Life expectancy 2000 a) Suppose you have country-level data for 100 countries, and you want to estimate the effect of real GDP pder capita (GDP) on life expectancy (LIFE). You suspect that there is a structural change in the relationship between GDP and LIFE which occurs when GDP per capita is $5,000 (think rich vs poor countries). How would you test for this structural break using 1) dummy variables and 2) the Chow test? Write down the regression equations (including other control variables), the null and alternative hypotheses, test statistics, degrees of freedom and any other details you think are important. Would the Chow test and dummy variables approach give you the same answers? Discuss. b) You plot the data with LIFE on the y-axis and GDP on the x-axis: d 1000- -1000- 2600 Breakpoint 5000 GDP per capita Does the scatter plot indicate anything which could be problematic for your regression results? How would you (formally) test this problem? How would you fix it?

Life expectancy 2000 a) Suppose you have country-level data for 100 countries, and you want to estimate the effect of real GDP pder capita (GDP) on life expectancy (LIFE). You suspect that there is a structural change in the relationship between GDP and LIFE which occurs when GDP per capita is $5,000 (think rich vs poor countries). How would you test for this structural break using 1) dummy variables and 2) the Chow test? Write down the regression equations (including other control variables), the null and alternative hypotheses, test statistics, degrees of freedom and any other details you think are important. Would the Chow test and dummy variables approach give you the same answers? Discuss. b) You plot the data with LIFE on the y-axis and GDP on the x-axis: d 1000- -1000- 2600 Breakpoint 5000 GDP per capita Does the scatter plot indicate anything which could be problematic for your regression results? How would you (formally) test this problem? How would you fix it?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 25CTQ: Cross country comparisons of GDP per capita typically use purchasing power parity equivalent...

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