BADM 735 - Comparative Economics – Assignment Ten (B)
Interpreting regression results
Provide a brief interpretation and analysis of the results of the regression you generated at the residency.
*See below for sample interpretation and analysis*
I will recommend you watch the videos in the links below before you start your interpretation and analysis
Introduction to Simple Linear Regression
Understanding Regression Analysis
Table 3: Estimation Results of the Determinants of Economic Growth
Economic growth Economic growth Economic growth
Rule of Law
Number of Panel ID
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Column (1), shown in Table 3, assesses the impact of investment, macroeconomic stability, and institutions on economic growth in the
absence of natural resources, strong government, and external influence. Column (2) presents the impact of investment, macroeconomic
stability, and institutions on economic growth while taking into account the role of government. Column (3) examines the effect of
investment, macroeconomic stability, institutions, and the role of government on economic growth, accounting for external influence –
Trade and FDI – and natural resource availability.
As expected, the impact of investment on economic growth is positive and statistically significant at the 1 % level in Columns
(1) and (2). Holding everything else constant, a one percentage point increase in investment increases economic growth by about 0.1190.102 percentage points. It is interesting to note that controlling for government’s role (adding government effectiveness and government
expenditure) alters the magnitudes of the coefficients on investment. The impact of investment on economic growth falls from 0.119 to
0.102 when the role of government is controlled for. This suggests the existence of crowding out effect.1 The coefficients of population
are positive and statistically significant in Columns (2) and (3), suggesting that the size of countries influences their economic
Surprisingly, the effect of the rule of law on economic growth is adverse and statistically significant in Columns (1) and (2),
which is counter to intuition as one would normally associate property rights and contract enforcement to stronger economic growth.
Also, government spending appears to have an adverse impact on economic growth in Columns (2) and (3). An increase of 1 percentage
point in government spending, as a percentage of GDP, would tend to reduce economic growth by about 0.155-0.102 percentage points,
everything else equal. This finding suggests that government spending undermines economic growth. Trade, FDI and natural resources
seem to have a positive and significant effect on economic growth. Holding everything else constant, a one percentage point increase in
trade increases economic growth by about 0.016 percentage points. Likewise, holding everything else equal, a one percentage point
increase in FDI and natural resources, boosts economic growth by about 0.101 and 109 percentage points, respectively.
Crowding out is a reduction in private investment that occurs because of an increase in government borrowing.
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