Question

For a sample of USA industries the following variables are recorded:

YOUTPUT is the total production of each industry in millions of dollars in constant prices.

WAGES corresponds to the total wages of the each industry in millions of dollars in constant prices.

KCAPITAL is the fixed capital of each industry in millions of dollars in constant prices. Labor is the total number of employees in each industry in thousands.

D1 is a dummy variable which takes the value of 1 when a manufacturing industry is technologically advanced and 0 otherwise.

D2 is a dummy variable which takes the value of 1 when a manufacturing industry is profitable and 0 otherwise.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0,887697
R Square	0,788006
Adjusted R Square	0,785736
Standard Error	14470,28
Observations	473
ANOVA
	df	SS	MS	F	Significance F
Regression	5	3,63E+11	7,27E+10	347,1789	9,4E-155
Residual	467	9,78E+10	2,09E+08
Total	472	4,61E+11
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95,0%	Upper 95,0%
Intercept	192,2124	1250,783	0,153674	0,877933	-2265,65	2650,073	-2265,65	2650,073
WAGES	13,81387	0,913179	15,12723	2,33E-42	12,01942	15,60832	12,01942	15,60832
KCAPITAL	-0,33749	0,075055	-4,49658	8,72E-06	-0,48498	-0,19	-0,48498	-0,19
Labor	-240,151	31,17609	-7,70306	8,02E-14	-301,414	-178,888	-301,414	-178,888
D1	-221,005	1391,105	-0,15887	0,87384	-2954,61	2512,595	-2954,61	2512,595
D2	5838,63	1562,002	3,737914	0,000209	2769,207	8908,054	2769,207	8908,054

Based on the data described above, the main research question at hand is the following:

“How industrial production is affected by the level of labor, wages, capital, profitability and technology”

1. Estimate a new model without the insignificant explanatory variables.

Answer 1

Ans 1)

We have 473 observations therefore df=Sample size-1=472

We need to first calculate critical t value at confiedance level of 95% and df=472

Critical t value =1.972

If calculated t value is less than critical t value then we are unable to reject null that these variables are insignificant to affect dependant variables.

t value for intercept and t value for manufacturing industry is less than critical t value

Hence we can rewrite regression equation without these insignificant explanatory variables.

Output=13.81387 *wages -0.33749* K capital -240.151 * Labor +5838.63*D2

This is the new regression equation without explanatory variables.