A trade policy analyst is planning to assess the relationship between Foreign Direct Investment (FDI) and exports using a panel data of 20 countries over a period of 15 years. Use data from the World Development Indicators for a particular group of countries to determine the nature of the association between the two variables. Write brief notes on the following a) Explain the difference between cross section and panel data. b) Define the variables included in the econometric models and explain the rationale behind the inclusion of each c) Estimate the relationship between foreign direct investment and exports by pooling all the observations.Discuss the limitations of this technique
A trade policy analyst is planning to assess the relationship between Foreign Direct Investment (FDI) and exports using a panel data of 20 countries over a period of 15 years. Use data from the World Development Indicators for a particular group of countries to determine the nature of the association between the two variables.
Write brief notes on the following
a) Explain the difference between cross section and panel data.
b) Define the variables included in the econometric models and explain the rationale behind the inclusion of each
c) Estimate the relationship between foreign direct investment and exports by pooling all the observations.Discuss the limitations of this technique
d) Estimate the same relationship in (b) using the fixed effects and random effects model. Interpret your findings in line with the existing literature as to whether FDI and exports are substitutes or complements
e) Which model in (c) is more appropriate? Support your answer with the relevant test.
f) What other tests will you perform to ensure the robustness of your results? Explain your answer.
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