A study by the U.S. Small Business Administration used historical data to model the GDP per capita of 24 of the countries in the Organization for Economic Cooperation and Development (OECD) (Crain, M. W., The Impact of Regulatory Costs on Small Firms, available at www.sba.gov/advocacy/7540/49291). One analysis estimated the effect on GDP of economic regulations, using an index of the degree of OECD economic regulation and other variables. They found the following regression model.
GDP/Capita(1998 92002) = 10487 - 1343 OECD
Economic Regulation Index + 1.078 GDP/Capita1(988)
- 69.99 Ethno@linguistic Diversity Index
+ 44.71 Trade as share of GDP (1998 92002)
- 58.4 Primary Education1%Eligible Population2
All t-statistics on the individual coefficients have P-values 6 0.05, except the coefficient of Primary Education.
a) The researchers hoped to show that more regulation leads to lower GDP/Capita. Does the coefficient of the OECD Economic Regulation Index demonstrate that? Explain.
b) The F-statistic for this model is 129.61 (5, 17 df). What do you conclude about the model?
c) If GDP/Capita(1988) is removed as a predictor, then the F-statistic drops to 0.694 and none of the t-statistics is significant (all P-values 7 0.22). Reconsider your interpretation in part a.