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3. The logarithm of per capita income is labeled log gappc . (a) Regress dem_ind on log_gappc using standard errors that are clustered by country
3. The logarithm of per capita income is labeled log gappc . (a) Regress dem_ind on log_gappc using standard errors that are clustered by country (3 marks). (b) How large is the estimated coefficient on log_gappc? Is the coefficient statistically signifi- cant? (2 marks) (c) If per capita income in a country increases by 20%, by approximately how much is dem ind predicted to increase? What is a 95% confidence interval for the prediction? Is the predicted increase in dem_ind large or small? Explain what you mean by large or small. (5 marks) (d) Why is it important to use clustered standard errors for the regression? Do the results change if you do not use clustered standard errors? (4 marks)
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