Regressing GDP Per Capita on a Measure of Openness to Trade

question 12

Multiple Choice

Regressing GDP per capita on a measure of openness to trade across countries may give biased estimation results because

• A) each country measures openness differently
• B) without further restrictions, the regression coefficient for openness could be negative
• C) openness may capture the effects of omitted variables such as financial reform
• D) openness is an index measure, but GDP per capita is measured in monetary units
• E) regression is an appropriate econometric methodology only for time series, not for cross-sectional data

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Definitions:

Depreciation

This is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the consumption of the asset over time.

Tax Bill

A tax bill is an official statement from a governmental authority specifying the amount of taxes owed by an individual or organization for a certain period.

Net Cash Flow

The amount of cash that is generated or lost by a business in a given period, after accounting for all cash inflows and outflows related to operational, investing, and financing activities.

Statement of Cash Flows

The statement of cash flows is a financial report that outlines the cash inflows and outflows from operating, investing, and financing activities, indicating how a company generates and uses cash.