Problem 2. A researcher is interested in the effect of a US state having access to the ocean (a dummy variable 40) on the density of the population of that state. The density of the population can be affected by many unobserved characteristics of the state including the preferences of the residents, which are hard to measure. To address this, the researcher decides to use panel data with state fixed effects. The researcher collects the data on the population density (PD) and average yearly temperatures (YT) for each year between 2000 and 2012 for each of the US states. The researcher then plans to run a panel data regression: PD BAO BYT + + What is the main problem with this empirical strategy? Problem 2. A researcher is interested in the effect of a US state having access to the ocean (adummy variable AO) on the density of the population of that state. The density of the populationcan be affected by many unobserved characteristics of the state including the preferences of theresidents, which are hard to measure. To address this, the researcher decides to use panel data withstate fixed effects. The researcher collects the data on the population density (PDit) and averageyearly temperatures (YTit) for each year t between 2000 and 2012 for each of the US states i. Theresearcher then plans to run a panel data regression:PDit = B₁AO it + B₂YTit + ai + Eit.What is the main problem with this empirical strategy?

An empirical strategy refers to the overall approach a researcher takes to investigate a research…

Answered: Problem 2. A researcher is interested…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Problem 2. A researcher is interested in the effect of a US state having access to the ocean (a dummy variable 40) on the density of the population of that state. The density of the population can be affected by many unobserved characteristics of the state including the preferences of the residents, which are hard to measure. To address this, the researcher decides to use panel data with state fixed effects. The researcher collects the data on the population density (PD) and average yearly temperatures (YT) for each year between 2000 and 2012 for each of the US states. The researcher then plans to run a panel data regression: PD BAO BYT + + What is the main problem with this empirical strategy?

Problem 2. A researcher is interested in the effect of a US state having access to the ocean (a
dummy variable AO) on the density of the population of that state. The density of the population
can be affected by many unobserved characteristics of the state including the preferences of the
residents, which are hard to measure. To address this, the researcher decides to use panel data with
state fixed effects. The researcher collects the data on the population density (PDit) and average
yearly temperatures (YTit) for each year t between 2000 and 2012 for each of the US states i. The
researcher then plans to run a panel data regression:
PDit = B₁AO it + B₂YTit + ai + Eit.
What is the main problem with this empirical strategy?

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