• ) An economist would like to study the link between institutional and economic development across countries. For this purpose, the economist downloaded the World Banks Rule of Law indicator that captures the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. The Rule of Law is a composite country-level measure that ranges from -2.5 (very weak or no rule of law) to 2.5 (very strong rule of law). The economist then estimates a regression with GDP per capita (measured in constant international dollars based on purchasing power parity rates) as the dependent variable, and Rule of Law as the independent variable. The results are summarized in the Tables 8 and 9.

Table 8Regression statistics

Regression statistics
Multiple R	0.75335366
R square	0.56754174
Adjusted R square	0.5651656
Standard error	14788.7462
Observations	184

i.Write out the regression equation.

ii.Estimate the expected GDP per capita in a country where the Rule of Law measure equals -0.37. Compare this value with the expected GDP per capita in a country where the Rule of Law measure equals 1.2.

iii.Determine the proportion of the total variation in the dependent variable that is explained, or accounted for, by the variation in the independent variables.

iv.Interpret each of the slope coefficients.

v.Comment on the reported 95% confidence intervals.

Table 9Further regression statistics

	Coefficients	Standard error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	21706.205	1090.237	19.909	1.44E-47	19555.017	23857.393
Rule of Law	18290.176	1183.465	15.455	5.8E-35	15955.100	20625.251