hw #3 solutions.pdf

# Part a set variable labels for graph label variable

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. ***part (a)*** . *set variable labels for graph . label variable growth "Average Annual Growth Rate" . lab var tradeshare "Average Trade Share" . . *create and save graph . scatter growth tradeshare, /// > title("Ex 4.1(a): Relationship between Growth and Trade Share") . graph export graph41a.png, replace (file graph41a.png written in PNG format) . . * See graph 1(a) that follows. . * The graph shows a positive relationship between growth and trade share. . . ***part (b)*** . . * Plot the graph with the points labeled to identify Malta . scatter growth tradeshare, /// > title("Ex 4.1(b): Growth and Trade Share with labels") /// > mlabel(country_name) mlabpos(9) . graph export graph41b.png, replace (file graph41b.png written in PNG format) . . * See graph 1(b) that follows. . * (note: you don’t need to print this output) 12

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. * Malta is easily identifiable as the outlier in the upper right. . . ***part (c)*** . regress growth tradeshare, robust Linear regression Number of obs = 65 F(1, 63) = 12.09 Prob > F = 0.0009 R-squared = 0.1237 Root MSE = 1.79 ------------------------------------------------------------------------------ | Robust growth | Coef. Std. Err. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------- tradeshare | 2.306434 .6632868 3.48 0.001 .9809608 3.631907 _cons | .6402653 .4591457 1.39 0.168 -.2772641 1.557795 ------------------------------------------------------------------------------ . . * The estimated slope is 2.31; the estimated intercept is 0.64. . . * The predicted growth rate is 0.64 + 2.31 * (trade_share), or . display 0.64 + 2.31 * 0.5 1.795 . * for a trade share of 0.5 and . display 0.64 + 2.31 * 1.0 2.95 . * for a trade share of 1.0. . . ***part (d)*** . * Exclude data from Malta using an "if" statement . regress growth tradeshare if country_name != "Malta", robust Linear regression Number of obs = 64 F(1, 62) = 3.77 Prob > F = 0.0567 R-squared = 0.0447 Root MSE = 1.7894 ------------------------------------------------------------------------------ | Robust growth | Coef. Std. Err. t P>|t| [95% Conf. Interval] 13
-------------+---------------------------------------------------------------- tradeshare | 1.680905 .8656171 1.94 0.057 -.0494392 3.411249 _cons | .9574107 .5360579 1.79 0.079 -.1141537 2.028975 ------------------------------------------------------------------------------ . . * The estimated slope is 1.68; the estimated intercept is 0.96. . . * The predicted growth rate is 0.96 + 1.68 * (trade_share), or . display 0.96 + 1.68 * 0.5 1.8 . * for a trade share of 0.5 and . display 0.96 + 1.68 * 1.0 2.64 . * for a trade share of 1.0. . . ***part (e)*** . * To plot the functions, rerun the regressions and save the predicted values . * using "predict" . quietly regress growth tradeshare, robust . predict reg_all (option xb assumed; fitted values) . lab var reg_all "Predicted values, all countries" . quietly regress growth tradeshare if country_name != "Malta", robust . predict reg_nomalta (option xb assumed; fitted values) . lab var reg_nomalta "Predicted values, without Malta" . . scatter growth tradeshare || line reg_all reg_nomalta tradeshare , /// > title("Ex 4.1(e): Relationship between Growth and Trade Share" /// > "across specifications") . graph export graph41e.png, replace (file graph41e.png written in PNG format) . * See graph 1(e) that follows. . 14

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Figure 1: Exercise 4.1(a) . * The regression without Malta is flatter because Malta is an outlier with a . * high level of growth for its trade share (that is, above the regression . * line). Thus, including this observation makes the regression line steeper. . . . ***part (f)*** . * Malta is a small island off the coast of Italy, with a population of around . * 500,000 (source: Wikipedia). The country’s trade share is so large because . * it is an island in the middle of the Mediterranean Sea, meaning that 1) . * almost all goods must be imported and 2) the island is a frequent stopover . * for shipments crossing that ocean.
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