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Pset from James Stock's Econometrics Class at Harvard

Pset from James Stock's Econometrics Class at Harvard

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You are on page 1of 4

Worked With:

Alexander Marcus and Alex Sloan

Economics 1123, Problem Set 4

1)

Table 1: Determinants of Terrorism, ctd.

(6) (7) (8) (9)

Dependent variable: lnftmpop lnftmpop lnftmpop lnftmpop

Regressor:

higdppc -2.8379** -3.8441 -.3837 -.5926

(.9987) (2.4057) (1.0421) (1.0844)

lackpf -.2482 .1312 1.6218** 1.9774**

(.1649) (1.0601) (.5245) (.5284)

lackpf2 __ -.0403 -.1886** -.2280**

(.1137) (.0615) (.0604)

higdppc × lackpf .6449** 1.8890 __ __

(.2377) (1.2161)

higdppc × lackpf2 __ -.1959 __ __

(.1407)

ethnic __ __ 1.4617 1.2365

(1.0450) (.9956)

religion __ __ -3.0074* -3.4056*

(1.4180) (1.6494)

higdppc × ethnic __ __ -1.2973 -.5015

(1.6976) (1.8009)

higdppc × religion __ __ 2.6547 2.5105

(1.8997) (2.0183)

Mideast __ __ __ -1.2532

(1.3117)

Other regional dummies (latinam, No No No Yes

easteurope, africa, eastasia)?

Intercept -.7172 -1.5174 -4.3760** -3.7822*

(.8423) (2.2381) (1.2595) (1.5458)

F-statistics testing the hypothesis that the population coefficients on the indicated

regressors are all zero:

higdppc × lackpf, __ 1.34 __ __

higdppc × lackpf 2 (.2689)

lackpf2, higdppc × lackpf2 __ 4.12 __ __

(.0204)

lackpf, lackpf2 __ 1.10 4.81 7.21

(.3390) (.0112) (0.0016)

higdppc × ethnic, higdppc × religion __ __ 1.24 0.79

(.2970) (0.4606)

ethnic, religion, __ __ 1.45 1.66

higdppc × ethnic, higdppc × religion (.2266) (0.1705)

Other regional dummies __ __ __ 0.63

(0.6422)

Regression summary statistics:

R2 0.0854 0.1311 0.1168 0.0773

R2 0.1220 0.1891 0.2015 0.2290

SER 1.8077 1.7619 1.7694 1.8085

n 76 76 74 74

Notes: Heteroskedasticity-robust standard errors are given in parentheses

under estimated coefficients, and p-values are given in parentheses under F-

statistics. The F-statistics are heteroskedasticity-robust. Coefficients are

individually statistically significant at the +10%, *5%, **1% significance level.

The “other regional dummies” included in regression (5) are latinam,

easteurope, africa, and eastasia (the omitted case is Western Europe

combined with North America)

2)

higdppc=1

lnftmpop = -3.555136 + .3966958(lackpf)

(.5366) (.1712)

2

0

-2

-4

-6

0 2 4 6 8

lackpf

higdppc=0

lnftmpop = -.717181 + -.248253 (lackpf)

(.8423) (.1649)

2

0

-2

-4

-6

2 3 4 5 6 7

lackpf

3)

a) The difference between the two slopes plotted in Question 2 is given by

higdppc x lackpf which has a t-value of 2.71 which is significant at the 5%

level meaning that the slopes are different.

b) When all else is constant, as countries with high gdp per capita

(higdppc=1) lose political freedoms, they experience more terrorism related

deaths, and as countries with low gdp per capita (higdppc=0) lose political

freedoms they experience more terrorism related deaths.

c) Null hypothesis: the coefficients on lackpf2 and higdppc x lackpf2 are equal

to 0.

Alternative hypothesis: at least one of the coefficients is not equal to 0.

We are testing whether or not the two quadratic fits, which fit lnftmpop and

lackpf for higdppc=1 and higdppc=0, are equal, meaning wheter or not they

are the same parabola.

Using an f-test we get an f-value of 1.34 and a p-value of .2689 which is

greater than .05 meaning we fail to reject the null hypothesis that all the

coefficients are equal to 0.

equal to 0.

Alternative hypothesis: at least one of the coefficients is not equal to 0.

We are testing whether or not the relationship between lnftmpop and lackpf is

linear and not quadratic.

Using an f-test we get an f-value of 4.12 and a p-value of .0204 which is less

than .05 meaning we reject the null hypotheses that the coefficients on

lackpf2 and higdppc x lackpf2 are equal to 0.

the 5% significance level.

Null hypothesis: all the coefficients are equal to 0.

Alternative hypothesis: at least one coefficient is not equal to 0.

Using an f-test we get an f-value of .63 and a p-value of .6422 which is

greater than .05 meaning we fail to reject the null hypothesis that all the

coefficients are equal to 0.

coefficient on ethnic is positive and the coefficient on hi_ethnic is negatve

(but not statistically significant.) Since ethnic + hi_ethnic is positive, we can

say that for countries with a high gdp, ethnic diversity has a less positive

effect on terrorism. The same conclusion can be reached for regression 9

since the coefficient for ethnic is positive (but not significant) and the

coefficient on hi_ethnic negative (but not statistically significant.) This is the

same as the hypothesis which stated that in countries with a high gdp per

capita ethnic would have less of an effect in increasing terrorism.

statistically significant at the 5% level. Meaning that religious diversity in

countries with a low gdp has a negative effect on terrorism. We also see that

the coefficient on hi_religion is positive (but not statistically significant.) The

same can be said when looking at regression 9 since the coefficient on

religion is also negative and significant at the 5% level and the coefficient on

hi_religion is positive (but not statistically significant.) Although not

statistically significant, it appears that in poor countries increasing religious

diversity has a greater effect lowering terrorism than it does in rich countries

which is opposite of the hypothesis.

5) Looking at the data from problem sets 3 and 4, we can see that political

freedom appears to be the most consistent predictor. This reaffirms what we

saw in problem set 3 where we saw a quadratic relationship between lackpf

and lnftmpop and that countries with medium levels of political freedoms had

more terrorism than those with low or high levels of political freedoms.

correlation of -.5232 between lackpf and higdppc. This explains why countries

with higdppc=1 had a positive correlation with lackpf and those with

higdppc=0 had a negative correlation with lackpf. This is also in line with our

conclusion that countries with medium levels of political freedoms have more

terrorism than those with low or high levels of political freedoms.

we saw that religion became statistically significant. Though the religion

interaction term was not significant at the 5% level it appears as if a lack of

religious diversity leads to an increase in terrorism.

6)

a) Omitted variable bias is a possible reason to doubt this study. For example,

if we had considered income inequality and not just GDP per capita, we could

have seen a correlation between terrorism and income inequality that may

not be accounted for in GDP per capita since income inequality would be

relative to each country. Further, if we looked at the actual religions in

present in each country it could be possible that countries with a specific

religion are more likely to have more terrorism related deaths and that these

same countries have little religious diversity. Therefore, it is possible that

there was omitted variable bias in this study.

that the lackpf relationship is best estimated with a quadratic so

misspecification in this relationship is unlikely and it wouldn’t make sense to

change the functional form of dummy variables either. Although unlikely, the

only place where we could change the functional form and see a different

result is with respect to religion. Thus, functional form misspecification is

most likely not a problem in this data.

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