Initial Empirical Analysis

Initial Empirical Analysis - Economics 245A Initial...

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Economics 245A Initial Empirical Analysis Graphs The goal of initial empirical analysis is to establish basic facts that support an argument. The analysis at this stage could be considered unconditional. The more serious econometric model to follow would make the more formal conditional argument. (Note, in some cases the unconditional argument will yield a di/erent hypothesis than the conditional argument.) Perhaps the most straightforward way to convince the reader of the point at hand, is to use a graph. To construct a graph, think of the logical points you would establish if you were presenting a simple legal case. For example, Gri¢ th, Harrison and Van Reenen (AER December 2006) study how technology transfers lead to growth. To establish their case they the higher technology country will grow faster. In their analysis they use de- tailed data from the UK (the lower technology country) and the US (the higher technology country). ( See the copy of their graph in the 245A folder) To do so, they construct the median investment level in US R±D (prior to 1990) for a given UK industry. (It is important to use investment levels prior to 1990, They then calculate the labor productivity growth from 1990 to 2000 for each US G H G L ; where G H proportion above the median and G L US investment proportion below the median. We might expect this premium to be larger for industries in which the US invested heavily in R±D, as this would signal the most productive US R±D sectors. Hence they plot G H G L against the average growth in the R±D stock for the industry in the US. Not every point sustains their argument. For example, nonmetallic minerals with a higher proportion of their R±D in the US had higher growth. (Note that reliance on proportions of investment is important here, so that one cannot For the most part, however, there is a positive relation, in that greater growth of US R±D leads to a greater productivity premium. What really sets the graph apart from others is the two details they add: shading and size. They calculated the technological lead the US had over the UK in each industry. Those industries in which the gap was largest are indicated by shaded points. One would think that the argument should be strongest for 1
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This note was uploaded on 12/26/2011 for the course ECON 245a taught by Professor Staff during the Fall '08 term at UCSB.

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Initial Empirical Analysis - Economics 245A Initial...

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