Another reason for choosing the FE model12 is that it can solve the endogeneity problem through using the FE-IV model; the variable GDP per capita-used as a proxy of income-could be an endogenous variable. An endogenous variables are variables that correlated with the error term (ε௧ ), while the variables that uncorrelated with the error term are called exogenous variables. The description of these terms explains that an endogenous variable is determined within the model itself while an exogenous variable is determined outside the model. To understand the endogeneity, we will use the classic regression equations that show the relationship between prices and wages: Price = ߚ0 + ߚ1Wage + ε௧ ………………………… (11) Wage = ߚ0 + ߚ1Price + u௧ ……………………... (12) From equation (11) and (12) we can see that prices can affect wages and also wages can affect prices, in this case we can say that both wages and prices are interdependent variables and to run our regression we can‟t use the OLS technique because using OLS will give us biased estimates because of endogeneity13. From equation (11), the variable Wage is an endogenous variable and to solve the endogeneity we need an instrument that correlated with Wage but not correlated with the error term. To solve the endogeneity problem we will use FE- panel IV model, after identifying a set of instruments, ܼ , which are explanatory for the endogenous variables in ܺ but which are logically uncorrelated with the error term. The FE-IV procedure is (1) regress the endogenous elements of ܺ on ܼ ; then (2) regress on the predicted value of ܺ. We mentioned previously that a good instrument is the one that uncorrelated with the error term, in other words, is an exog... ... middle of paper ... ...an instrument is required. The test can be represented by the following equations: ܺ1௧ = ߚ0 + ߚ2ܺ2௧ + ߚ௭ Z௧ + ε௧ ……... .. (13) Y௧ = ߚ0 + ߚ1ܺ1௧ + λݒ௧ + ε௧ ………... ... (14) Where Z௧ is the instrument, ܺ1௧ is the variable to be tested for endogeneity, ܺ2௧ is any other exogenous variable, and ݒ௧ is the residuals from the regression in 20 Chapter 3 Empirical Evidence equation (13). Equation (14) means that if ܺ௧ is uncorrelated with ε௧ then λ = 0; for ܺ௧ to be endogenous we need to reject the null hypothesis that λ = 0, or in other words, for ܺ௧ to be endogenous, coefficient λ should be significant. The results are shown in table (5) which shows that the residuals are highly significant, indicating that RGD per capita is endogenous, and running the regression without using the instrument, will produce inconsistent estimates.
The article discusses the minimum wage has not kept up with the current cost of living, and that it is
This paper will be outlining the theory behind the Endogenous Growth Theory, or EGT, and its comparison to other competing theories. To begin though it is important to clarify that the word endogenous just means to originate from within, or not attributable to any external or environmental factor, so one can assume that this theory relates to growth happening within the region instead of having to depend on external forces for market growth. EGT forces primarily on human capital, innovation, knowledge, and entrepreneurship to be the major contributors to economic growth within a region (Bennett). This innovation is a large part of the EGT, which manifests itself from research and
In this equation, Y is the dependent variable, and X is the independent variable. α is the intercept of the regression line, and β is the slope of the regression line. e is the random disturbance term.
According to the Neoclassical Solow Model, economic growth arises due to influences outside economy. As an exogenous growth model it focus on four variables: output (Y), capital accumulation (K), Technology (A) and labor or population growth (L) in order to explain economic growth.
Prediction = = = = =
There are endogenous variables that are specific to an individual and which can determine ones future income through influencing own comparative advantages by possessing rare attributes making them comparatively valuable. The most fundamental include inner abilities bestowed to each of us such
...price index. As a result of this linkage, the minimum wages in these states are normally increased each year, generally around January 1st (www.dol.gov). This proves that many states know that different times call for different wages.
Wages are very dependent on productivity, always with wages lagging behind though increases in productiv...
However, a hypothesis cannot function without its independent and dependent variables. They are both parts of an experiment that are in place to be measured and experimented with. Many variables exist, fo...
Economists point to inflation as the main cause for low minimum wage. Inflation is described as “a general increase in prices and fall in the purchasing value of mone...
Grossman, S.J and Hart, O.D (1983). An Analysis of the Principal-Agent Problem. Econometrica Vol. 51, No. 1 January 1983. Available on: http://classes.maxwell.syr.edu/ecn611/GrossmanHart83.pdf. [Accessed on 20th of April 2014].
Rittenberg, L. and Tregarthen, T. (2012). Macroeconomics Principles V. 2.0. Licensed under Creative Commons by-nc-sa 3.0 (https://creativecommons.org/licenses/by-nc-sa/3.0/)
There are hypotheses or questions that the researcher wants to address which includes predictions about the possible relationship between two they are investigating (variables). However, in order to find answers to these questions, the researcher will have different instruments and materials, paper/complete tests and observation
Because of the GDP growth too fast, increased wages of some citizens will lead to higher demand as consumers spend more freely. This will imply that the supply and demand will be increased and it will occur the shortage of supply. Business must hire more employees and further increasing demand by increasing wages. The increased demand will face of shortage supply and quickly forces prices up.
The first determinant – factor conditions, explains the necessary inputs for production such as capital, natural resources and their accessibility, human capital, technology, science, markets and finally geopolitical position of the nation (Porter, 1990a).