ECOM2000 - Econometric Principles - Environmental Kuznets Curve Hypothesis - Accounting And Finance Assignment Help

Assignment Task -

Preliminary - 

The Environmental Kuznets Curve (EKC) hypothesis states that country’s national income and the extent of environmental degradation are in an inverted U?shaped relationship.  That is, the extent of environmental degradation increases with national income at a diminishing rate and starts decreasing as national income increases further beyond a certain level. In this assessment, you need to examine the EKC hypothesis, using data on the following four variables: 

Please perform the necessary analysis using Microsoft Excel and answer the eight questions listed on the next page. You are required to submit both your Excel file (showing all your data analysis) and a text?based report presenting your answers to the questions by the specified due date.

PART A:

1. Using Excel’s Regression command (from Data Analysis Tool), estimate the following regression model, using all 398 observations available in the Excel file:

where the four variables are defined as in the table on the first page and ln X represents the natural log of the variable X. Report the output from Excel’s regression command and write down the estimated sample regression equation.

2. For the regression model estimated in Question 1, interpret the reported R?square value as well as the standard error of the regression. Based on these, briefly comment on the model’s goodness of fit to the observed data.

3. For the regression model estimated in Question 1, construct a 90% confidence interval of 4 ? manually (that is, not by using “Confidence Interval” option on regression
command). Interpret this confidence interval.

4. Using the regression model estimated in Question 1, calculate the predicted values of lnCO2 for a range of lnGDP observed in the sample (with 0.5 increments) whilst
keeping the values of lnPopDen and UrbPop at their respective sample means. Plot the resulting predicted values of lnCO2 against lnGDP. Describe the relationship between CO2 emissions per capita and GDP per capita as implied by the estimated regression model.

5. From the model estimated in Question 1, derive the expression for the elasticity of CO2 emission with respect to GDP, and calculate the level of GDP at which the elasticity changes sign (either from negative to positive or positive to negative).

6. Construct a dummy variable Z such that 1 Zi ? if the observation is from year 2010 and 0 if it is from year 2005. Modify model (1) by adding Z and its interaction term
with each of the four explanatory variables (i.e., lnGDPi , 2 (ln ) GDPi , ln i PopDen ,and UrbPopi) on the right?hand side of the equation. Report the estimated regression equation.

7. On the model estimated in Question 6, provide an economic interpretation of the estimated coefficients for Z and for the interaction term between Z and lnPopDen.

8. On the model estimated in Question 6, test a joint hypothesis that the coefficient for Z and those for four interaction terms are all equal to zero at a 10% significance level. State clearly the null and alternative hypothesis.

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