Statistics and Econometrics ID- 4119l 2011/12 Level Essay

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Statistics and Econometrics

ID- 4119L

2011/12 LEVEL

STATISTICS AND ECONOMETRICS

Present your data in a table showing the names of the variables. Make sure the full definitions and sources of each variable are given.

Birth Rates: (thousands)

Quarter1 (Q1)

Quarter2 (Q2)

Quarter3 (Q3)

Quarter4 (Q4)

GDP per capita (GDP)

The GDP data used was from http://earthtrends.wri.org/text/economics-business/variable-638.html in the table Economics, Business, and the Environment -- GDP: GDP per capita, current U.S. dollars

Current U.S.$ per person

GDP

The equation to be estimated is:

BRi = b0 + b1 GDPi+ ui (i)

(i) In terms of the literature on demand for children, what would you expect to find for the coefficient on b1 ?

is expected to have a negative value. There is an indirect negative relationship between the birth rate and GDP per capita of a country. Generally, as the GDP per capita increases, the birth rate decreases [James M. 2009].

Explain how you would modify the model, implied by this equation, if there is an 'Engel curve' relationship in the demand for children.

For an Engel curve the income becomes dependent variable and plotted in the Y-axis and the service or good demanded becomes the independent variable and plotted on the X-axis [http://en.wikipedia.org/wiki/Engel_curve]. The model would change as follows:

GDPi = b0 + b1 BRi+ ui (ii)

(iii) Why is there a constant term in the equation with no variable attached?

The constant term b0 with no variable attached to it, gives the baseline Birth Rate, that is the Birth Rate when GDP is zero and GDP has no effect on Birth Rate.

(iv) Why do these types of equations have a 'u' term?

The term ui called the error term, is used to cater for the variation in the actual model and the fitted model.

3. Estimate equation (i) by OLS and present the results in a suitable table

Estimation by OLS

Dependent variable: Birthrate

Coefficient

Std. Error

t-ratio p-value const

9.86976

0.343927

28.

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