Econometrics: Quantitative Methods

Answer ALL PARTS of the question below.address relevant theoretical perspectives, illustrate points with reference to examples, and cite literature sources where appropriate to support your arguments.

For an analysis of growth within or across countries the Augmented Solow model developed by Mankiw et al (1992), is capable of incorporatingfactors such as trade, FDI, inequality, and a measure of institutional quality in addition to the core variables of capital and labour, etc.

A: Select one additional non-core variable and a country (or countries) of your choice and set up your empirical model for investigating potential impact that the variable may have on growth for the country/countries you have selected. Provide a theoretical and empirical justification for the inclusion of the selected variable. 10%

B: Using the World Bank World Development Indicators (WDI) download relevant time series data for your model; make use of other internationally reputable sources to complement your dataset if data are not available in the WDI. Conduct a preliminary analysis of your data using relevant descriptive statistics techniques. 10%

C: Run relevant regressions using Microfit (available in Library). Present the output of your regression, comment on the regression results generated and discuss their theoretical and empirical validity. 20%

D: Discuss the main problems that you may face conducting regression analysis (other than non-stationarity), and by reference to your regression results, discuss whether they suffer from any of these problems. Make use of relevant diagnostic tests whenever appropriate. 20%

E: Identify whether the variables in your model suffer from non-stationarity. Discuss the possible implication of non-stationarity for your model and how this problem could be addressed. 20%

F: In the light of your findings under D and E above, make any necessary changes to your model to correct for any of the problems that you have identified. Compare and contrast results generated here with those under C. To what extent are you confident about the reliability of your result? What are the policy implications from this analysis? 20%