Empirical question. E4.

4 of Stock and Watson a) Construct a scatterplot of average annual growth rate (Growth) on the average trade share (TradeShare). Does there appear to be a relationship between the variables?
scatter growth tradeshare
8 growth -2
0

0

2

4

6

.5

1 tradeshare

1.5

2

It appears to be a positive relationship between growth and trade because of the positive slope of the line that would go through that scatterplot of data points.
b) One country, Malta, has a trade share much larger than the other countries. Find Malta on the scatterplot. Does Malta look like an outlier?
scatter growth tradeshare, mlabel( country_name)

5 and with trade share equal to 1. run a regression of Growth on TradeShare.0.5 1 tradeshare 1. gen(country) gen difference=[abs(tradeshare-trade_sd)]/trade_sd table country if difference>=4. China Malta 6 Cyprus Thailand Malaysia Portugal Ireland Greece Norway Mauritius Brazil Spain Finland Iceland Italy Austria Sri Pakistan Israel Lanka Belgium Germany Dominican Republic France CanadaParaguay Netherlands Colombia Ecuador Denmark Australia Sweden Panama Mexico Kingdom Kenya United India United States Costa Rica Chile Switzerland Philippines New Zealand Papua New Guinea Uruguay Trinidad and Tobago Guatemala Zimbabwe Bangladesh Honduras Argentina South Jamaica Bolivia Togo Africa Peru Sierra Leone Senegal El Salvador Haiti Venezuela Ghana Japan growth -2 0 2 4 Niger Zaire 0 . . We can also find it using Stata.8 Korea. away from the mean.d.5 2 Malta does look like an outlier. c) Using all observations.89 s. we have: egen trade_sd=sd(tradeshare) encode country_name. What is the estimated slope? What is the estimated intercept? Use the regression to predict the growth rate for a country with trade share of 0. If we define outlier as an observation that is 4 s. c(max difference) ------------------------country | max(differ~e) ----------+-------------Malta | 5. Republic of Taiwan.888421 ------------------------- Malta trade share is 5.d. away from the mean.

0  Estimated Growth= 0.70 0.9574107 Trade share=0.6402653+2.31 0.680905 .85212 _cons | .196 -.6402653+2.20399287 -------------+-----------------------------Total | 230.1098 1.98 0.5  Estimated Growth= 0.0937 0.6383157 e) Where is Malta? Why is Malta trade share so large? Should Malta be included or excluded from the analysis?   Malta is in Southern Europe.9466993 d) Estimate the same regression excluding the data from Malta. manufacturing (especially electronics and textiles) and tourism.654614 _cons | .619405 ------------------------------------------------------------------------------ Estimated slope = 2.3388749 1. gives it strategic importance.4885066 1 28. Answer the same questions in c reg growth tradeshare if country_name!="Malta" Number of obs F( 1.4899767 1. Interval] -------------+---------------------------------------------------------------tradeshare | 1.2928046 3.1237 0. Err. It is very small (316 sq km).680905 Estimated intercept= 0.680905*1 = 2.9574107 .306434 Estimated intercept= 0.29854222 -----------------------------------------------------------------------------growth | Coef.9574107+1.306434 . 62) Prob > F R-squared Adj R-squared Root MSE = = = = = = 64 2.9873624 1.6402653 Trade share=0. Std.0  Estimated Growth = 0.6402653 .0292 1.680905*0.28031557 1 9.773485 2.7607473 3.094 -.reg growth tradeshare Source | SS df MS -------------+-----------------------------Model | 28.4885066 Residual | 201.527844 62 3.2027378 2.5803727 1. Its location.80816 63 3.104 -. in the Centre of the Mediterranean. t P>|t| [95% Conf.340057 64 3.306434*1 = 2.9574107+1.004 .7978632 Trade share=1.89 0. t P>|t| [95% Conf. Interval] -------------+---------------------------------------------------------------tradeshare | 2.7934823 Trade share=1.306434*0. 63) Prob > F R-squared Adj R-squared Root MSE = = = = = = 65 8.59906339 Number of obs F( 1.5 = 1.0041 0.5 = 1.0447 0.65 0.79 -----------------------------------------------------------------------------growth | Coef.7894 Source | SS df MS -------------+-----------------------------Model | 9. is an island in the Mediterranean Sea.851551 63 3.5  Estimated Growth = 0.28031557 Residual | 198. .117559 ------------------------------------------------------------------------------ Estimated slope = 1. Err. south of Sicily (Italy). The economy is dependent on foreign trade (serving as a freight trans-shipment point).20206201 -------------+-----------------------------Total | 207.90 0. Std.

first. Malta has an strategic geographic location. Malta is an exporter of limestone. Malta should be excluded from the analysis otherwise we would be overestimating the effect of trade on growth. Malta is an exceptional case of trade share. .  Malta’s trade share is very large because. when you are a small island you are likely to depend on foreign trade to get goods. Secondly.

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