Introduction to Econometrics 3rd Edition by James Stock, James Stock

Exercise 18

Using the data set Growth described in Empirical Exercise 4.4, excluding the data for Malta, run the following five regressions: Growth on (1) TradeShare and YearsSchool, (2) TradeShare and In (YearsSchool) -, (3) TradeShare, In (YearsSchool), Rev_Coups, Assassinations and ln (RGDP60)-, (4) Trade-Share, ki(YearsSchool), RevjCoups,Assassinations, ln (RGDP60), and Trade-Share X ln(YearsSchool); and (5) TradeShare, TradeShare 2 , TradeShare 3 , In (YearsSchool), Rev_Coups, Assassinations, and ln (RGDP60).
a. Construct a scatterplot of Growth on YearsSchool. Does the relationship look linear or nonlinear Explain. Use the plot to explain why regression (2) fits better than regression (1).
b. In 1960, a country contemplated an education policy that would increase average years of schooling from 4 years to 6 years. Use regression (1) to predict the increase in Growth. Use regression (2) to predict the increase in Growth.
c. Test whether the coefficients on Assassinations and Rev_Coups are equal to zero using regression (3).
d. Using regression (4), is there evidence that the effect of TradeShare on Growth depends on the level of education in the country
e. Using regression (5), is there evidence of a nonlinear relationship between TradeShare and Growth
f. In 1960, a country contemplated a trade policy that would increase the average value of TradeShare from 0.5 to 1. Use regression (3) to predict the increase in Growth. Use regression (5) to predict the increase in Growth.