QUESTION 1

Please model the drivers of GDPpc using R:

1. Include a minimum of 5 (five) explanatory variables in the regression equation and provide a scatter plot of your dependent and independent variables (5 scatter plots). (0.5 x 5 marks)

We suggest that you take the natural log of the dependent variable!  

When modelling, explain each of your functional form specification choices with respect to:

• Economic or common sense behind the model – why do you pick this variable? (0.5 x 5 marks)
• Multicollinearity – are the independent variables multicollinear? (0.5 x 5 marks)
• Functional form specification- potential nonlinear relationships, eg: log-linear or quadratic relationships. Explain why you use a level or logarithmic form of a variable. (0.5 x 5 marks)

in writing. You will be graded on model accuracy in this section. Pay attention to appropriate degrees of freedom!