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Econometrics Project tut3 H

Technical efficiency (Trường Đại học Đà Lạt)

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HANOI UNIVERSITY

ECONOMETRICS PROJECT

THE DETERMINANTS OF HANU

STUDENTS’ EXPENDITURE

Teacher: Mr. Nguyen Dinh Du

Subject: Econometrics
Tut: 3
Group member:
Nguyễn Phương Thảo - 1604040105
Nguyễn Thị Ánh - 1604040015
Hoàng Thị Thanh Thảo - 1604040101
Class: 2TC16
Date: May 17th

Hanoi, May 17, 2019

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Table of Contents
I. Introduction ................................................................................................................................. 2

II.Literature Review ........................................................................................................................ 3

III.Methodology .............................................................................................................................. 4

IV. Analysis of data and results ...................................................................................................... 5

1. Descriptive statistics ................................................................................................................ 5

2. Testing ..................................................................................................................................... 6

a. Testing the functional form of regression model ............................................................. 6

b. Testing individual partial coefficients .............................................................................. 8

c. Testing the overall significance of all coefficients........................................................... 9

V. Checking errors .......................................................................................................................... 9

1. Multicollinearity ...................................................................................................................... 9

2. Autocorrelation...................................................................................................................... 11

3. Heteroskedasticity ................................................................................................................. 12

VII. Conclusion and Limitation .................................................................................................... 14

References ..................................................................................................................................... 15

Appendices .................................................................................................................................... 16

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I. Introduction
In recent years, the international economy integration of Vietnam has sharply developing steps,
with exercising national campaigns and participating global economic organizations. In the
context, human capital is considered as one of the most crucial factors for Vietnam’s long term
revolution, and university students play an indispensable part in the domestic labor pool (Jades,
2015). Regarded as one of the most privileged and global universities in Vietnam, Hanoi
University (HANU) is always proud of well-trained students, contributing the good quality labor
resource to the national economy. Beside specialization knowledge, students here can study
themselves myriad of practical skills, in which skills related to manage their own finance should
be mentioned first and foremost because their math exercise about balancing reasonably
expenditure is not straightforward. Thus, after taking everything into consideration, we decided
to choose and elaborate on the project “THE DETERMINANTS OF HANU STUDENTS’
MONTHLY EXPENDITURE”.
This study utilizes an online survey distributed to students at Hanoi University, for 110
observations, with the aim to provide with more in-depth understanding about some major
factors dominating daily spending of HANU’s students. We hope that arguments and statistics in
the project will be helpful in drawing a strategic plan of expenditure for the time being.
Our problem can be stated as: What are the factors affecting HANU students’ monthly
expenditure?
We come up the issue as we were a genuinely concerned with a variety of factors such as age,
personality traits, knowledge and so on. We narrow down to only 5 variables: family allowances,
income, gender, spending styles and accommodation. Family allowances and income are two
quantitative variables, the rest are qualitative variables. These are highly expected to influence
on HANU students consumption, in order to answer the following questions:
• How these factors affect spending habits?
• Is there any correlation between these factors?
• Are there any errors in the model; if there are, what are remedial measures?
It can be said that family allowances and income, and expenditure are critical elements of the
market economy, and as predicted, the results show that there also a close-knit relationship
between those factors.

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II. Literature Review

"The determinants of undergraduate’s expenditure" is quite a common topic for researching;
there are profound theoretical foundations we can consult for the research paper. Starting with
“Consumption Theory” (1936) of John Maynard Keynes, he claimed that current income
determined the demand for consumer goods and services. Besides, he also suggested “men are
disposed as a rule and on the average to increase their consumption as their income increases but
not by as much as the increase in their income” (Keynes, 1936, p.96), which concluded income is
not the only one element affecting the consumption. The Money Ethic scale (T. L. P. Tang,
1995) pointed out “attitudes towards money and the meaning of money have also become
important topics for research in the area of economic and consumer psychology.” According to
the two theories mentioned above, our group decides to test 3 factors: income, family allowances
and spending styles.
Additionally, there are plenty of empirical analyses related to this topic, each of them chose
different factors to test. Therefore, our group would like to do independent research to verify
results from empirical researches we have studied. From Penman and McNeil (2008), “Spending
their way to adulthood: Consumption outside the nest” explored consumption habits of the young
adult as they leave home and enter into a world of personal fiscal responsibility. They
interviewed freshmen and sophomore at the University of Canterbury, investigated how they are
spending; their motives for impulsive consumption choices and their attitudes towards debts.
Finally, the result has shown that accommodation is a key driver of consumption choices in this
group. Meanwhile, another important and influential work in the area of consumption is that of
Henry, Weber, and Yarbrough on money management practices of college students (2001)
revealed that female students were more likely than male students to maintain a budget. Their
research evaluated the gender gap on the sensitivity of consumption. Similarly, research taken by
Robert J (2001) on consuming in a Consumer Culture of College Students claimed “ women
have been raised and acculturated to find satisfaction from shopping. Thus, they are more likely
to exhibit spending behaviors, particularly compulsive buying, as compared to men.” Generally,
it may be inferred from the above literature that placement and gender can change the
expenditure of Hanoi University students.

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In conclusion, based on theoretical foundations and empirical results, 5 factors: income, family
allowances, spending styles, gender and accommodation are chosen to test in our research on
“The determinants of HANU students’ expenditure”.

III. Methodology
The main purpose of this project is to examine the influence level of 5 selected determinants on
the Hanu students’ expenditure per month: their family allowances, their income, their spending
styles, the current accommodation and their gender. Based on mathematical expression, we
construct the following model:
EXPENDITURE = β1 + β2*ALL + β3*INC + β4*ACCOM + β5*STYLES + β6*GENDER
Whereas: β1: intercept
β2, β3, β4, β5, β6: slope coefficients of students’ expenditure: family allowances(ALL),
income(INC), current accommodation(ACCOM) (accom_d4 =1 if accom = “rent” or = 0 if
accom = “others”), spending styles(STYLES) (styles_d5 =1 if styles = “saving” or = 0 if styles =
“others”) , and gender(GENDER) (gender_d6= 1 if gender = “female” or =0 if gender =
“others”) respectively.

Our project paper will be investigated through four steps:

• Step 1: With given data, we selected which variable is dependent variable, and which are
explanatory variables in order to construct the above regression model.

• Step 2: After running Eviews software, the most appropriate model was found and used for
some next tests. Testing for functional form was utilized, particularly, four models including lin-
lin, lin-log, log-lin, and log-log were considered. Since logarithm of gender variable was not
identified synchronized with the smallest calculated CV from these models, lin-lin was
considered as the most suitable form.
EXPENDITURE = β1 + β2*ALL + β3*INC + β4*ACCOM + β5*STYLES + β6*GENDER

• Step 3: Some tests were be suggested, such as testing individual partial coefficients (t-test),
testing, the overall significance of all coefficients (F-test), adding/dropping test, etc. With the
goal of taking into consideration of how each independent variable influences on the HANU

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students’ expenditure per month, t test was used while the purpose of F-test was to indicate
whether at least one of five variables impacting on the expenditure and so on.

• Step 4: Errors were detected and some remedial measures were given. Because of not being
time-series data, autocorrelation error was eliminated. Multicollinearity means when there are
some functional relationships existing among explained variables whereas
Heteroskedasticity occurs when Var(ui) = σi2 # σ2 . After checking, some methods were
suggested to make them better to interpret.

IV. Analysis of data and results

1. Descriptive statistics
We have a statistics description in the below table:

Table 1: Statistic description

Table 2: Covariance

Table 3: Correlation matrix

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The following graphs show the relationship between Expenditure and others factors which are
family support, income, accommodation, spending styles and gender respectively.

It can be seen from the table above that the distribution of 3 independents Accommodation,
Spending styles and Gender are negligible, so that is the reason why the standard deviation are
zero. However, the range of dependent variable and some independent variables like family
support and income are large, hence their standard deviation are much greater than the rest.

2. Testing
a. Testing the functional form of regression model
In order to determine the most suitable form of the model, we consider R-squared as the
conditions because R2 represents “goodness of fit” of the model means that how well the data fit
the model.
The decision rule is the higher R2 of the model, the more preferable model. After data was
processed, we collected the result as follows:

Table 4: The Lin-Lin model

The regression line model:
EXPENDITURE = β1 + β2*ALL + β3*INC + β4*ACCOM + β5*STYLES + β 6*GENDER

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Note: R2 = 0.168115

Table 5: The Log-Lin model

The regression line model:
log(EXPENDITURE) = β1 + β2*ALL + β3*INC + β4*ACCOM + β5*STYLES
+β6*GENDER

Note: R2 = 0.156391
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From Eview tables we can see that the Lin-lin Model has higher R2 than Log-lin Model
(0.168115 versus 0.156391). As noted before, we choose model having higher R2, so we
determine that Lin-lin Model is best one to fit the data and it can explain considerately the
relation between dependent variables and independent variables.
Hence , we estimated the regression line model:

b. Testing individual partial coefficients

We use t-test to test hypothesis about any partial regression coefficients. The target of these tests
Is to check whether each independent variable is significant or not, holding the other variables
constant.
• Hypothesis: H0: βi=0 (i=2, 3, 4, 5, 6)
H1: βi ≠ 0
̂𝑖 −𝛽𝑖
𝛽
• Test statistic: t_sta= ̂𝑖 )
𝑆𝑒(𝛽

• Critical value: tcα/2, n-k = tc 0.025, 110 -6 = 2

• Decision rule: Reject H0 if | t-stat | > t-critical = 2

Conclusion:

Individual coefficient t-statistic t-critical Conclusion

β2 -0.219592 2 Not statistically significant

β3 2.958724 2 Statistically significant

β4 3.395053 2 Statistically significant

β5 0.490680 2 Not statistically significant

β6 0.676569 2 Not statistically significant

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Hence, at the 5% level of significance, the Income and the Accommodation are significantly
different from 0, whereas the Allowance, Styles and Gender are not.

c. Testing the overall significance of all coefficients

According to the test of functional form, the OLS for the lin-lin model is the most preferred one
and gets the following representation:

In hypothesis testing, we use significance level of 5%

The number of observations is n = 110
We use F-test to test the overall significant of all coefficients. This test aims to check the effect
of all independent variables.
• Hypothesis: H0: β2 = β3 = β4 = β5 = β6 = 0
H1: At least one of coefficients is different from 0
𝑅 2 /(𝑘−1)
• Test statistics: F_sta = = 4.203453
(1−𝑅 2 )/(𝑛−𝑘)

• Critical value: Fc α, k-1, n-k = Fc0.5, 6-1, 110-6= 4

• Decision rule: reject H0 if F_sta > Fc = 4
• Conclusion: because F_sta = 4.203453 > 4 = Fc, we reject H0
Hence, there is enough statistical evidence to conclude that at least one of coefficients is different
from zero.

V. Checking errors
1. Multicollinearity
Multicollinearity arises due to the exact or approximate linear relationship among some or all
explanatory variables which can lead to some consequences:
• OLS estimators have large variances and covariance, making the estimation with less accuracy
• The estimation confidence intervals tend to be much wider, leading to type II error more readily

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• The R2 can be very high although the t-statistic of one or more coefficients is statistically
insignificant.
• The OLS estimators and their standard errors can be sensitive to small change in the data.

To detect this problem, we will use the method 1: the auxiliary regression and compute the F-
statistics to make conclusion about multicollinearity or method 2: VIF for conclusion.

Method 1: Auxiliary regression

We regress each independent variable on remaining one and obtain R-squared for each
regression.
ALLOW = β1’+ β2’*INCOME + u’

Table 6: Use Auxi

Hypothesis H0: no relationship among independent variables (multicollinearity does not exist)
H1: exiting relationship among independent variables (multicollinearity exist)
𝑅 2 /(𝑘−1)
Test statistics: F_sta = = 1.650595
(1−𝑅 2 )/(𝑛−𝑘)

Critical value: Fc α, k-1, n-k = Fc0.5, 2-1, 110-2 =4

Decision rule: reject H0 if F_sta > Fc
Conclusion: as F_sta = 1.650595 < 4 = Fc => not reject H0
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=> There is not enough evidence to infer at 5% level of significance that linear relationship not
exists between Allowance and INCOME variable.

Method 2: VIF
EXPENDITURE = β1’’ + β2’’*ALLOW + β3’’*INCOME + u’’

Table7: VIF
From table Eviews above, we have Central VIF= 1.015283 < 10
=> The linear relationship not exists between Allowance and INCOME variable.

Hence, our model has violated the assumption that there is no multicollinearity among
independent variables. As a result, we do not need to drop any of the independent variables
(ALLOW and INCOME)

2. Autocorrelation
*DW test
• Ho: There is no positive autocorrelation
Ha: There is a positive autocorrelation
• From Table 4, we obtain the Durbin-Watson stat being equal to 1.459303. Then, at 5%
level of significance, n=110, k’=5, the lower bound and upper bound are respectively:
dL =1.618, dU=1.755.
• Decision rule: We have: DW stat = 1.459303 < dL = 1.618=> Reject Ho.
• Conclusion: There is an existence of the first order positive autocorrelation

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After various attempts to correct the autocorrelation by First-difference transformation,

autocorrelation still exists, and we have not found out any effective remedy to solve this problem
at the moment.

3. Heteroskedasticity
One of ten assumptions of simple regression is homoscedasticity or equal variance of u i and the
conditional variances of ui are identical. As it is not satisfied or Var ( ui |Xi)= σi2 # σ2 ,
heteroskedasticity occurs, which results in some bad effects such as the not-best estimators or the
non-reliable F_stat and t-stat, etc. Therefore, it is crucial for us to detect and give remedial
measurements in our paper.
We will use the following formal method: Park test

• Hypothesis H0: Homoscedasticity

H1: Heteroskedasticity
• Obtaining 𝑢͡2 (resid^2)
• Running new model: log(𝑟𝑒𝑠𝑖𝑑 2 ) = 𝛽1′ + 𝛽2′ ∗ log(𝑉) + 𝑢͡𝑖′ with V is the variable
suspected to cause heteroskedasticity.

Table 8 : Log(resid^2) with log(allow)

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Table 9: Log(resid^2) with log(income)

If |t_sta | > tc (=2), then reject H0.
Because none of results of t-test is significant ( |-0.476511|<2 and |0.876535 |<2) =>not reject H0.
Therefore, there exists no heteroskedasticity in our model. We do not need any remedial
measures.
After all, we will interpret βi (only quantitative factors) from the lin-lin model mentioned
above.(Table 4)

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• Β2 = - 0.029486, if the family allowance increases by 1 unit (1 million VND), the

expenditure will decrease by 0.24986, holding other variables constant.
• Β3 = 0.271179, if the income increases by 1 unit (1 million VND), the expenditure will
increase by 0.271179, holding other variables constant.

VI. Conclusion and Limitation

To be concluded, our group test the influence level on HANU students’ expenditure of 5 factors
by checking functional form of regression model; using T-test and F-test to figure out the
relationship between the explained variables at a level of significance level of 5% and
simultaneously checking errors.
We selected five independent variables affecting expenditure of HANU students: family
allowance, wage, gender, spending styles and accommodation, the best model was expressed in
the lin-lin form:

Eventually, we can conclude that family allowance and income have significant influence on the
HANU students’ expenditure while the effect of 3 other factors are negligible on the contrary to
our pre-test expectations.
However, during testing process, there also exists some limitations: when running two Lin-Lin
and Lin-Log models, we can see R-squares of both are relatively small, 0.168 and 0.156
respectively. However, low R- squares are not a problem for such studies in the social science
field like ours as human behavior cannot be accurately predicted.
Also, curing autocorrelation problem is the study’s drawback. Despite the effort in using First-
difference transformation and finding effective remedies, we cannot correct this error.
All in all, it is figured out that the undergraduate are most affected by family allowance and
income. Thus, if students want to change their expenditure, they should focus on adjusting two
factors mentioned above.

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REFERENCE

1. Tang, T. L. P. (1995). The development of a short money ethic scale: Attitudes toward money
and pay satisfaction revisited. Personality and Individual Differences, 19, 809-816

2. Keynes, J. M. (1936). The general theory of employment, interest, and money. London:
Macmillan

3. Penman, S., & McNeil .S .L. (2008). Spending their way to adulthood: Consumption outside
the nest. Otago, New Zealand: University of Otago

4. Henry, R. A., Weber, J. G; Yarbrough, D. (2001). Money management practices of college

students. College Student Journal, 35, 244-249. Lusardi, Annamaria, and Olivia S. Mitchell.
2007b. Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial
Education.”

5. Roberts, J. (2000). Consuming in a Consumer Culture: College Students, Materialism, Status

Consumption and Compulsive Buying. The Marketing Management Journal, 10(2), 76- 91

6. Jades, J. (2015). The role of alumni. Oye, Nygeria: Federal University

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APPENDICES

1. Table 1: Statistic description

2.Table 2: Covariance

3. Table 3: Correlation matrix

4. Table 4: The lin-lin mode

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5. Table 5: The log-lin model

6. Table 6: The auxilliary regression

7. Table 7: VIF

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8. Table 8: Log(resid^2) with log(allow)

9. Table 9: Log(resid^2) with log(income)

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