Question: 2. (Wooldridge, US 6th ed., Computer Exercise (9.3). Read Example 9.6, page 313 (Scrap rate) for the background. Use the data from JTRAIN.RAW (JTRAIN.DTA) for

2. (Wooldridge, US 6th ed., Computer Exercise (9.3). Read Example 9.6, page 313 (Scrap rate) for the background. Use the data from JTRAIN.RAW (JTRAIN.DTA) for this exercise (a) Consider the simple regression model log(scrap) = Bo+Bigrant+u, where scrap is the firm serap rate and grant is a dummy variable indicat- ing whether a firm received a job training grant. Can you think of some reasons why the unobserved factors in u might be correlated with grant? (b) Estimate the simple regression model using the data for 1988. (You should have 54 observations.) Does receiving a job training grant significantly lower a firm's scrap rate? (e) Now, add as an explanatory variable log(scrap87). How does this change the estimated effect of grant? Interpret the coefficient on grant. Is it statistically significant at the 5% level against the one-sided alternative H : Pgrant

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