Homework answers / question archive / AFE5023-B Research Methods for Economists Supplementary Econometrics Project (1000 words maximum excluding tables and figures) Submission deadline: 3pm, 30 July 2021 • Failure to submit your work by this deadline will result in a mark of 0% • The assignment must also be submitted in electronic format to Turnitin / Canvas • You are advised to plan your work carefully and back-up your work

AFE5023-B Research Methods for Economists Supplementary Econometrics Project (1000 words maximum excluding tables and figures) Submission deadline: 3pm, 30 July 2021 • Failure to submit your work by this deadline will result in a mark of 0% • The assignment must also be submitted in electronic format to Turnitin / Canvas • You are advised to plan your work carefully and back-up your work

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AFE5023-B Research Methods for Economists
Supplementary Econometrics Project
(1000 words maximum excluding tables and figures)
Submission deadline: 3pm, 30 July 2021
• Failure to submit your work by this deadline will result in a mark of 0%
• The assignment must also be submitted in electronic format to Turnitin / Canvas
• You are advised to plan your work carefully and back-up your work. Computing
problems will NOT be accepted as reasons for non-submission
• For your information when preparing your coursework, refer to the ‘Statement of
Authenticity’ to be found on the assessment tab of each module
This study requires you to compile a sample of data for two variables:
• Carbon dioxide emissions per capita (CO2) defined as the total amount of carbon
dioxide divided by population. This is released by burning fossil fuels in the process
of producing and consuming energy, measured in metric tons.
• Gross Domestic Product per capita (GDPPC) defined as comparing GDP on a
purchasing power parity basis divided by population.
Your sample is a set of 60 countries for one specific year; you will be informed which
countries you are using via Canvas.
The data is available on the module’s Canvas site in the form an Excel spreadsheet
(AFE5023 Econometrics Project data supplementary.xlsx) and has been sourced
from the CIA World Factbook ((https://www.cia.gov/the-world-factbook/references/guideto-
country-comparisons/#economy) for the year of 2019.
Please answer questions 1-6:
1. The first equation to be estimated, by OLS, is:
CO2i = b0 + b1 GDPPCi + ui (1)
Where u is a random disturbance term and the subscript i represents country
Answer these questions:
2
a. What sign would you expect to find for the coefficients in the regression equation
and why? (3 marks)
b. Does it make sense to say the intercept is the CO2 that occurs if there was no
GDP per capita? Explain. (3 marks)
c. What assumptions must be made about the ‘u’ term in order for the OLS estimates
to be BLUE? (4 marks)
(10 marks in total)
2. Estimate equation (1) by OLS and present the results in a suitable table (do NOT
simply cut and past the SPSS output)
a. Comment on the results for the coefficients. (2 marks)
b. Comment on the R squared statistic. (2 marks)
c. Is the estimated value of b0 positive or negative? Does it matter for the reliability of
your estimates for b1 whether b0 is positive or negative? Explain why. (2 marks)
d. Examine the residuals of your estimated equation to determine whether any of
your countries is a regression outlier. (4 marks)
(10 marks in total)
3. Carry out the following hypothesis tests:
a. b0 = 0 against the two sided alternative at the 1% level (2 marks)
b. b1 = 0 against the two sided alternative at the 5% level (3 marks)
(5 marks in total)
4. Calculate the elasticity of CO2 with respect to GDPPC at the means of the data.
(5 marks in total)
5. You are now required to add an additional variable of your own choice to equation (1).
Call this equation (2).
3
a. Identify what your new variable is, why you have chosen it and its definition. (4
marks)
b. Write down the estimating equation you need to use to estimate (2) by OLS. (3
marks)
c. What does the coefficient of b1 now represent given the presence of a second
independent variable? (4 marks)
d. Explain why the use of an ‘F’ test ‘for the equation’ was pointless for equation (1).
Why is this more useful in your extended equation and what it can be used for? (4
marks)
e. Estimate your new equation and present it in a table alongside the original equation
for comparative purposes. (5 marks)
(20 marks in total)
6. Use data from the CIA World Factbook ((https://www.cia.gov/the-worldfactbook/
references/guide-to-country-comparisons/#economy) and other data
sources (see appendix below) if necessary to write a report of 450-600 words
consisting of further exploration of your data that involves:
• additional observations (5 marks)
• additional variables in terms of both count and categorical variables (10 marks)
• new estimating equations (10 marks)
• provide suggestions for improvement of the model you have estimated. (25 marks)
(50 marks in total)
4
Appendix:
Other Data Sources:
Economic Data:
World Bank World Development Indicators: (best source of economic and development
indicators across countries)
http://databank.worldbank.org/data/reports.aspx?source=world-developmentindicators
(Links to an external site.)
IMF statistics: (best source of financial indicators across countries)
http://www.imf.org/en/Data (Links to an external site.)
Office of National Statistics (ONS): (UK economic data)
https://www.ons.gov.uk/ (Links to an external site.)
Trading Economics: (the website gives access to large number of economic and
financial variables)
https://tradingeconomics.com/ (Links to an external site.)
Financial Data:
Yahoo Finance: (open access source of financial data)
https://uk.finance.yahoo.com/