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Basic Econometrics
Research Report Group Assignment
This is a group assignment where you are allowed to work in groups of 1-4 other students. All group
members will receive the same marks for the assignment. You must submit an electronic copy of your
assignment in Canvas in pdf, doc or docx format along with your R-code. Hard copies will not be accepted.
Show your calculations (if any) as well as answering the questions in clear full sentences. The number of
tables, graphs, calculations given in parentheses after each question are a guide.
What determines the share of population who cannot afford a healthy diet?
For this home assignment you will be required to model the share of population worldwide who cannot afford
a healthy diet.
Please use the file: Nutrition_data.Rdata (World Bank Database – 2017 values). Please read the description
at the end of this document to understand the variables. In this home assignment we are going to model the
share of the population whose food budget is below the cost of a healthy diet (dependent variable).
QUESTION 1
Please model the share of the population whose food budget is below the cost of a healthy diet (who
cannot afford a healthy diet) using R:
a) Include a minimum of 5 (five) explanatory variables in the regression equation and provide a scatter
plot of your dependent and independent variables (5 scatter plots). (0.5 x 5 marks)
DO NOT USE regional dummies in this specification!
When modelling, explain each of your functional form specification choices with respect to:
• Economic or common sense behind the model - why do you pick this variable? (0.5 x 5 marks)
• Multicollinearity – are the independent variables multicollinear? (0.5 x 5 marks)
• Functional form specification- potential nonlinear relationships, eg: log-linear or quadratic
relationships. Explain why you use a level or logarithmic form of a variable. (0.5 x 5 marks)
in writing. You will be graded on model accuracy in this section.
Use OLS standard errors.
(Subtotal: 10 marks) 1 Table [regression output] & Explanations, 6 scatter plots
b) Interpret the coefficients on 5 explanatory variables. Describe if the coefficients are elasticities or
semi-elasticities, or simple level coefficients.
(5 marks)
c) Interpret the statistical significance of these coefficients using the p-values OR the t-stat.
(5 marks)
d) Test for heteroscedasticity in R using the Breusch-Pagan test and copy below the results. Interpret
the results of the Breusch Pagan test.
(2 marks) 1 Table & Explanation
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e) Present the results from a) using HAC robust errors! Did any of the standard errors change
significantly?
(3 marks) 1 Table & Explanations
f) Explain MLR 4, and whether this is likely to hold in your model? Can you identify any omitted
variables? (3 marks)
g) Please add regional dummies (Region) to the regression you estimated in section (a), and interpret
the coefficients on the regional dummies, along with their levels of significance. (3 marks)
New regression table, with dummy interpretation.
Test the joint significance of the regional dummies in the model! You can either perform the test
manually and show your work down below, OR do it in R and copy the solution code and output here.
(2 marks for the output & 2 mark for the interpretation)
(Subtotal: 7 marks)
h) Explain the basic concept of an instrumental variable estimation, and when to use it.
(2 marks)
.
i) Explain the practical/ policy relevance of your results. Describe a minimum of 2 policy proposals [
each 2-3 sentences] aiming at reducing the share of population that cannot afford a healthy diet!
(3 marks)
Assignment total: 40 marks
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VARIABLE DESCRIPTIONS: Source: www.worldbank.org
Cost of a healthy diet
Cost of the least expensive locally-available foods to meet
requirements for food-based dietary guidelines, in current PPP
dollar/person/day, for a representative person within energy
balance at 2330 kcal/day.
Percent of population with low food
budget
(DEPENDENT VARIABLE)
The share of the population whose food budget is below the
cost of a healthy diet. The food budget is defined as 52% of
household income, based on the average share of income that
households in low-income countries spend on food. Income
data are provided by the World Bank’s Poverty and Inequality
Platform. A value of zero indicates a null or a small number
rounded down at the current precision level.
Agriculture, forestry, and fishing, value
added (% of GDP)
Agriculture, forestry, and fishing corresponds to ISIC
divisions 1-3 and includes forestry, hunting, and fishing, as
well as cultivation of crops and livestock production. Value
added is the net output of a sector after adding up all outputs
and subtracting intermediate inputs. It is calculated without
making deductions for depreciation of fabricated assets or
depletion and degradation of natural resources. The origin of
value added is determined by the International Standard
Industrial Classification (ISIC), revision 4. Note: For VAB
countries, gross value added at factor cost is used as the
denominator.
Government expenditure on education,
total (% of GDP)
General government expenditure on education (current,
capital, and transfers) is expressed as a percentage of GDP. It
includes expenditure funded by transfers from international
sources to government. General government usually refers to
local, regional and central governments.
Exports of goods and services (% of
GDP)
Exports of goods and services represent the value of all goods
and other market services provided to the rest of the world.
They include the value of merchandise, freight, insurance,
transport, travel, royalties, license fees, and other services,
such as communication, construction, financial, information,
business, personal, and government services. They exclude
compensation of employees and investment income (formerly
called factor services) and transfer payments.
GNI per capita, PPP (current
international $)
This indicator provides per capita values for gross national
income (GNI. Formerly GNP) expressed in current
international dollars converted by purchasing power parity
(PPP) conversion factor. GNI is the sum of value added by all
resident producers plus any product taxes (less subsidies) not
included in the valuation of output plus net receipts of primary
income (compensation of employees and property income)
from abroad. PPP conversion factor is a spatial price deflator
and currency converter that eliminates the effects of the
differences in price levels between countries.
Industry (including construction), value
added (% of GDP)
Industry (including construction) corresponds to ISIC
divisions 05-43 and includes manufacturing (ISIC divisions
10-33). It comprises value added in mining, manufacturing
(also reported as a separate subgroup), construction,
electricity, water, and gas. Value added is the net output of a
sector after adding up all outputs and subtracting intermediate
RMIT Classification: Trusted
inputs. It is calculated without making deductions for
depreciation of fabricated assets or depletion and degradation
of natural resources.
Average precipitation in depth (mm per
year)
Average precipitation is the long-term average in depth (over
space and time) of annual precipitation in the country.
Precipitation is defined as any kind of water that falls from
clouds as a liquid or a solid.
Total natural resources rents (% of
GDP)
Total natural resources rents are the sum of oil rents, natural
gas rents, coal rents (hard and soft), mineral rents, and forest
rents.
Access to electricity, rural (% of rural
population)
Access to electricity, rural is the percentage of rural
population with access to electricity.
Rural population growth (annual %)
Rural population refers to people living in rural areas as
defined by national statistical offices. It is calculated as the
difference between total population and urban population.
Services, value added (% of GDP)
Services correspond to ISIC divisions 50-99 and they include
value added in wholesale and retail trade (including hotels and
restaurants), transport, and government, financial,
professional, and personal services such as education, health
care, and real estate services. Also included are imputed bank
service charges, import duties, and any statistical
discrepancies noted by national compilers as well as
discrepancies arising from rescaling. Value added is the net
output of a sector after adding up all outputs and subtracting
intermediate inputs. It is calculated without making deductions
for depreciation of fabricated assets or depletion and
degradation of natural resources. The industrial origin of value
added is determined by the International Standard Industrial
Classification (ISIC), revision 3 or 4.
Population in urban agglomerations of
more than 1 million (% of total
population)
Population in urban agglomerations of more than one million
is the percentage of a country's population living in
metropolitan areas that in 2018 had a population of more than
one million people.
Region
Countries are classified by region: Europe & Central Asia,
Middle East & North Africa, Sub-Saharan Africa, Latin
America & Caribbean, East Asia & Pacific, South Asia; and
North America
Income group
Economies are divided among income groups according to
gross national income (GNI) per capita. The groups are: low
income, $1,085 or less; lower middle income, $1,086 to
$4,255; upper middle income, $4,256 to $13,205; and high
income, $13,206 or more.