Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Exercise 9

A problem of interest to health officials (and others) is to determine the effects of smoking during pregnancy on infant health. One measure of infant health is birth weight; a birth weight that is too low can put an infant at risk for contracting various illnesses. Since factors other than cigarette smoking that affect birth weight are likely to be correlated with smoking, we should take those factors into account. For example, higher income generally results in access to better prenatal care, as well as better nutrition for the mother. An equation that recognizes this is
bwght = 0 + 1 cigs + 2 faminc + u.
(i) What is the most likely sign for 2
(ii) Do you think cigs and faminc are likely to be correlated Explain why the correlation might be positive or negative.
(iii) Now, estimate the equation with and without faminc, using the data in BWGHT.RAW. Report the results in equation form, including the sample size and R-squared. Discuss your results, focusing on whether adding faminc substantially changes the estimated effect of cigs on bwght.