API-202A+Assignment+2+S09 - API-202A Empirical Methods II...

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1 API-202A Empirical Methods II Spring 2009 Assignment 2 Due February 19 th at 5pm (Drop in API202A mailbox inside manila envelope with your KSG mailbox # written outside) Section I: Smoking and Cancer Few medical professionals doubt that smoking leads to many health problems, including lung cancer. While it is more difficult to determine that smoking causes lung cancer than simply to say that the two are related, in this assignment you will perform analysis that can begin to document the relationship between smoking and lung cancer. However, this is far from a definitive analysis. The sample is very small, and no effort is made to control for other differences between the countries in the sample. The purpose of this exercise is to help you learn the mechanics of ordinary least squares (OLS) regression. First you will calculate the regression “by hand” using the formulas developed in class, and then you will use Stata to confirm the calculation. The death rate from lung cancer in 1950 and the per capita cigarette consumption in 1930 are shown below for five countries. The cancer rates are shown for a later time period because it presumably takes time for lung cancer to develop and be diagnosed. Our hypothesis is that the dependent variable, lung cancer ( Y ), is a function of the independent variable, smoking ( X ). Country Cigarettes Consumed Lung Cancer Deaths per Capita (1930) per Million People (1950) Holland 460 245 Finland 1115 350 Great Britain 1145 465 Canada 510 150 N o r w a y 2 5 0 9 0 Source: Edward R. Tufte, Data Analysis for Politics and Management , Table 3.3. (1) Using the appropriate formulas (given at the end of this assignment), show how to calculate each of the following. Note: “show how to calculate” means (1) write the appropriate formula; (2) plug in the appropriate values; and (3) show the computed answer. You do not need to show the intermediate calculations between steps 2 and 3. NOTE: You may use excel to do the calculations as long as you show the formulas used and you do not use the built-in regression functions. a) 1 ˆ , the estimated slope coefficient from the regression i i i X Y ˆ ˆ ˆ 1 1 b) 0 ˆ , the estimated intercept term from the same regression c) Holland Y ˆ , the predicted value for Holland d) Holland ˆ , the OLS residual for Holland
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2 (2) In this question you will see how the same regression is produced by Stata. Open Stata and type “edit,” which brings up something that looks like a spreadsheet. Enter the smoking and cancer values in the first two columns. Double-click the column headers to enter variable names (“smoke”, “cancer”) and appropriate labels. Close the editor window when you are done. Type “list” to be sure you have typed in the numbers correctly, and type “sum” to inspect the variable means.
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API-202A+Assignment+2+S09 - API-202A Empirical Methods II...

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