homework 7 eco

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Objective
and Instructions:The
main objective of this assignment is to evaluate your understanding of the
course objectives: quantifying economic relationships, interpreting quantified
relationships, and formulating appropriate policy recommendations. To this end,
you are being provided with data on US trade (exports) with 175 countries during
the years 2007 and 2008 (Worksheet-1 in the excel file) and descriptions of the
corresponding variables (Worksheet-2). Read the background presented below and
answer the four questions that follow. Each question carries 10 points. The
clarity and organization of your answers will earn you additional 10 points.

The
problem: the
classical theory of international trade shows that higher
purchasing power, and the market size of a given country the higher is the
number of firms (companies) interested to do business in the given country. The
purchasing power and market size of the trading partner countries are thus expected
to have positive effect on the volume of US exports to the respective countries.
On the contrary, greater geographic distance (indicating higher shipping
costs), higher levels of corruption, and greater cost of living (as measured by
the level of inflation) in the given country are expected to have a negative
effect on the total volume of trade with the given country. Empirical studies
of the role of immigrants in international trade also show by bridging cultural
differences, immigrants increase the volume of bilateral trade flows between
their home and host countries. Two additional dummy variables, D1 taking value
of 1 if the reference period is 2007 and 0 otherwise, and D2 taking a value of
1 if the given home country is an OECD member and 0, otherwise are also
included. The year dummy is included to control for potential year to year
fluctuation of trade flow values. The OECD membership dummy is included to
account for the potential effect of the similarity in the economic development
status of the countries. Given that the data refers to US export with the rest
of the world, it is expected that given their close ties resemblance in their
economic development with USA, compared to countries that are no OECD members,
countries that are members to OECD are expected to trade more with USA.

The
Econometric Model:To
empirically assess these assertions, I want you to estimate the following log-linear
regression model using the data provided to you (Excel Data, Course Page).

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1.
Provide an appropriately
formatted descriptive statistics table of the variables (in original units)
in the data and a brief discussion of the
descriptive stats so that readers can have a better understanding the
general characteristics of US trade flows and geographic as well as economic
conditions its trading partners. Be brief and to the point. [This
question is designed to assess your knowledge of computing descriptive stats
and your ability to make use of them.]

2.
Estimate the model, present your results and the
corresponding statistics (appropriately formatted and labeled) in the form of a
table while also indicating the level of significance of each variable included
in the model. [This question is designed to
assess your ability quantify economic relationships based on real world data.]

3. Discuss
the overall performance of the model
and interpret the coefficient estimates
accordingly. [This question is designed to
assess your ability to interpret quantified relationships, and the
appropriateness of specified relationships.]

4. In
order to increase US economic growth, the president and congress agree on the
importance of increasing US exports. Given the results you reported above, what
policy advice would you suggest (on what they should do) for policy makes
interested to increase US exports. [This question is designed to assess your
ability to formulate policy recommendations based quantified economic
relationships.]