Modeling foreign direct investment. Research published in the Journal of Economics and Finance (Vol. 41, 2017) used a time series regression model to examine the effect of international trade and foreign direct investment (FDI) on the economy of the Dominican Republic. Annual data were collected on FDI ($ millions), capital stock value ($ thousands), and total employment (thousands) for 29 years, where Yt = FDI in year t, X1t = capital stock in year t and X2t = total employment in year t. The researcher fit the transformed interaction model, lnYt = b0 + b11lnX1t2 + b21lnX2t2 + b31lnX1t21lnX2t2 + et with the results shown in the table

a. Give a practical interpretation of R2 .

b. Test the overall adequacy of the model using a = .01.

c. Is there sufficient evidence (at a = .01) of interaction between capital stock and level of employment? Practically interpret this result.

d. Conduct the Durbin-Watson d-test for positive residual correlation at a = .01. What conclusion do you draw about autocorrelation?

e. Repeat part

d, but assume the value of d is 0.62.