Question

4. Consider the model GDP = B. + B, Educ + u where GDP is the per capita GDP for a country and Educ the government expenditure on education. We would like to know if this relationship is different across the countries in different geographical areas Americas, Europe, Africa, and Asia. We collect data for 100 countries across all 4 regions and want to test the null hypothesis that there is no difference in the parameters across the regions. Derive another model that will enable you to test this hypothesis. a. Write down the null and alternative hypotheses. b. Describe how you would test the hypothesis using the F-test. In particular, state what regressions you would run, how you would compute the test statistic, its distribution and degrees of freedom, and the criterion for acceptance or rejection of the null hypotheses.

Answer 1

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