(a) Consider the estimated results of an investment model based on annual time series data ove...

 

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(a) Consider the estimated results of an investment model based on annual time series data ove 1950-2018 as follows: log FDI, = 6.48+0.57 log Y, -0.13 log R, +1.82P, +0.05 log FDI, DW= 1.76 t-values (1.75) (4.75) (2.17) (1.94) (2.5) where FDI is foreign direct investment; Y is national output measured by Gross Domestic Product; R is domestic interest rates; P is total population; subscripts and 1-1 are current year and previous one year respectively; and t values are in parentheses, test the hypothesis at 5% level of significance that the estimated regression model is free from the problem of serial correlation. (5 marks) (b) Consider a log linearized Cobb Douglas production function logQ=B₁ + B₂ log K + B, log L+u where Q is output; K is capital; and L is labour. (i) Derive a restricted model based on the hypothesis that the model exhibits constant returns (2 marks) to scale. (ii) If the values of the Residual Sum of Squares (RSS) for the restricted and unrestricted models are 17.2 and 16.3 respectively over a sample of 53 firms, test the hypothesis at 5% level of significance that the estimated model exhibits constant returns to scale. (5 marks) (a) Consider the estimated results of an investment model based on annual time series data ove 1950-2018 as follows: log FDI, = 6.48+0.57 log Y, -0.13 log R, +1.82P, +0.05 log FDI, DW= 1.76 t-values (1.75) (4.75) (2.17) (1.94) (2.5) where FDI is foreign direct investment; Y is national output measured by Gross Domestic Product; R is domestic interest rates; P is total population; subscripts and 1-1 are current year and previous one year respectively; and t values are in parentheses, test the hypothesis at 5% level of significance that the estimated regression model is free from the problem of serial correlation. (5 marks) (b) Consider a log linearized Cobb Douglas production function logQ=B₁ + B₂ log K + B, log L+u where Q is output; K is capital; and L is labour. (i) Derive a restricted model based on the hypothesis that the model exhibits constant returns (2 marks) to scale. (ii) If the values of the Residual Sum of Squares (RSS) for the restricted and unrestricted models are 17.2 and 16.3 respectively over a sample of 53 firms, test the hypothesis at 5% level of significance that the estimated model exhibits constant returns to scale. (5 marks)

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a To test the hypothesis that the estimated regression model is free from the problem of serial correlation we can use the DurbinWatson DW statistic T... View the full answer