BUAD 310 Application Exercise 11 Section Number/Time: _____________ Team Member Information: No. Name USC ID 1 2 3 4 5 Exports, Foreign Direct Investment and Economic Development One of the most discussed issues in the literature on economic development and growth is the role of exports and foreign direct investment on growth and development. From a theoretical perspective, attracting corporations to a country (or for that matter to another State) to establish operations and production would mean greater employment, and that would lead to greater incomes and standard of livings. Indeed, one can the see these similar efforts by Texas and Arkansas to name a few, to entice companies, with tax and other incentives, from California to move their operations to their States. However, the empirical results, as to whether such policies have actually led to economic development for countries have been mixed. You will investigate this issue, and try to see if you can help clarify the issue. The data in the file EconDev.xlsx is drawn from the World Bank, and the World Investment Report, UNCTAD. The variable Growth measures per capita Gross Domestic Product (GDP) in U.S. dollars, Exports measures annual value of exports as percentage of Gross Domestic Product, and FDI measures Foreign Direct Investment as percentage of exports. 1. Estimate the regression model: Growth = β0 + β1Exports + β2FDI + ε a. What is the sample regression equation? (2 points) b. What is the R2? : ____________________ (1 point) c. What are the p-values for the coefficients? (2 points) Intercept: ______________________ Exports: ______________________ FDI: ______________________ d. Are the coefficients significant at an α level of 0.05? (2 points) e. Examine the scatterplots of the residuals against Exports and FDI. Select one (1 point) i) ii) iii) iv) Both the plots of residuals against Exports, and FDI appear random The plot of residuals against Exports appear random, but the plot of residuals against FDI is not The plot of residuals against FDI appear random, but the plot of residuals against Exports is not Both the plots of residual against Exports and FDI do not appear random 2. Re-run the regression model were: LnGrowth = β0 + β1LnExports + β2LnFDI + ε , where Ln is the natural log of the variables a. What is the sample regression equation? (2 points) b. What is the R2: _____________________ (1 point) c. What are the p-values for the coefficients? (2 points) Intercept: ______________________ LnExports: ______________________ LnFDI: d. ______________________ Are the coefficients significant at an α level of 0.05? (2 points) e. Examine the scatterplots of the residuals against LnExports and LnFDI. Select one (1 points) i). v) vi) vii) Both the plots of residuals against LnExports, and LnFDI appear random The plot of residuals against LnExports appear random, but the plot of residuals against Ln FDI is not The plot of residuals against LnFDI appear random, but the plot of residuals against LnExports is not Both the plots of residual against LnExports and LnFDI do not appear random 3. Filter out all countries with growth less than $25,000. Run the model: Growth = β0 + β1Exports + β2FDI + ε a. What is the sample regression equation? (2 points) b. What is the R2: _____________________ (1 point) c. What are the p-values for the coefficients? (2 points) Intercept: ______________________ Exports: ______________________ FDI: ______________________ d. Create a 99% confidence interval for the coefficient of Exports.(2 points) e. For a country with exports of 30 and FDI of 50, what is the predicted growth? (2 points)