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Dummy variable’
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Here I begin….
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Dummy Variables (Binary variables)
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References for my Presentation Lecture!
Books Literature
• Elements of Econometrics-Jan Kmenta
• Applied Econometrics-Dimitrios Asteriou & Stephen G. Hall
• Theory of Econometrics- A. Koutsoyiannis
• Basic Econometrics- DamodarGujarati
• Econometric Methods- Jack Johnston & John DiNardo
Research Paper Reference
• “What Determines Innovation in Manufacturing Sector?
Evidence from Pakistan”, By
Mahreen Mahmud and Hamna Ahmed
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DUMMY VARIABLE
International Literature i.e. Books
• Elements of Econometrics –Jan Kamenta
• Theory of Econometrics – A. Koutsoyiannis
• Econometric Methods –Jack Johston & John DiNardo
• Basic Econometrics -Damodar N. Gujarati
• Applied Econometrics-Dimitrios Asteriou & Stephen g. Hall
Research Paper
• What Determines Innovation in the Manufacturing Sector? Evidence from Pakistan, By Mahreen Mahmud (Lahore School of economics) and HamnaAhmed
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Introduction
Key ingredients in developing country’s growth strategy to catch up with Developed one’s.
The World economics forum considers it one of the twelve pillars of Global competitiveness Index.
Positive relation b/w innovation and productivity.
Some European-industrialized countries review shows that the elasticity of innovation w.r.t. growth ranges b/w 0.035 and 0.29
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Innovation “the introduction of a new product or process over the
past three years” – most widely used operational definition.
Complex process, difficult to quantify.
Property rights, in case of developing countries.
Pakistan ranks at 118th our of a total of 142 countries-Global Competitiveness Report 2011-12.
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Innovation as a Driver of Growth
Innovation Competitiveness Productivity Growth
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Innovation can be in,
Product
• Definition,
“An article or substance that is manufactured or refined for sale.”
Process
• Definition,
“Perform a series of mechanical or chemical operations on (something) in order to change or preserve it.”
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Innovative VS Non-Innovation- Firms
Firm’s Internal characteristics
Size
Age
Ownership structure
Past performance
Trade status
Quality of management
Training & education background
Manager’s & entrepreneur’s experience
etc.
Firm’s external characteristics
Geographical location
Demand growth in the industry
Industry concentration
Government policies
General institutional structure of the firm’s operating area
etc.
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Firm’s size and innovation
Positive link b/w size of firms, innovation and productivity.
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Data Source
o Panel data provided by two rounds of Pakistan Investment Climate Assessment Survey conducted by the World Bank in 2002 and 2006-07 respectively with total of 40 manufacturing firms.
Panel survey provides detailed info on firm characteristics and on various aspects of business environment in the country.
Key dimensions like,I. Infrastructure and services,II. Courts,III. Crimes,IV. Government-business relations, V. Degree of competition, and VI. Factor markets (land, labor and finance). Surveyed firms located in 13 cities across the country with largest
share (of innovation) coming from Karachi.07 different industries with 60% share (of innovation) coming from
Textile, Food and Garments industries.
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Innovation Rates- Pakistan
50%
27%
23%
Innovative by firm type
Both prod & proc
Prod only
Proc only
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Innovation Rates- Pakistan
10%
22%
52%
0%
10%
20%
30%
40%
50%
60%
By Size
Firms
22%
13%
0%
5%
10%
15%
20%
25%
Exporters Non exporters
Firm
Firm
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Innovation Rates by Industry
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Product
Process
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Innovation Rates by Location
0.00%10.00%20.00%30.00%40.00%50.00%60.00%
Kar
ach
i
Lah
ore
She
ikh
up
ura
Sial
kot
Fais
alab
ad
Gu
jran
wal
a
Waz
irab
ad
Isla
mab
ad/R
awal
pin
di
Sukk
ur
Hyd
era
bad
Qu
etta
Pesh
awar
Product
Process
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Methodology
Empirical Framework
Ijt = αo+ ΣβiYjt-1+ΣγiYjt-1+εo
Ijt is a dummy variable taking on value
of 1 if firm j is an innovator in year 2006-07 and 0 else.
t refers to the second round of the panel
(2006-07) and t-1 is the first (2002).
Xjt-1 & Yjt-1 are the vectors of internal
& external vectors characteristics respectively that firm j had in 2002.
αo,βi and γi are the parameters
εo is the error term
Estimation strategy
Prob(Ijt = 1|X,Y) = αo+ΣβiXjt-1+ΣγiYjt-1+εo
Estimating probit model using MLE technique.
Probit model is the
econometric model having Dep. Variable as binary i.e. 0 or 1
Where logit model just
contains different cdf for indep. Var of probit model
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Modified Dep. Var. Technique
Product equation
Prob(Prodjt = 1|X,Y) = αo+ ΣβiXjt-1+ΣγiYjt-1+εo
Prod refers to product innovation in the 2006-07 period, respectively.
In this way, through this equation estimates on the determinants of innovation are separate for product innovators.
Process equation
• Prob(Procjt = 1|X,Y) = αo+ΣβiXjt-1+ΣγiYjt-1+εo
• Proc refers to process innovation in the 2006-07 period, respectively.
• In this way, through this equation estimates on the determinants of innovation are separate for product innovators.
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Results Exporting firm got 15% higher probability of
innovation.
Medium firms are 17.5% more, to small.
Large firms are 48.6% more to innovate, in comparison to small.
Top manager’s experience matters 0.6%
Education matters 2.8%
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Equation 2, 2(augmented) 3, 4
Table 3
• Shows the result of estimated equation 2 and augmented equation by involving the effect of firms in clusters, with their parameters and t statistics values along with marginal effects.
Table 4
• Shows the results of estimated equation 3 (product) and equation 4 (process) , with their parameters and t statistics values along with marginal effects.
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Policy implication and conclusion
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Who are they?
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Summary• Conclusion
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Questions & Answers
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The Presentation Ends, But not my Time
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Dedication of this Presentation and my motivation!
1. You can’t connect the dots looking forward, you can only connect them looking backward.
2. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything.
3. I loved what I did. You have got to find what you love.
4. ‘Keep looking, Dun Settle’
5. Every morning I looked in the morning and say, If today were the last day of my lyf, what I want to do, what I am about to do today. And when the answer is no for too many days in a row, I know I need to change something.
6. ‘Stay hungry, stay foolish’
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Steve Jobs
Born: February 24, 1955 San Francisco, California
American business executive, computer programmer, and entrepreneur
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Motivational Speech
Steve Jobs Stanford Commencement Speech 2005