Managerial Economics

Multiple Regression Analysis

6/6/2011

Ayesha Rehman

TABLE OF CONTENTS
CONTENTS PAGE NO.

Acknowledgement

Executive Summary

Introduction

5 Methodology Multiple Regression Analysis 6

Data

Regression Calculations

8-9

Hypothesis Testing

9-10

F-Test

11-12

Conclusion

12

Error Detection

12

Page 2 of 12

ACKNOWLEDGEMENT
First of all I would like to thank Almighty Allah, for the completion and compilation of this report. Secondly, I really have to express my gratitude towards my parents because this report would never have been possible without the immense cooperation and support they rendered towards me. They responded positively to help me with my assignments and helped me tremendously with the projects undertaken. They let me embark on such an exhilarating experience and journey that helped me learn a lot. Finally, I would really like to thank my respected teacher, Sir Ahsan Rizvi, for his enlightening suggestions and advises. His professionalism, guidance, thoroughness, dedication and inspirations will always serve to me as an example in my professional life.

Page 3 of 12

EXECUTIVE SUMMARY

This report aims at using the mentioned data as variables and developing relationship among them which is further backed-up by Multiple Regression analysis method followed by calculations and interpretations of the results. The report then closes down by concluding part and references of the extracted data.

Page 4 of 12

INTRODUCTION
The relationship of total Meat production in Pakistan is dependent upon the number of livestock of Buffaloes and Camels, (keeping other livestock variables constant) which has been shown in this report.

Variables:
Dependent variable: Meat Production (Y) Independent variable: Buffaloes (X1) Independent Variable: Camels. (X2)

METHODOLOGY
Tool: The tool of statistics multiple regression analysis is used in this model for analysis of the relationship among variables. Software: The software used is SPSS 19 software. Significance level: The level of significance is of which value equals to 5%. Reference: The data of dependent and independent variables is obtained from the website: http://finance.gov.pk/survey/chapter_10/02_Agriculture.pdf Table 2.14 Table 2.15 Fiscal year 2009-2010

Page 5 of 12

Multiple Regression Analysis

The regression model is: Y= a+ b1 X1 + b2 X2 Y = dependent variable (Meat Production) X1 = independent variable (Buffaloes) and X2 = independent variable (Camels). The coefficient a, b1, and b2 are the parameters to be estimated. The a coefficient is the constant or vertical intercept and gives the value of meat produced (Y) when livestock of buffaloes(X1) and camels (X2) is equal to zero. On the other hand b1 and b2 are the slope coefficients which measure the change in meat production (y) per each unit change of buffaloes and camel. b1 measures change in meat production (y) per unit change in buffaloes (X1) while holding camels (X2) as constant. Similarly b2 measures change in production (y) per unit change in camels (X2) while holding buffaloes (X1) as constant.

Page 6 of 12

DATA Observation No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Year

Beef Production (000 tones)

765.00 803.00 844.00 887.00 931.00 898.00 919.00 940.00 963.00 986.00 1010.00 1034.00 1060.00 1087.00 1115.00 1449.00 1498.00 1549.00 1601.00 1655.00

Buffaloes (million no.)

17.80 18.30 18.70 19.20 19.70 20.30 20.80 21.40 22.00 22.70 23.30 24.00 24.80 25.50 26.30 27.30 28.20 29.00 29.90 30.80

Camel (million no.)

1.10 1.10 1.10 1.10 1.10 .80 .80 .80 .80 .80 .80 .80 .80 .70 .70 .90 .90 1.00 1.00 1.00

1990-1991 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

FY2010 (www.finance.gov.pk)

Page 7 of 12

Assumptions
These are that the error term is normally distributed, has zero expected value or mean, and has constant variance in each time period and for all values of X and that it value in one time period is unrelated to its value in any other period. Lastly number of independent variables in regression is smaller than the number of observations and that there is no perfect linear correlation among independent variables.

Regression Analysis
Variables Entered/Removed
Variables Entered/Removed Variables Model 1 Entered Camels_X2, Buffaloes_X1 a. All requested variables entered. b. Dependent Variable: Beef_prooduction Variables Removed Method . Enter

A. All requested variables entered. B. Dependent Variable: Production Calculations:

Coefficients(A)

Coefficients Standardized Unstandardized Coefficients Model 1 (Constant) Buffaloes_X1 Camels_X2 B -1044.178 71.110 522.420 Std. Error 116.634 2.963 84.283 1.022 .264 Coefficients Beta t -8.953 24.000 6.198 Sig. .000 .000 .000 .930 .930 1.075 1.075 Collinearity Statistics Tolerance VIF

a. Dependent Variable: Beef_prooduction

Page 8 of 12

A. Dependent Variable: Meat Production Model extracted as: Y= -1044.178+ 71.110 X1 + 522.420 X2 Which can be interpreted as, the total production of beef has a constant of -1044.178 (000 tones) which is Y-intercept showing if the independent variables tends to be zero the beef demand will equal to -1044.178 (000 tones). While b1= 71.110 showing the slope as of one unit increase in production of beef causes 71.110 livestock of buffaloes demand to increase. While b2 =522.420 is a slope showing increase in Camels demand by 522.420 by every increase in unit production of beef.

HYPOTHESIS TESTING

1st Hypothesis:

H0: b1= 0 (null hypothesis depicts that increase in one unit production of Beef has no impact on Beef consumption) HA: b1 0 (alternate Hypothesis depicts that above statement is untrue, there is a relationship between Meat (beef) consumption and production of Meat (beef)

Calculation:

Tcal = 24 Ttab= T (,) = T(0.05, 17) = 2.110

Page 9 of 12

Conclusion:
This show that calculated value of t-test, 24, is greater than tabulated value of t-test i.e. 2.110 which will likely to fall under rejection region. Therefore the null hypothesis will be rejected that is there is no relationship between the Meat (beef) production and the demand for the Meat (beef) and accept the alternate hypothesis in 5% level of significance.

2nd Hypothesis:
H0: b2= 0 (Beef production is not affected by Camel production) HA: b2 0 (Beef production is affected by Camel production)

Calculation:
Tcal = 6.198 Ttab = T(,) = T(0.05, 17) =2.110

Conclusion:
Since calculated value exceeds the tabulated value means that it falls under rejection region. Therefore under 5% level of significance the null hypothesis is rejected i.e. there is no impact of number of livestock of Camels on Beef production and the alternate hypothesis is accepted as there is an impact of no. of Camels on Beef demand.

Page 10 of 12

Fitness of Good Test

Model Summary
Model Summary Adjus ted R R Model 1 R .9 86
a b

Change Statistics Sig. F Std. Error of the Estimate 50.72813 R Square Change .971 F Change 288.023 df1 2 df2 17 Chan ge .000 DurbinWatson .943

Squar e .968

Square .971

a. Predictors: (Constant), Camels_X2, Buffaloes_X1 b. Dependent Variable: Beef_prooduction

A. Predictors: (Constant), CAMEL, BUFFALOES From above table it is known that the coefficient of determination i.e. R2 is 0.971. This shows that independent variables explain 97.1% variation in beef production. But when get adjusted R2 value which is equal to 96.8%. This shows the strong relationship between variables.

F-Statistics
ANOVA (b)
b

ANOVA Model 1 Regression Residual Total Sum of Squares 1482363.362 43746.838 1526110.200 df

Mean Square 2 17 19 741181.681 2573.343

F 288.023

Sig. .000
a

a. Predictors: (Constant), Camels_X2, Buffaloes_X1 b. Dependent Variable: Beef_prooduction

A. Predictors: (Constant), CAMEL, BUFFALOES B. Dependent Variable: PRODUCTION

Page 11 of 12

Using the value of R2= 0.971, n= 20, k=3 we obtained the F-test calculated value by: F= R2/(k-1) _ (1-R2)/ (n-k)

Fcal = 288.023 By comparing calculated value with critical value from the table of f-distribution: Ftab= F,1,2 = F (0.05,2, 17) = 3.59

Since calculated value 288.023 exceeds tabulated value, 3.59, at 5% of significant level. It is concluded to reject null hypothesis that there is statistically significant relationship between the independent variables and the dependent variable (i.e. to accept the alternative hypothesis at the 5% level of significance that not all coefficients are equal to zero).

Error Reporting:
Autocorrelation exists in the calculation of the data relationship. Autocorrelation is found to be positive. This error has been detected by using Durbin-Watson Statics. For reducing this error, there are 4 methods listed below: 1) The Inclusion of time as an additional explanatory variable. 2) The Inclusion of important missing variable into regression model. 3) Re-estimation of Regression in non-linear form. 4) Re-estimation Regression for the change.

Page 12 of 12