Empirical research was conducted to investigate the variables that impact the size distribution of manufacturing firms in international markets (World Development, Vol. 20,1992). Data collected on n = 54 countries were used to model the country's size distribution y, measured as the share of manufacturing firms in the country with 100 or more workers. The model studied was E(y) = P, + P,x, + P2x2 + P3x3 + P4x4

+ PSx5, where x1 = natural logarithm of Gross National Product

(LGNP)

x2 = geographic area per capita (in thousands of square meters) (AREAC)

xg = share of heavy industry in manufacturing value added (SVA)

x4 = ratio of credit claims on the private sector to Gross Domestic Product (CREDIT)

x5 = ratio of stock equity shares to Gross Domestic Product (STOCK)

a. The researchers hypothesized that the higher the credit ratio of a country, the smaller the size distribution of manufacturing firms. Explain how to test this hypothesis.

b. The researchers hypothesized that the higher the stock ratio of a country, the larger the size distribution of manufacturing firms. Explain how to test this hypothesis.