Dummy variable’


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My presentation, with reference to a resarch paper. which is still in progress.. but available to download

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Dummy variable’

  1. 1. Here I begin….
  2. 2. Dummy Variables (Binaryvariables)
  3. 3. References for my PresentationLecture! Books Literature Research Paper Reference• Elements of Econometrics- Jan Kmenta • “What Determines Innovation• Applied Econometrics- in Manufacturing Sector? Dimitrios Asteriou & Stephen Evidence from Pakistan”, By G. Hall Mahreen Mahmud and• Theory of Econometrics- A. Koutsoyiannis Hamna Ahmed• Basic Econometrics- Damodar Gujarati• Econometric Methods- Jack Johnston & John DiNardo
  4. 4. DUMMY VARIABLEInternational Literature i.e. Books Research Paper• Elements of Econometrics – • What Determines Jan Kamenta Innovation in the• Theory of Econometrics – A. Manufacturing Sector? Koutsoyiannis Evidence from Pakistan,• Econometric Methods – By Mahreen Mahmud Jack Johston & John (Lahore School of DiNardo economics) and Hamna• Basic Econometrics - Ahmed Damodar N. Gujarati• Applied Econometrics- Dimitrios Asteriou & Stephen g. Hall
  5. 5. 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
  6. 6. 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.
  7. 7. Innovation as a Driver of GrowthInnovation Competitiveness Productivity Growth
  8. 8. Innovation can be in, Product Process • Definition, • Definition, “An article or “Perform a series ofsubstance that is mechanical or chemicalmanufactured or refined for operations on (something) insale.” order to change or preserve it.”
  9. 9. Innovative VS Non-Innovation- Firms Firm’s Internal characteristics Firm’s external characteristics Size  Geographical location Age  Demand growth in the Ownership structure industry Past performance  Industry concentration Trade status  Government policies Quality of management  General institutional structure Training & education of the firm’s operating area background  etc. Manager’s & entrepreneur’s experience etc.
  10. 10. Firm’s sizeandinnovation Positive link b/w size of firms, innovation and productivity.
  11. 11. Data Sourceo 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, andVI. 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.
  12. 12. Innovation Rates- Pakistan Innovative by firm type 50% Both prod & proc 23% Prod only Proc only 27%
  13. 13. Innovation Rates- Pakistan By Size Firm60% 25% 52% 22%50% 20%40% 15% 13%30% 22%20% Firms 10% Firm 10%10% 5%0% 0% Exporters Non exporters
  14. 14. Innovation Rates by Industry30.00%25.00%20.00%15.00%10.00% 5.00% Product Process 0.00%
  15. 15. 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Karachi Lahore Sheikhupura Sialkot Faisalabad Gujranwala WazirabadIslamabad/Rawalpindi Sukkur Hyderabad Quetta Peshawar Innovation Rates by Location Process Product
  16. 16. Methodology Estimation strategy Empirical Framework  Prob(Ijt = 1|X,Y) = αo+ ΣβiXjt-1+ΣγiYjt-1+εo  Estimating probit model using Ijt = αo+ ΣβiYjt-1+ΣγiYjt-1+εo MLE technique.Ijt is a dummy variable taking on value Probit model is the of 1 if firm j is an innovator in year 2006- 07 and 0 else. econometric model having Dep. Variable as binary i.e. 0 or 1t refers to the second round of the panel (2006-07) and t-1 is the first (2002).  Where logit model just contains different cdf for indep.Xjt-1 & Yjt-1 are the vectors of internal Var of probit model & external vectors characteristics respectively that firm j had in 2002.αo,βi and γi are the parameters εo is the error term
  17. 17. Modified Dep. Var. Technique Product equation Process equationProb(Prodjt = 1|X,Y) = • Prob(Procjt = 1|X,Y) = αo+ αo+ ΣβiXjt-1+ΣγiYjt-1+εo ΣβiXjt-1+ΣγiYjt-1+εo Prod refers to product • Proc refers to process innovation in the 2006-07 innovation in the 2006-07 period, respectively. period, respectively. In this way, through this • In this way, through this equation estimates on the equation estimates on the determinants of innovation determinants of innovation are separate for product are separate for product innovators. innovators.
  18. 18. 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%
  19. 19. Equation 2, 2(augmented) 3, 4 Table 3 Table 4• Shows the result of estimated • Shows the results of equation 2 and augmented estimated equation 3 equation by involving the (product) and equation 4 effect of firms in clusters, with (process) , with their their parameters and t parameters and t statistics statistics values along with values along with marginal marginal effects. effects.
  20. 20. Policy implication and conclusion
  21. 21. Who are they?
  22. 22.  Summary • Conclusion
  23. 23. Questions & Answers
  24. 24. The Presentation Ends, But not myTime
  25. 25. Dedication of this Presentation and mymotivation! 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’
  26. 26. Steve Jobs Born: February 24, 1955 San Francisco, CaliforniaAmerican business executive, computer programmer, and entrepreneur
  27. 27. Motivational Speech Steve Jobs Stanford Commencement Speech 2005