ECO 313A, 2021: ASSIGNMENT 3; 201924638

Q1.1
i. Model 1 : totmhinc = β0 + β1*head_ age + β2*hholdsz + β3*Dhead_sex_1 + ε

Model 4: OLS, using observations 1-4638

Dependent variable: totmhinc

coefficient std. error t-ratio p-value

---------------------------------------------------------
const 4975.52 547.226 9.092 1.41e-019 ***
head_age −11.8501 9.40394 −1.260 0.2077
hholdsz 417.132 63.2752 6.592 4.81e-011 ***
MALE 3117.71 295.795 10.54 1.10e-025 ***

Mean dependent var 7636.006 S.D. dependent var 9978.150

Sum squared resid 4.48e+11 S.E. of regression 9827.510
R-squared 0.030594 Adjusted R-squared 0.029966
F(3, 4634) 48.74840 P-value(F) 5.19e-31
Log-likelihood −49215.90 Akaike criterion 98439.79
Schwarz criterion 98465.56 Hannan-Quinn 98448.86

Excluding the constant, p-value was highest for variable 6 (head_age)

 totmhinc = 4976 -12*head_ age + 417*hholdsz + 3118* male + ε

ii. Household size (hholdsz) and male gender variables are statistically significant at 1%
level.
iii. One additional head age is associated with a decrease in total monthly household income
(totmhinc) of R12, holding the household size (hholdsz) and male household head
constant.
ECO 313A, 2021: ASSIGNMENT 3; 201924638

Q1.2

i. Model 2 : totmhinc = β0 + β1*head_ age + β2*Dhead_sex_1 + β3*Urban + β4*FHL + ε

Model 2: OLS, using observations 1-4638

Dependent variable: totmhinc
Omitted due to exact collinearity: Commercial

coefficient std. error t-ratio p-value

-------------------------------------------------------------
const 6391.03 932.034 6.857 7.95e-012 ***
head_age 18.3303 9.23173 1.986 0.0471 **
MALE 2554.74 293.385 8.708 4.25e-018 ***
URBAN 79.8367 805.111 0.09916 0.9210
TRADITIONAL −3820.56 830.076 −4.603 4.28e-06 ***

Mean dependent var 7636.006 S.D. dependent var 9978.150

Sum squared resid 4.37e+11 S.E. of regression 9716.294
R-squared 0.052615 Adjusted R-squared 0.051797
F(4, 4633) 64.32617 P-value(F) 5.16e-53
Log-likelihood −49162.61 Akaike criterion 98335.22
Schwarz criterion 98367.43 Hannan-Quinn 98346.55
Excluding the constant, p-value was highest for variable 233 (URBAN)

ii. The variable head age is statistically significant at 5% level

 The variable male gender and traditional homeland are statistically significant at 1 %
level.
 totmhinc = 6391 + 18*head_ age + 2555*male + 80*Urban - 3821*traditional + ε
iii. One additional head age is associated with an increase in total monthly household income
(totmhinc) of R18, holding constant the male household head, urban homeland, and
traditional homeland.
 Relative to commercial homelands , urban homelands have a total monthly household
income (totmhinc) that is R80 more, holding constant the head age, male gender, and the
traditional homeland.
ECO 313A, 2021: ASSIGNMENT 3; 201924638

Q1.3

i. Model 3 : ln(totmhinc) = β0 + β1*ln(head_ age) + β2*ln(hholdsz) + ε

Model 3: OLS, using observations 1-4638 (n = 4253)

Missing or incomplete observations dropped: 385
Dependent variable: l_totmhinc

coefficient std. error t-ratio p-value

-----------------------------------------------------------
const 7.76996 0.204002 38.09 2.34e-273 ***
l_head_age 0.0882863 0.0539799 1.636 0.1020
l_hholdsz 0.268937 0.0269421 9.982 3.28e-023 ***

Mean dependent var 8.394372 S.D. dependent var 1.183633

Sum squared resid 5798.595 S.E. of regression 1.168065
R-squared 0.026591 Adjusted R-squared 0.026133
F(2, 4250) 58.04900 P-value(F) 1.34e-25
Log-likelihood −6693.941 Akaike criterion 13393.88
Schwarz criterion 13412.95 Hannan-Quinn 13400.62

Log-likelihood for totmhinc = −42395.2

ii. L_hholdsz is statistically significant at 1% level.

 ln(totmhinc) = 7.77 + 0.09*ln(head_ age) + 0.27*ln(hholdsz) + ε

iii. A 1% increase in household head age is associated with an increase in total monthly
household income of 0.09%, holding the household size constant.
ECO 313A, 2021: ASSIGNMENT 3; 201924638

Q2 Heteroscedasticity results for Model 2 above (Using residual squared)

i. RES2 = β0 + β1*head_ age + β2*male + β3*Urban + β4*Traditional + ε

Model 3: OLS, using observations 1-4638

Dependent variable: RES2
Omitted due to exact collinearity: Commercial

coefficient std. error t-ratio p-value

--------------------------------------------------------------------
const 8.65061e+07 2.03184e+07 4.258 2.11e-05 ***
head_age −88775.6 201253 −0.4411 0.6592
MALE 5.55223e+07 6.39584e+06 8.681 5.36e-018 ***
URBAN 1.15764e+06 1.75515e+07 0.06596 0.9474
TRADITIONAL −6.62319e+07 1.80957e+07 −3.660 0.0003 ***

Mean dependent var 94304587 S.D. dependent var 2.16e+08

Sum squared resid 2.08e+20 S.E. of regression 2.12e+08
R-squared 0.042260 Adjusted R-squared 0.041433
F(4, 4633) 51.10730 P-value(F) 3.59e-42
Log-likelihood −95494.70 Akaike criterion 190999.4
Schwarz criterion 191031.6 Hannan-Quinn 191010.7

Excluding the constant, p-value was highest for variable 233 (URBAN)

OR Using inbuilt Breusch-Pagan test

Breusch-Pagan test for heteroskedasticity

OLS, using observations 1-4638
Dependent variable: scaled uhat^2

coefficient std. error t-ratio p-value

-----------------------------------------------------------
const 1.05315 0.349640 3.012 0.0026 ***
head_age −0.00218354 0.00346316 −0.6305 0.5284
MALE 0.509880 0.110060 4.633 3.71e-06 ***
URBAN −0.0656517 0.302027 −0.2174 0.8279
TRADITIONAL −0.630753 0.311392 −2.026 0.0429 **

Explained sum of squares = 729.556

Test statistic: LM = 364.778068,

with p-value = P(Chi-square(4) > 364.778068) = 0.000000
ECO 313A, 2021: ASSIGNMENT 3; 201924638

Q3
Q3.1
PCINC = β0 +β1* head_age + β2* African +β3* Coloured +β4* Indian + ε
Q3.2

Model 8: OLS, using observations 1-4638

Dependent variable: PCINC
Omitted due to exact collinearity: White

coefficient std. error t-ratio p-value

---------------------------------------------------------
const 10110.5 360.281 28.06 3.55e-160 ***
head_age −39.8985 4.46151 −8.943 5.38e-019 ***
African −5562.69 277.767 −20.03 1.24e-085 ***
Coloured −5009.31 365.895 −13.69 7.47e-042 ***
Indian −3604.99 558.088 −6.460 1.16e-010 ***

Mean dependent var 3050.231 S.D. dependent var 5010.484

Sum squared resid 1.06e+11 S.E. of regression 4780.866
R-squared 0.090341 Adjusted R-squared 0.089555
F(4, 4633) 115.0287 P-value(F) 1.16e-93
Log-likelihood −45873.42 Akaike criterion 91756.84
Schwarz criterion 91789.05 Hannan-Quinn 91768.17

Q3.3
PCINC = 10111 − 40* head_age − 5563* African − 5009* Coloured − 3605* Indian + ε
 Head age, African , Coloured and Indian population heads variables are all statistically
significant at 1% level.
 One additional head age is associated with a decrease in total monthly household income
(totmhinc) of R40, holding constant the African, Coloured and Indian head population
groups.
 Relative to white head population group, African/black head population group have a
total monthly household income (totmhinc) that is R5563 less, holding constant the head
age, coloured and Indian heads population groups.
ECO 313A, 2021: ASSIGNMENT 3; 201924638

 Relative to white head population group, coloured head population group have a total
monthly household income (totmhinc) that is R5009 less, holding constant the head age,
African and Indian heads population groups.
 Relative to white head population group, Indian head population group have a total
monthly household income (totmhinc) that is R3605 less, holding constant the head age,
coloured and African heads population groups.