Econometrics 206-3

Exam III: 11.50 AM -1.20 PM, 24 April 2017

In answering these below, paste the Stata output only when it is asked. When
pasting output, use the copy as picture option. When testing a hypothesis, be sure
to mention the distribution of the test statistic, its degrees of freedom, the level of
significance and the associated critical value. DO NOT USE THE STATA test
COMMAND.

It would be easiest if you inserted your answer between the questions below and
returned this document. Rename the document as `your name.docx’ and upload it
on LMS.

You have to do this exam by yourself. You are allowed to consult the textbook and
your notes. You are NOT allowed to consult anybody whether by speaking, by text
messages or email or any other means. Violations will attract penalties as per
Ashoka policy.

1. (a) Regress log of wages on a constant and the female dummy. Paste output
here.

(b) Interpret the coefficient on the female dummy.

The coefficient is -0.69.

It is negative.
This shows that log of wages is negatively correlated to the female dummy.
Its magnitude shows that a one unit increase in value of the female dummy
decreases wages by 69%.

(c) Test the null hypothesis that the coefficient on female dummy is -0.5 against
the alternative that the coefficient on female dummy is less than -0.5. Show your
workings.

H0: coefficient = -0.5

H1: coefficient not equal to -0.5.
tstat = (-0.69 – (-0.5))/0.0647 = - 2.9366
tstat at 5% level of significance = -1.96
We reject the null hypothesis since the t-stat for the coefficient is found to lie to
the left of the t-stat at 5% level of significance.

[5+5+10]

2. (a) Regress log of wages on a constant, the female dummy, age of the
individual and the square of age. Paste your output here.

(b) Controlling for age and the square of age does not seem to substantially
change the coefficient of the female dummy. Why is that so?

This is because the correlation between the female dummy and the other two
variables, age and agesq is very weak (0.0068).
So simple and multiple regression estimates are not very divergent.
[5+5]

3. (a) Regress log of wages on a constant, the female dummy, age of the
individual the square of age and the social group dummies for scheduled caste,
for scheduled tribe and for other backward caste. Note the omitted category is
the general castes (or forward castes). Paste your output here.

(b) Test the null hypothesis that none of the social group dummmies matter, i.e.,
controlling for sex, age and square of age, the average of log wages is the same
for all categories: scheduled castes, scheduled tribes, other backward castes and
the general (forward) castes. Do NOT use the Stata test command.

H0:
H1:

(c) Test the null hypothesis that relative to the general (forward) castes,
scheduled castes and other backward castes suffer the same extent of
discrimination. If this requires new regressions, paste the output in your
answer.

H0:
H1:

[5+15+15]
4. (a) Regress log of wages on a constant, the female dummy, age of the
individual the square of age, the social group dummies for scheduled caste, for
scheduled tribe and for other backward caste, and the education dummies for
illiterate, literate, primary, secondary, and higher secondary. Paste the output
here.

(b) Compare the above regression with the regression in question 3 (without the
education dummies). Does the inclusion of education dummies alter the
discrimination against women, scheduled castes, scheduled tribes and other
backward castes? Why?

Yes, the inclusion of the education dummies reduces the absolute values of the
coefficients for women, scheduled castes, schedules tribes and OBCs.
This because the education variables are highly correlated with the four above
mentioned variables.
For example, the female dummy has a 28.13 percent correlation with the
illiteracy variable.
[5+15]

5. (a) To the explanatory variables in the regression in Qn 4(a), add land owned
(LandO) and land possessed (LandP) and re-run the regression. DO NOT paste
the output.

(b) Is either of the land variables individually significant at the 5 or 10% level?

landO:
tstat = -0.22
tstat at 5% = 1.65
tstat at 10% = 1.28

landP:
tstat = 0.97
tstat at 5% = 1.65
tstat at 10% = 1.28

No, none of the variables are individually significant at the 5 or 10% level as
their t-values are both lower than t-values at 5 and 10% level of significance.

(c) Now drop land owned (LandO) and re-run the regression. Is the included
land variable significant at the 5 or 10% level?

landP:
tstat = 1.91
tstat at 5% = 1.65
tstat at 10% = 1.28

The included land variable is significant at both, the 5 and 10% level.

(d) Explain the pattern of results observed in (b) and (c).

The explanatory variables landP and landO are both highly correlated. At
91.91%.
Including both in the regression hence dilutes their individual levels of
significance.

[4+4+7]