You have learned in one of your economics courses that one of the determinants o

Question

You have learned in one of your economics courses that one of the determinants of per capita income (the "Wealth of Nations") is the population growth rate. Furthermore you also found out that the Penn World Tables contain income and population data for 104 countries of the world. To test this theory, you regress the GDP per worker (relative to the United States) in 1990 (RelPersInc) on the difference between the average population growth rate of that country (n) to the U.S. average population growth rate (n_us) for the years 1980 to 1990.This results in the following regression output: RelPersInc^bar = 0.518 - 18.831 times (n - n_us), R^2=0.522, SER = 0.197 (0.056) (3.177) (a) Is there any reason to believe that the variance of the error terms is homoskedastic? (b) Is the relationship statistically significant?

Explanation / Answer

a) we have many differences in the size of the countries, in terms of the population and GDP. also we have the countries are in different stages of economic and institutional development. so we cannot assume the errors would be homoskedastic.

b) yes it is stastiscally significant because the

countries which have the population growth rate as the United States have, is as , half as much per capita income. in which The t-statistic of it is 5.93, making the relationship statistically significant.

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