Jessica Rose

This study requires each student to compile a sample of observations on car ownership and GDP per capita. You will collect data on these two variables for 15 countries at one point in time.

(1) Car ownership per capita (CAR).

(2) GDP per capita (GDP).

A key reference on this subject is:

Vehicle Ownership and Income Growth, Worldwide: 1960-2030- Joyce Dargay, Dermot Gately and Martin Sommer, January 2007

1. Present your data in a table showing the names of the variables. Make sure the full definitions and sources of each variable are given. [15 marks]

2. The equations to be estimated are:

(A) CAR = b0 + b1 GDP i+ ui

(B) ln(CAR) =d0 + d1 ln(GDP)i+ ui

where ln means natural logarithm.

Answer these questions:

(i) In terms of economics how would you describe the hypothesis that these equations can be used to test ?

(ii) Is it possible to compare b1 and d1 directly in order to decide which equation shows the biggest impact of income on car ownership? Explain.

(iii) Why is there a constant term in both equations with no variable attached?

(iv) Why do both equations have a ‘u’ term ?

(v) Explain the difference between the role of ‘u’ in equation A and equation B.

[15 marks]