Eco 310
Econometrics 
Dr.
Robert Jantzen
Department of Economics 
Homework 11
Specification Bias:
Objective: Using the drugs5.csv data file described in problem 14 on pp. 162164 answer the following modified questions. The data file contains information for 32 countries on P (pharmaceutical price levels), GDPN (per capital GDP), CVN (per capita drug consumption), PP (a 1,0 dummy indicating a country recognizes drug patents), DPC (a 1,0 dummy indicating a country applies strict price controls) and IPC (a 1,0 dummy indicating a country encourages price competition). The P, GDPN and CVN variables are measured as a % of US values, e.g., 100 indicates equal to the US level, 50 indicates half of the US level and 150 indicates 50% greater than the US value). Using the drugs5.csv data file. 1. Generate descriptive statistics (i.e., means, std. devs. &
correlations) for the variables. Briefly discuss.
a. Rerun the regression but leave the
GDPN variable out. What should happen to the estimated coefficient
of CVN if you rerun the regression but leave the GDPN variable out?
Why? Validate your conclusions by rerunning the regression leaving
the GDPN variable out.
