SCHOOL OF ECONOMICS, FINANCE AND BANKING (SEFB)

UUM COLLEGE OF BUSINESS

BEEQ2023 BASIC ECONOMETRIC

FIRST SEMESTER SESSION 2022/2023 (A221)

GROUP B

GROUP ASSIGNMENT (GROUP 4)

SUBMITTED TO:

MADAM ASNIDA BINTI SHAHIDAN

PREPARED BY:

NAME MATRIC NUMBER

ZAWANI BINTI ZAKARIA 286401
NURAISHAH WAFA BINTI BAHARUDDIN 286452
CHIN WEI LENG 286560
ON SHIWEI 286641
RAHIMAH BINTI HARMAINI 286714

SUBMISSION DATE:

5 JANUARY 2023
Table of Contents Pages

1
 1.0 Multiple Linear Regression Model 3
1.1 Choose Economic Topic for Multiple Linear Regression Model
1.2 Specify Form Econometric Model Without Value of Data 3
1.3 Collect Data Based on Variables 4
1.4 Regress model Using E-View Software 5
1.5 Specify Estimated Model (Model with Value After Regress the Data) 6
1.6 Interpretation for All the Parameter/Coefficient of Model 6
1.7 Hypothesis Testing 7-12
1.8 Interpretation for each independent variable 13
2.0 CONCLUSION 14
3.0 REFERENCE 15

1.0 Multiple Linear Regression Model

2
1.1 Choose Economic Topic for Multiple Linear Regression Model

For multiple linear regression, we chose the topic of the Total Production of Rubber in Malaysia
from the year 1975 to the year 2004. We have collected data from the Department of Statistics
Malaysia which contains the Total Production of Rubber in Malaysia every year since 1975. As a
result, our Y variable is the Total Production of Rubber, and our X variables include X1, X2, and
X3, which are the X variables that influenced Total Rubber Production in Malaysia. The table
below shows our model and explanation for regressing 30 years of data using E-View statistical
software.

1.2 Specify Form Econometric Model Without Value of Data

Model:
Y= β0 + β1X1 + β2X2 + β3X3 +μ
Y= Total Production of Rubber
Β0= y-intercept
X1= Rubber Plantation Area
X2= Number of Worker
X3= Average Price of Rubber
μ= Error Term

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1.3 Collect Data Based on Variables

YEAR Y(‘000 Ton) X1 (‘000 Hectare) X2 (‘000) X3(Sen/kg)

1975 587.2 583.4 185.5 131.60
1976 657.8 573.1 181.2 189.77
1977 633.6 558.5 175.6 195.77
1978 624.8 541.5 169.7 215.63
1979 611.7 525.6 167.1 263.83
1980 591.5 506.1 160.4 273.30
1981 611.7 493.3 153.0 219.94
1982 591.5 481.9 140.8 175.46
1983 578.5 477.5 137.7 218.72
1984 518.1 454.8 130.8 209.18
1985 504.3 428.8 124 173.54
1986 497.5 399.4 119.4 191.30
1987 490.6 381.5 114.9 224.31
1988 481.1 371.1 113.3 277.86
1989 432.8 361.0 108.3 226.81
1990 396.6 348.7 101.7 204.64
1991 366.2 333.4 89.6 213.07
1992 333.0 314.1 79.1 208.68
1993 296.3 292.5 68.2 202.85
1994 271.3 275.0 58.9 293.75
1995 240.7 255.7 55.5 382.60
1996 237.9 223.9 49.9 329.55
1997 215.9 200.7 43.6 271.83
1998 196.7 179.9 40.7 259.00
1999 183.1 151.2 35.3 226.94
2000 126.7 123.8 25.8 242.52
2001 99.5 95.5 18.9 205.56
2002 85.0 84.8 16.1 285.98
2003 76.4 78.5 14.6 378.97
2004 71.2 64.4 13.4 461.93
Table 1

Table 1: Total Production of Rubber, Rubber Plantation Area, Number of Worker and Average
Price of Rubber in Malaysia from 1975 to 2004

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1.4 Regress model Using E-View Software

Dependent Variable: Y
Method: Least Squares
Date: 01/03/23 Time: 09:40
Sample: 1975 2004
Included observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C 25.65505 35.73851 0.717854 0.4792

X1 0.553391 0.252315 2.19326 0.0374
X2 1.798129 0.720966 2.494053 0.0193
X3 -0.010629 0.088805 -0.119684 0.9057

R-squared 0.983252 Mean dependent var 383.8567

Adjusted R-squared 0.981320 S.D. dependent var 194.2561
S.E. of regression 26.54991 Akaike info criterion 9.519495
Sum squared resid 18327.34 Schwarz criterion 9.706322
Log likelihood -138.7924 Hannan-Quinn criter. 9.579263
F-statistic 508.8212 Durbin-Watson stat 0.613229
Prob(F-statistic) 0
Figure 1

Figure 1 shows the estimated model linear regression coefficient for the total production of
rubber in Malaysia from 1975-2004.

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1.5 Specify Estimated Model (Model with Value After Regress the Data)

Y= β0 + β1X1 + β2X2 + β3X3

Y= 25.65505 + 0.553391X1 + 1.798129X2 - 0.010629X3

1.6 Interpretation for All the Parameter/Coefficient of Model

Based on Figure 1, we can construct an equation of the model.

Y= 25.65505 + 0.553391X1 + 1.798129X2 - 0.010629X3

s.e. (35.73851) (0.252315) (0.720966) (0.088805)

 If all the X variables values are 0, the expected value of rubber production is 25.655025.
 β1= 0.553391; If the rubber plantation area increases by 1 hectare, on average it will
increase the total production of rubber by 0.553391 tons, ceteris paribus. If the rubber
plantation area decreases by 1 hectare, on average it will decrease the total production of
rubber by 0.553391 tons.
 β2= 1.798129; If the number of workers increases by 1 person, on average the total
production of rubber increases by 1.798129 tons, ceteris paribus. If the number of
workers decreases by 1 person, on average the total production of rubber decreases by
1.798129 tons.
 β3= -0.010629; If the average price of rubber rises by 1 Sen, on average the total
production of rubber falls by 0.010629 tons, ceteris paribus. If the average price of rubber
falls by 1 sen, on average the total production of rubber rises by 0.010629 tons.

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1.7 Hypothesis Testing

Hypothesis testing for multiple linear regression can use both F-test and T-test.

A. Joint Hypothesis (F-Test)

The econometrics estimated shown as below:

Y= β0 + β1X1 + β2X2 + β3X3

Dependent Variable Independent Variables

The Total Production Y-Intercept Rubber Plantation Number of Average Price of
of Rubber Area Worker Rubber
Y β0 β1X1 β2X2 β3X3
Ŷ 25.65505 0.553391 1.798129 - 0.010629
s.e. 35.73851 0.252315 0.720966 0.088805

Step 1: State the hypothesis.

Null hypothesis, H 0:

H 0: β 1=β 2=β 3=0 ; there is no relationship between Y and X 1 , X 2, X 3 .

Alternative hypothesis, H 1:

H 1 : β1 ≠ β 2 ≠ β 3=0 ; there is a relationship between Y and X 1 , X 2 , X 3.

Step 2: Select suitable level of significant.

For this test, we choose to use α =0.05 significant level with the size sample of 30
years and 3 independent variables. Therefore, n=30and number of parameters, k =4 .

Step 3: Determine the test statistic.

For this hypothesis test, we use F-test.

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Step 4: Compute F statistic.

ESS
( k−1 )
To compute F s, use ANOVA table and formula for F s which is F s=
RSS
( n−k )

Where:

F s=¿ F-test

k =¿number of parameters in model

n=¿size sample

ESS=¿Explained Sum of Square

RSS=¿Residual Sum of Square

Source of Degree of freedom Sum of Squares Mean Squared Error

Variation (df ) ( SS ¿ ( MSS )
Regression 3 1076000.496 358666.832
Residual 26 18327.33775 704.897605
Total 29 1094327.834 359371.7296

1076000.496
4−1
F s=
18327.33775
( 30−4 )

F s=508.8212

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Step 5: Compute critical value of F ( F c)

Information:

Significant level, α =0.05

Size sample, n=30

Number of parameters, k =4

F c =Fa ; (k−1) , ( n−k )

F c =F0.05 ; ( 4−1 ), (30−4 )

F c =F0.05 ; ( 3) , ( 26)

F c =2.98

Next, refer F-distribution table where the degree of freedom numerator equal to 3 and the degree
of freedom for the denominator is 26. Therefore, find critical value for F-test. The critical value
of the F-test is 2.98.

Step 6: Decision making

F s=508.8212> F c =2.98

Therefore, reject H 0.

As a conclusion, the F s of model linear regression is 508.8212 whereas F c is 2.98. This means
that the F s is larger than F c. So, we reject the H 0 at the level of significance 5%.

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B. Hypothesis (T-Test)

Our main hypothesis presented below,

I) There is a relationship between The Total Production of Rubber and Rubber Plantation Area.

II) There is a relationship between The Total Production of Rubber and Number of Worker.

III) There is a relationship between The Total Production of Rubber and Average Price of
Rubber.

I) There is a relationship between The total Production of Rubber and Rubber

Plantation Area.

H 0 : β 1=0 ; there is no relationship between Y and X

H 1 : β1 >0 ; there is a positive relationship between Y and X

α =0.05

n=30

Degree of freedom(d.f) = 26

β^ 1−β 1
t s=
s . e( β^ )
1

0.553391−0
¿
0.252315

¿ 2.19

t c =t 0.05 ; 26
¿ 1.706

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t s >t c

In this case t s >t c, H 0 at 5% level of significance. Therefore, the sample shows that Rubber
Plantation Area is a significant variable that affects The Total Production of Rubber at 5% level
of significant. We can conclude that The Total Production of Rubber and Rubber Plantation Area
have a positive relationship.
II) There is a relationship between The total Production of Rubber and Number of Worker.

H 0 : β 2=0 ; there is no relationship between Y and X

H 1 : β2 >0 ; there is a positive relationship between Y and X

α =0.05

n=30

Degree of freedom(d.f) = 26

β^ 2−β 2
t s=
s . e( β^ )
2

1.798129−0
¿
0.720966
¿ 2.49
t c =t 0.05 ; 26
¿ 1.706

t s >t c

In this case t s >t c, we will reject H 0 at 5% level of significance. Therefore, the sample shows that
Number of Worker is a significant variable that affects The Total Production of Rubber at 5%
level of significant. We can conclude that The Total Production of Rubber and Number of
Worker have a positive relationship.

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12
 III) There is relationship between The total Production of Rubber and Average
Price of Rubber.

H 0 : β 3=0 ; there is no relationship between Y and X

H 1 : β3 <0 ; there is a negative relationship between Y and X
α =0.05
n=30
Degree of freedom(d.f) = 26

β^3−β 3
t s=
s . e ( β^3 )
−0.010629−0
¿
0.088805
¿−0.0120
t c =t 0.05 ; 26
¿−1.706

−t s >−t c

In this case, we do not reject H 0 at 5% level of significance. Hence, this sample shows that
Average Price of Rubber is not a significant variable that affects The Total Production of Rubber
at 5% level of significant. We can conclude that there is no relationship between The Total
Production of Rubber and Average Price of Rubber.

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1.8 Interpretation for each independent variable

α =0.05
Variables P-value
X1 0.0374
X2 0.0193
X3 0.9057

I. X1
Based on the table, p-value of X 1 is less than 0.05 significance level, rubber plantation
area has a relationship with the rubber production. Therefore, the decision is to reject H 0.

II. X2
Based on the table, p-value of X 2 is less than 0.05 significance level, the number of
worker has a relationship with the rubber production. Therefore, the decision is to reject
H 0.

III. X3
Based on the table, p-value of X 3 is more than 0.05 significance level, average price of
rubber has no relationship with the rubber production. Therefore, the decision is not
reject H 0.

The Coefficient of Determination

2
R =0.983252
It shows that all the independent variables, X which is X 1 , X 2 and X 3 can explain about
98.3252% of the changes in Y.

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2.0 CONCLUSION
In conclusion, we examine the relationship between total production of rubber and rubber
plantation area, number of worker and average price of rubber from the year 1975 to the year
2004. The dependent variable is the total production of rubber while the three other variables are
independent variables. Based on the results that we obtained from the E-View Software, we can
conclude that our model is a good model. This is because the value of the Adjusted R-squared
approaches to 1 which is 0.981320. Based on the theory, the larger the value of the Adjusted R-
squared, the best is the model and fit to the data.

Then, we also used F-test to show that our model is a good model. F-test is used to test
the relationship between Y and X and all Xs are not individually tested in this test. Based on our
F-test result, the F statistic ( F s) is larger than the F critical ( F c), then we should reject H 0 and
this F-test is statistically significant at a 5% level of significance. This is defined that at least one
of all Xs in the model has a relationship with Y.

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3.0 REFERENCE

Frost, J. (2022, April 6). Model specification: Choosing the best regression model. Statistics By
Jim. Retrieved December 29, 2023, from

https://statisticsbyjim.com/regression/model-specification-variable-selection/

Time series data. Department of Statistics Malaysia Official Portal. (2020). Retrieved December
23, 2022, from https://www.dosm.gov.my/v1/index.php?r=column
%2Fctimeseries&menu_id=bnk3bk0wTTkxOXVHaVg3SUFDMlBUUT09

Zach. (2021, June 15). How to Interpret a P-Value Less Than 0.05 (With Examples). Statology.
https://www.statology.org/p-value-less-than-0-05/

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