1) The file Corruption.xls contains country-level data on two variables. One of these is a measure of perceptions of political corruption.
a) Before looking at any data, propose a simple economic story (model) for how these two variables might be related. Write a paragraph of no less than 50 words in which you explain your argument. Which is the independent, and which is the dependent variable in your model?
b) Whichever way you've chosen to model this problem, execute a linear regression. For one time in your life, you are going to be calculating the slope and intercept estimators in EXCEL
c) What percentage of the variation of your dependent variable is explained by the independent?
d) Also "by hand," calculate the variance of ^β1. Next, calculate the test statistic and p-value for a hypothesis test that the population slope is zero. (The p-value is going to be extremely small and not be on any t-table. Figure out how you can use Excel to calculate it.