APPLIED REGRESSION ANALYSIS Harvard Case Solution & Analysis

APPLIED REGRESSION ANALYSIS Case Solution

APPLIED REGRESSION ANALYSIS

Introduction

            The Gross Domestic Product of a country is the most important measure of the economic activity taking place in any country. It is the crossing point between the income, output and expenditure, which makes up the three sides of the economy. Economic growth or the gross domestic product could be defined as market value of all the services and goods produced by an economy over a particular time period (Jorgenson1987).In order to evaluate the performance of a country for the temporal and international comparisons, the gross domestic product of a country is a good first approximation of this (Lawrence 2004). In order to measure the economic activity of a country, one needs to have a complete meaning of all the factors production (Atesoglu, H. S. and J. Smith in 2006). However, there are many factors which have been suggested to facilitate and inhibit the economic activity of a country.

The growth in the economic activity in some of the countries around the world is faster than other countries (Atesoglu, H. S. and J. Smithin 2006).Most of the empirical work which has been conducted in this area focuses on few of the explanatory variables which explain the growth or the change in the economic activity of a country (Domar 1946).However, there are altogether many variables which can explain the change in the economic growth or determine the GDP of a country as a result of their importance for policy or theory (Domar 1946). Therefore, in order to address this issue, the research questions which we would be addressing within this empirical project are as follows:

  • Are labor productivity, industrial productivity and significant policy variables the key determinants of the gross domestic product for US?
  • What impact does each of the key determinants has on the economic activity of US?

The analysis which has been performed in this empirical project focuses upon the importance labor and industrial productivity on the economic activity of US. It also identifies the impact of the policy variables such as inflation rate, employment rate and exports on the economic activity of US. Finally, population has also been chosen as the key determinant of the economic activity.

Main Empirical Model

            The main empirical model which has been formulated for this empirical project is the Multiple Regression Analysis (MLR). The research question focuses on identifying the key determinate s or the explanatory variables and the significance of their impact upon the gross domestic product of the United States. This has been done by taking the gross domestic product for the US as the dependent variable and the explanatory variables as the independent variable. The explanatory of the independent variables which have been taken in this empirical study are the annual population of the United States, the employment rate, inflation rate, labor productivity, labor hours worked, industrial production and the exports of the United States. Empirically, the above multiple regression model could be described as follows:

GDP = Constant + Population + Labor Hours Worked + Labor Productivity +Industrial Productivity + Exports + Employment Rate + Inflation Rate + e

Where,

e = Error Term

            Since we are formulating a model for determining the impact of the above range of the explanatory variables on the gross domestic product of US therefore, the null and the alternate hypothesis for our study would be as follows:

Ho: All or some of the key determinants of GDP which are labor productivity, industrial productivity, labor hours worked, employment rate, inflation rate, exports and population do not have a significant impact on the gross domestic product of the United States.

H1: All or some of the key determinants of GDP which are labor productivity, industrial productivity, labor hours worked, employment rate, inflation rate, exports and population have a significant impact on the gross domestic product of United States....................

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