Assignment Task:
Part 1: Empirical section:
You have been given a sample of data on exports between countries along with a number of potential explanatory variables. The data is a sample from a larger data set provided by a French research institute (CEPII). You were given a sample of 500 observations that were randomly drawn from the larger dataset. The data come from an academic paper, which I have uploaded on loop and there is a separate description of the variables.
a) Comprehensively describe the data you have.
b) Estimate alternative (gravity) models (there is a very extensive literature on this type of model) using Gretl or any other econometric software package, and find the one you prefer. You should use your knowledge of econometrics to test which variables should be included. Describe your methods and findings and interpret the results of the alternative models.
c) Test for heteroskedasticity and if necessary re-estimate with an appropriate estimator. Comment on your results.
Assignment Data Description
The data is from: HEAD, K., T. MAYER AND J. RIES, 2010, "The erosion of colonial trade linkages after independence" Journal of International Economics, 81(1):1-14. (formerly CEPII discussion paper # 2008-27)
Note that because the sample is drawn randomly it is possible that all or most of the observations might only have a 0 value for some or all indicator variables or only a small proportion of 1s. This might influence which of these you include in the analysis and the results you obtain.
iso3_o Three letter code for the origin (exporting ) country;
iso3_d Three letter code for the destination (importing ) country;
year - 2006;
contig - 1 if the countries share a common border, 0 if not;
comlang_off- 1 if the two countries share a common language, 0 if not;
distw- distance between countries (kilometres);
pop_o- population in the origin (exporting) country, million;
gdp_o- GDP in the origin (exporting) country, million US$;
gdpcap_o- GDP per capita in the origin (exporting) country, in US$;
area_o - are of the origin (exporting) country in square kilometres
pop_d- population in the destination (importing) country, million;
gdp_d- GDP in the destination (importing) country, million US$;
gdpcap_d- GDP per capita in the destination (importing) country, in US$;
area_d- are of the origin (exporting) country in square kilometres
rta - 1 if the two countries have a trade agreement, 0 if not;
comcur - 1 if the two countries share a common currency, 0 if not.
tradevaluein1000usd - the value of exports from the origin to the destination in 1000s US$
Attachment:- Empirical section.rar
Attachment:- Data description.rar