Can someone just interpret the questions for me? I couldn't understand anything.
Conditional convergence hypothesis: The Solow growth model sug- gests that countries with identical saving rates and population growth rates should converge to the same per capita income level. To test the hypothesis, you collect data on the average annual growth rate of GDP per worker (g6090) for 1960-1990, and regress it on the (i) Starting GDP per worker in 1960 (RelProd60), (ii) average popu- lation growth rate of the country (n), (iii) average investment share of GDP from 1960 to1990 (sK - remember investment equals savings), and (iv) educational attainment in years for 1985 (Educ). The results for close to 100 countries is as follows (numbers in parentheses are for heteroskedasticity-robust standard errors):
g6d090 = 0:004 - 0:172n + 0:133sK + 0:002Educ - 0:044 * RelProd60;
(0.007) (0.209) (0.015) (0.001) (0.008)
R2 = 0:537; SER = 0:011
(a) Interpret the results. Do the coefficients have the expected signs? Why does a negative coefficient on the initial level of per capita income indicate conditional convergence (beta-convergence)? Is the coefficient on this variable signi
cantly different from zero at the 5% level? At the 1% level?
(b) Test for the signi
cance of the other slope coefficients. Should you use a one- sided alternative hypothesis or a two-sided test? Will the decision for one or the other infuence the decision about the signi
cance of the parameters? Should you always eliminate variables which carry insigni
cant coefficients? (Hint: Economic theory gives us the signs of the variables)