Economic growth and trade opennessThe topic of this work is openness to trade and economic growth. Your initial variable willbe openness to trade which is measured asopennessi=Exporti+ ImportiGDPiwhere Exportiis total export of countryiin a given year, measured in current US dollars;Importiis total import of countryiin a given year, measured in current US dollars. GDPiis gross domestic product of countryiin a given year, measured in current US dollars.You will also need a measure of economic growth. You will be required to collect data on this.For both openness and growth please use the data available at the World Bank – World Devel-opment Indicators (WDI): You should work with a specific year of your own choice.
Q1. Define economic growth. Discuss how you measure economic growth. Obtain data on economic growth from WDI for your specific year. Produce a histogram of growth rates.Label it and provide a title for it. Discuss the distribution of growth rates.(5 marks)
Q2. Obtain data required to compute openness to trade from WDI. Produce a scatter plot of openness to trade (x-axis) against growth (y-axis). Based on visual inspection, discuss any pattern and outliers in the data that emerge. Identify the outliers and discuss the impact ofoutliers on the regression.(5 marks)
Q3. Present a table of summary statistics. This table should contain number of observa-tions, average, standard deviation, minimum, and maximum for both variables.(5 marks)
Q4. Compute and present a correlation matrix. Discuss correlation between growth and openness to trade.(5 marks)2
Q5. (1) Specify a regression model that explains how growth rates depend on openness to trade. Estimate the model, present results in a table and discuss your results.(10 marks)
(2) Based on the regression results, what is the marginal effect of openness to trade on growth rates, and what is the elasticity of growth rates with respect to openness to trade?(10 marks)
Q6. In the model specified in Q5, are there any omitted variables that should also be in-cluded? If yes, please identify additional variable(s) that should also be included in the modelin
Q5, and briefly discuss the reason why the variable(s) should be included. Specify a new regression model which includes the variable(s) that you identified as omitted variable(s),estimate the new model, present the results in a table, and discuss your results. If no, please discuss your rationale.(15 marks)
Q7. Perform a statistical test to check whether the functional form in the model specified in
Q6 is misspecified. Present your test results in a table, and discuss your results.(15marks)
Q8. (1) Perform a statistical test to check for heteroskedasticity in the model specified inQ6, present your results in a table and discuss your results.(15 marks)(2) Use a robust estimation method to correct for heteroskedasticity. Present your results ina table, and discuss your result
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