

20

0
1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

Growth

Investment

Education(Average Years of total schooling)

Life Expectancy

2000-2005
Openness

2005-2010

Bangladesh
Year

Number of
observations Mean

Life
Growth Investment Openness Education Expectancy

1970-1975

-15.18

5.23

26.095

1975-1980

8.21

6.98

13.42

1980-1985

1.5

14.64

17.52

1985-1990

10.24

13.12

17.93

1990-1995

7.622

12.65

22.21

1995-2000

11.09

14.67

32.98

2000-2005

19.59

19.73

35.89

2005-2010

26.21

22.25

44.71

1.38
1.57
2.25
2.78
3.15
3.72
4.48
5.22

46

Standard
Variance Deviation

Min

Max

Growth Rate

8.66

150.97

12.29

-15.18

26.21

Investment

13.66

32.80

5.73

5.23

22.25

Openness

26.34

115.04

10.73

13.42

44.71

Education

3.07

1.84

1.356

1.38

5.22

Life Expectancy

59.26

55.08

7.42

46

68.4

53.2
56
58.7
Growth

61.3
64.1

Growth
Investment

66.4
68.4

Investment

Life
Education Expectancy

Openness

1
0.846

Openness

0.5514

0.723

Education

0.8651

0.9411

0.8477

Life Expectancy

0.9233

0.921

0.6726

0.955

Bangladesh
80

70

60

50

40

30

20

10

0
1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

2000-2005

-10

-20
Growth

Investment

Education(Average Years of total schooling)

Life Expectancy

Openness

2005-2010

Bolivia
Year

Number of
observations Mean

Life
Growth Investment Openness Education Expectancy

1970-1975

-15.52

12.64

46.535

1975-1980

2.11

16.86

41.72

1980-1985

-16.64

10.61

36.29

1985-1990

2.58

13.55

42.93

1990-1995

8.6

8.7

49.04

1995-2000

5.83

9.77

53.45

2000-2005

6.23

12.46

57.323

2005-2010

13.01

10.04

64.45

4.01
4.59
5.47
6.37
7.26
7.78
8.29
9.35

46.7

Standard
Variance Deviation

Min

Max

Growth Rate

0.78

120.01

10.96

-16.64

13.01

Investment

11.83

6.86

2.62

8.7

16.86

Openness

48.99

83.60

9.14

36.29

64.45

Education

6.64

3.47

1.86

4.01

9.35

Life Expectancy

57.46

45.55

6.75

46.7

65.6

50.1
53.9
57.3
Growth

60.1
62.1

Growth
Investment

63.9
65.6

Investment

Life
Education Expectancy

Openness

1
-0.1767

Openness

0.7103

-0.3891

Education

0.7891

-0.5729

0.8268

Life Expectancy

0.7845

-0.5656

0.7557

0.9904

Bolivia
80

60

40

20

0
1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

-20

-40
Growth

Investment

Openness

Education(Average Years of total schooling)

Life Expectancy

2000-2005

2005-2010

China
Year

Number of
observations Mean

Life
Growth Investment Openness Education Expectancy

1970-1975

13.08

37.05

4.193

1975-1980

17.21

36.99

7.142

1980-1985

37.67

36.99

1985-1990

15

37.63

13.035

1990-1995

48.96

36.38

20.61

1995-2000

24

37.14

31.456

2000-2005

51.31

35.44

51.055

2005-2010

61.3

35.15

68.12

3.43
3.97
4.75
5.25
5.62
6.41
7.11
7.60

64.6

Standard
Variance Deviation

Min

Max

Growth Rate

33.57

351.61

18.75

13.08

61.30

Investment

36.60

0.77

0.87

35.15

37.63

Openness

25.58

535.36

23.14

4.19

68.12

Education

5.52

2.16

1.47

3.43

7.60

Life Expectancy

69.53

11.33

3.36

64.60

74.40

66.3
67.7
68.9
Growth

70
70.9

Growth
Investment

73.4
74.4

Investment

Life
Education Expectancy

Openness

1
-0.8925

Openness

0.7915

-0.8694

Education

0.7728

-0.7258

0.9383

-0.7978

0.7166

-0.9242

-0.9957

Life Expectancy

China
80

70

60

50

40

30

20

10

0
1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

Growth Rate

Investment

Education(Average Years of total schooling)

Life Expectancy

2000-2005
Openness

2005-2010

Czech Republic
Year

Life
Growth Investment Openness Education Expectancy

19901990-1995 1995

-4.21

21.66

55.147

19951995-2000 2000

10.05

25.97

83.115

20002000-2005 2005

22.61

25.35

114

20052005-2010 2010

14.986

24.36

135.642

10.82
11.42

Number of
observations Mean
Growth Rate

Investment

Openness

Education

Life Expectancy

Standard
Variance Deviation Min
Max
11.2967159
10.86
127.62
239607
-4.21
22.61
1.90260347
24.34
3.62
944599
21.66
25.97
35.2451826
97.98 1242.22
211753
55.15 135.64
0.80859445
11.69
0.65
9540751
10.82
12.75
1.92591969
74.63
3.71
372211
72.30
76.80

11.78
12.75
Growth
Growth

Investment

Life
Education Expectancy

Openness

Investment

0.7912

Openness

0.8382

0.5342

Education

0.6846

0.4341

0.9667

-0.7713

-0.477

-0.9932

-0.9894

Life Expectancy

Czech Republic
160

140

120

100

80

60

40

20

0
1990-1995

1995-2000

2000-2005

-20
Growth Rate

Investment

Openness

Education(Average Years of total schooling)

Life Expectancy

2005-2010

Egypt
Year

Number of
observations Mean

Life
Growth Investment Openness Education Expectancy

1970-1975

-6.51

8.11

92.875

1975-1980

8.22

6.98

124.16

1980-1985

1.5

14.64

101.03

1985-1990

10.24

13.12

75.62

1990-1995

7.62

12.65

66.033

1995-2000

11.09

14.67

55.795

2000-2005

19.6

19.73

51.943

2005-2010

26.3

22.55

79.163

1.31
1.68
2.65
3.75
4.38
5.06
5.91
6.54

53

Standard
Variance Deviation

Min

Max

Growth Rate

9.76

101.76

10.09

-6.51

26.30

Investment

14.06

27.62

5.26

6.98

22.55

Openness

80.83

591.53

24.32

51.94

124.16

Education

3.91

3.69

1.92

1.31

6.54

Life Expectancy

63.21

37.56

6.13

53.00

69.90

56.8
59.9
63.6
Growth

65.5
68

Growth
Investment

69
69.9

Investment

Life
Education Expectancy

Openness

1
0.8152

Openness

-0.4341

-0.597

Education

0.8834

0.9115

-0.7662

-0.9091

-0.9127

0.6667

-0.9713

Life Expectancy

Egypt
140

120

100

80

60

40

20

0
1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

2000-2005

-20
Growth Rate

Investment

Education(Average Years of total schooling)

Life Expectancy

Openness

2005-2010

Econometric Analysis

Regression Equation

Growth-rate = a1+b1ln(initialgdp)+b2ln(invpercapita)+b3(openness)
+b4ln(education)+ b5(lnlife)+ c2+c4+c5+t2+t3+t4+t5+t6+t7

Where a1 , b1,b2,b3,b4,b5 are coefficients , and c2 ,c4,c5 are country

dummy variables and t2,t3,t4,t5,t6,t7 are time dummy variables.

We initially set our data set to cross-sectional by using the tsset command in
STATA.

. tsset

panel variable: id (strongly balanced)

time variable: year, 1970 to 1977
delta: 1 unit

. reg growthrate lninitialgdp lninvpercapita openness lneducation lnlife c2 c4 c5 t2-t7

Source

SS

df

MS

Model
Residual

.820284462
.462748643

14 .058591747
33 .014022686

Total

1.28303311

47 .027298577

growthrate

Coef.

lninitialgdp
lninvperca~a
openness
lneducation
lnlife
c2
c4
c5
t2
t3
t4
t5
t6
t7
_cons

-.179862
.0911508
-.0003088
.011329
.8949408
-.0776057
-.0116628
-.027918
.0252181
-.094709
-.0643838
.0036848
-.086317
-.0375181
-2.673782

Std. Err.
.0699116
.0640671
.0005151
.0844425
.3484805
.1043571
.0957158
.0818891
.063999
.0616613
.0611627
.0610956
.0619007
.0640466
1.285516

t
-2.57
1.42
-0.60
0.13
2.57
-0.74
-0.12
-0.34
0.39
-1.54
-1.05
0.06
-1.39
-0.59
-2.08

Number of obs
F( 14,
33)
Prob > F
R-squared
Adj R-squared
Root MSE
P>|t|
0.015
0.164
0.553
0.894
0.015
0.462
0.904
0.735
0.696
0.134
0.300
0.952
0.173
0.562
0.045

=
=
=
=
=
=

48
4.18
0.0004
0.6393
0.4863
.11842

[95% Conf. Interval]

-.3220981
-.0391948
-.0013568
-.1604705
.1859518
-.2899218
-.2063981
-.1945226
-.1049889
-.2201599
-.1888203
-.1206151
-.212255
-.1678219
-5.289185

-.0376259
.2214964
.0007393
.1831286
1.60393
.1347104
.1830724
.1386866
.1554251
.0307419
.0600526
.1279848
.039621
.0927856
-.0583794

Test for Heteroschedasticity

. hettest
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Ho: Constant variance
Variables: fitted values of growthrate
chi2(1)
=
Prob > chi2 =

28.10
0.0000

Test is performed to check for heteroschedasticity. The probability of P > chi2

is 0. Hence the Null-hypothesis is rejected. Hence our model faces the
problem of heteroschedasticity.

Test for Multicollinearity

Test for Multicollinearity

In statistics, the variance inflation factor (VIF) quantifies the severity of

Multicollinearity, in an OLS analysis. It provides an index that measures how
much the variance of an estimated regression coefficient is increased because
of collinearity.

For all practical purposes the VIF should be less than 10. In our model the VIF
is 6.4 which means our model is good.

A VIF of 6.4 implies that the standard errors are larger by a factor of 6.4 than
would otherwise be the case, if there were no inter-correlations between the
predictor of interest and the remaining predictor variables included in the
multiple regression analysis.

Test for Autocorrelation

. xtserial growthrate lninitialgdp lninvpercapita openness lneducation lnlife c2 c4 c5 t2-t7
Wooldridge test for autocorrelation in panel data
H0: no first-order autocorrelation
F( 1,
5) =
1.255
Prob > F =
0.3136

Here the probability is greater than the significance level of 0.05, hence the
null-hypothesis is not rejected .Which means there is no problem of
autocorrelation.

Regression Diagnostic Testing

Our model has the problem of heteroschedasticity hence we use the
robust command in STATA to deal with it.

. reg growthrate lninitialgdp lninvpercapita openness lneducation lnlife c2 c4 c5 t2-t7,robust

Linear regression

Number of obs =
48
F( 14,
33) = 11.95
Prob > F
= 0.0000
R-squared
= 0.6393
Root MSE
= .11842

growthrate

Coef.

lninitialgdp
lninvperca~a
openness
lneducation
lnlife
c2
c4
c5
t2
t3
t4
t5
t6
t7
_cons

-.179862
.0911508
-.0003088
.011329
.8949408
-.0776057
-.0116628
-.027918
.0252181
-.094709
-.0643838
.0036848
-.086317
-.0375181
-2.673782

Robust
Std. Err.
.083575
.0507735
.0006198
.097908
.3076676
.1523908
.1692712
.0920932
.0806443
.0581854
.0629627
.073402
.0534042
.0725419
.8231454

t
-2.15
1.80
-0.50
0.12
2.91
-0.51
-0.07
-0.30
0.31
-1.63
-1.02
0.05
-1.62
-0.52
-3.25

P>|t|
0.039
0.082
0.622
0.909
0.006
0.614
0.945
0.764
0.756
0.113
0.314
0.960
0.116
0.608
0.003

[95% Conf. Interval]

-.3498966
-.0121486
-.0015697
-.1878663
.2689864
-.3876472
-.3560476
-.215283
-.138854
-.2130881
-.1924823
-.1456527
-.1949687
-.1851058
-4.348484

-.0098274
.1944502
.0009521
.2105243
1.520895
.2324358
.332722
.159447
.1892902
.0236701
.0637147
.1530224
.0223347
.1100695
-.9990801

After performing the regression analysis on STATA it can be observed that only
2 variables are significant, which are:

1) ln (initialgdp) (p-value 0.039 < 0.05)

2) ln (life) (p value 0.006 < 0.05)

ECONOMIC AND STATISTICAL INTERPRETATION

OF SIGNIFICANT VARIABLES.

Ln (initialgdp)

The p-value of ln (initialgdp) is 0.039 which is less than 0.05 level of

significance, hence it is significant. Also it is seen that its coefficient is
negative, i.e. -.179(mild negative correlation).A 1% increase in initial gdp
decreases the growth rate 0.179.

Which implies that the higher the initial gdp the lower is the growth rate. This
highlights the phenomenon of conditional convergence for economies. Which
states that poorer countries per capita income, will tend to grow at faster
rates than rich economies. As a result, all economies should eventually
converge in terms of per capita income.

Developing countries have a potential to grow at a faster rate than developed

countries because of diminishing returns (in particular, capital) are not as
strong as in capital-rich countries. Furthermore poorer countries can replicate
the technologies and production methods of developed countries.

Ln (life)

The variable ln (life) is also significant as its p value of 0.006 is less than the
significance level of 0.05. It is seen that the coefficient is 0.894 .With 1%
percent increase in life expectancy the growth rate increases by 0.894.

The coefficient is positive implying that there is high positive correlation

between life expectancy and the growth rate of an economy .This is
synonymous with our ideology that as Life expectancy increases the growth
rate also increases.

This is because with increase in life expectancy the working population

increases, hence the increased contribution would obviously increase the
growth rate. As the labor force is the driving engine in any economy.

Interpretation of the F-value:

Ho: All slope coefficients are zero.
H1: At least one slope coefficient is non-zero.

The calculated F-value F (14, 33) is 11.95, the critical F-value at F (14, 33) is
2.09. So the calculated F is greater than the tabulated F. Therefore we reject
the Null hypothesis: All slope coefficients are 0.

This is true because as our t-statistic is significant we know in advance that

our slope coefficients were non-zero. This is in accordance with the results
obtained from the F-test.

Hence we can say that our regression model has explanatory power as it turns
out that growth rate is related to the explanatory variables.

Interpretation of the R^2 results:

The R-square value ranges from 0 to 1. An R-square of 1 means a perfect fit.

On the other hand an R-square of 0 means there is no relationship between
the regressand and the regressor whatsoever.

The R-square value in our case is 0.6393. Which means that our model is
satisfactorily explaining the relationship between the regressor and the
regressand.

Using the model for policy purposes:

In our model the life expectancy is highly positively correlated with the gdp
growth rate.

Hence policies pertaining to economic growth have to take into account life
expectancy as a major factor .So the government has to use its fiscal policy
through government expenditure on medical facilities and sanitation provided
to its citizens for better economic performance.

The quantity rather than quality of health services has been the focus
historically in developing countries, ample evidence suggests that quality of
care (or the lack of it) must be at the center of every discussion about better
health.

Using the model for policy purposes:

As the labor force of the country is a major factor in its growth, the
workforce should be provided with services of medical insurance as well as
life insurance at an affordable rate as this would provide a sense of social
security through policies of the same.

Ensuring Health care for children as children are the future of a country.
Female infanticide needs to be checked and vaccinations up to a certain age
for diseases like polio are a basic necessity and needs to be implemented in
all parts of the country.

Support for Broad based Medical Research. Monetary support for incurable
diseases like Cancer should be provided as any progress in this sector would
save thousands of lives.

Are There Any Questions?