An analyst at the United Nations is developing a model that describes GDP (gross domestic product per capita, a measure of the overall production in an economy per citizen) among developed countries. She is using national data for 29 countries from the 2005 report of the Organization for Economic Cooperation and Development (OECD). She started with the equation (estimated by least squares)
Estimated per capita GDP = $26,714 + $1.441 Trade Balance
The trade balance is measured as a percentage of GDP. Exporting countries tend to have large positive trade balances. Importers have negative balances. This equation explains only 37% of the variation in per capita GDP, so she added a second explanatory variable, the number of kilograms of municipal waste per person.
(a) Examine scatterplots of the response versus the two explanatory variables as well as the scatterplot between the explanatory variables. Do you notice any unusual features in the data? Do the relevant plots appear straight enough for multiple regression?
(b) Do you think, before fitting the multiple regression, that the partial slope for trade balance will be the same as in the equation shown? Explain.
(c) Fit the multiple regression that expands the one-predictor equation by adding the second explanatory variable to the model. Summarize the estimates obtained for the fitted model.
(d) Does the estimated model appear to meet the conditions for the use of the MRM?
(e) Draw the path diagram for this estimated model. Use it to explain why the estimated slope for the trade balance has become smaller than in the simple regression shown.
(f) Give a confidence interval, to presentation precision, for the slope of the municipal waste variable. Does this interval imply that countries can increase their GDP by encouraging residents to produce more municipal waste?