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

Exercise 4

Let us modify Computer Exercise C8.4 by using voting outcomes in 1990 for incumbents who were elected in 1988. Candidate A was elected in 1988 and was seeking reelection in 1990; voteA90 is Candidate A's share of the two-party vote in 1990. The 1988 voting share of Candidate A is used as a proxy variable for quality of the candidate. All other variables are for the 1990 election. The following equations were estimated, using the data in VOTE2.RAW:

= 75.71 + .312 prtystrA + 4.93 democA

(9.25) (.046) (1.01)

-.929 log(expendA) - 1.950 log(expendB)

(.684) (.281)

n = 186, R2 = .495, R2 = .483,

and

= 70.81 + .282 prtystrA + 4.52 democA

(10.01) (.052) (1.06)

-.839 log(expendA) - 1.846 log(expendB) + .067 voteA88

(.687) (.292) (.053)

n = 186, R2 = .499, 2 = .485.

(i) Interpret the coefficient on voteA88 and discuss its statistical significance.

(ii) Does adding voteA88 have much effect on the other coefficients?

Step 1 of 2

Consider the model functional form specification without the variable

Now, consider the model functional form specification with the variable

(i)

The coefficient of is 0.067, indicating that 1% point increase in the vote earned by Candidate A in 1988, the Candidate A would have 0.067% point increase in the vote in 1990

In order to test for the significance of the variable, it would be appropriate to conduct the t-test

The result is:

Since, the estimated t-statistic is 1.2641 which is less than the critical t-statistic of 1.645 (one-tailed test) at 5% level of significance, it indicates that the coefficient of is not statistically significant at 5% level of significance