World Development (Vol. 20,1992) published a study of the variables impacting the size distribution of manufacturing firms

Question:

World Development (Vol. 20,1992) published a study of the variables impacting the size distribution of manufacturing firms in international markets. Five independent variables, Gross Domestic Product (GDP), area per capita (AREAC), share of heavy industry in value added (SVA), ratio of credit claims to GDP

(CREDIT), and ratio of stock equity of GDP

(STOCK), were used to model the share, y, of firms

- with 100 or more workers. Thc researchers detected a high correlation between pairs of the following independent variables: GDP and SVA, GDP and STOCK, and CREDIT and STOCK. Describe the problems that may arise if these high correlations are ignored in the multiple regression analysis of the model.

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