Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 17

For this exercise, we use JTRAIN.RAW to determine the effect of the job training grant on hours of job training per employee. The basic model for the three years is

(i) Estimate the equation using first differencing. How many firms are used in the estimation? How many total observations would be used if each firm had data on all variables (in particular, hrsemp) for all three time periods?

(ii) Interpret the coefficient on grant and comment on its significance.

(iii) Is it surprising that grant x is insignificant? Explain.

Step 1 of 4

(i)

Estimating the equation using first differencing, the equation form would be:

The result is:

There are 127 firms that have been used in the estimation. Out of this, two year’s data of 124 firms and one year’s data of 3 firms has been used.

Given that there are 157 firms related data in the file JTRAIN.RAW, so if each firm has data on all the variables for all the three time period 1987-1989, then there will be 471 observations in the file. Since, the data related to firms for the year 1987 would not be used in the first differencing, that means out of 471 observations, 157 observations would not be used in the estimation as there are 157 firms and for each year these firms have unique information.

Hence, 314 observations would be used