Create a dummy variable indicating whether the country belongs to the European c
ID: 1135232 • Letter: C
Question
Create a dummy variable indicating whether the country belongs to the European continent. Can you conclude that European countries are richer than non-European economies? (Here you need to regress GDP per capita as a function of the indicator variable you created and analyze the result you found.) Why should we be careful about the causal interpretation here? Explain how to do this
Country Big Mac (local price) Exchange rate (local currency/dolar) GDP Population Australia 5.3 1.42 1,600.50 23.626 Austria 3.5 0.93 329.296 8.508 Belgium 3.95 0.93 402.027 11.204 Canada 5.84 1.41 1,974.83 35.492 Estonia 3 0.93 19.963 1.319 Finland 4.1 0.93 205.178 5.451 France 4.1 0.93 2,132.45 63.92 Germany 3.59 0.93 2,915.65 81.1 Greece 3.35 0.93 179.081 10.993 Ireland 3.95 0.93 189.046 4.61 Italy 4 0.93 1,616.25 60.783 Netherlands 3.45 0.93 662.77 16.864 New Zealand 5.9 1.51 237.767 4.555 Portugal 3 0.930232558 173.044 10.394 Spain 3.5 0.930232558 1,058.47 46.464 Switzerland 6.5 1.01 644.835 8.14 United States 4.93 1.00 17,348.08 319.075Explanation / Answer
Australia 1600.5/23.626= 67.743
Austria 329.296/8.508= 38.704
Belgium 402.027/11.204 = 35.88
Canada 1974.83/35.492= 55.64
Estonia 19.963/1.319 = 15.13
Finland 205.178/5.451=37.64
France 2132.45/63.92=33.36
Germany 2915.65/81.1= 35.95
Greece 179.081/10.993 = 16.29
Ireland 189.046/4.61 = 41.00
Italy 1616.25/60.783= 26.59
Netherlands 662.77/16.864= 39.30
New Zealand 237.767/4.555=52.199
Portugal 173.044/10.394 = 16.64
Spain 1058.47/46.464= 22.78
Switzerland 644.835/8.14= 79.21
United States 17348.08/319.075= 54.37
From the above computation we can tell us that per capita income of Non European is more than the European countries.
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