My meeting last week with Dr.Poon provided further clarity for the way going forward as to which data set is going to be used for the final AES results calculation and interpretation. In my last post I mentioned that data could be possibly modified by omitting an industry or removing outliers from the sample via an examination of the regression residuals. However Dr. Poon and I decided against either method owing to the fact the data has been obtained from the ABS. Thus, we do not expect there to be any observations that would adversely influence our results which could be expected in a case where we would have collected the data ourselves via surveys and other sources. Dr.Poon has also provided a data set for years form 2002-2006. Therefore the AES calculations and analysis is going to be conducted on the data from 1989-2006 across 12 industries.
I have included the results obtained for the regression, AES calculation for Software Capital and Hardware Capital (SKHK), Software Capital and Labout (SKL) and Hardware Capital and Labour (HKL) and the descriptive statistics of the AES calculated below.
REGRESSION RESULTS 1989-2002
Call:
lm(formula = data$lnVA ~ data$lnKS + data$lnKH + data$lnK0 +
data$lnL + KSKH + KSK0 + KSL + KHK0 + KHL + K0L + KS2 + KH2 +
K02 + L2 + factor(data$Time) + factor(data$Sector))
Residuals:
Min 1Q Median 3Q Max
-0.423377 -0.053865 0.007137 0.064163 0.236467
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) -2.76934 3.49685 -0.792 0.429738
data$lnKS -4.91899 0.73396 -6.702 4.73e-10 ***
data$lnKH 3.28292 0.43660 7.519 6.17e-12 ***
data$lnK0 -3.70208 0.62895 -5.886 2.82e-08 ***
data$lnL 6.46639 0.80948 7.988 4.68e-13 ***
KSKH 0.25449 0.07029 3.621 0.000411 ***
KSK0 0.31770 0.06177 5.143 9.01e-07 ***
KSL 0.29704 0.04364 6.807 2.74e-10 ***
KHK0 -0.22608 0.03697 -6.115 9.20e-09 ***
KHL -0.16539 0.02900 -5.702 6.82e-08 ***
K0L -0.37694 0.04122 -9.145 6.61e-16 ***
KS2 -0.21684 0.04987 -4.348 2.64e-05 ***
KH2 -0.05881 0.02768 -2.124 0.035406 *
K02 0.33207 0.04276 7.766 1.60e-12 ***
L2 -0.13565 0.02377 -5.708 6.65e-08 ***
factor(data$Time)2 -0.13121 0.04744 -2.766 0.006446 **
factor(data$Time)3 -0.24256 0.04959 -4.891 2.74e-06 ***
factor(data$Time)4 -0.32922 0.05204 -6.327 3.21e-09 ***
factor(data$Time)5 -0.36548 0.05353 -6.828 2.46e-10 ***
factor(data$Time)6 -0.38471 0.05436 -7.078 6.62e-11 ***
factor(data$Time)7 -0.39591 0.05481 -7.223 3.05e-11 ***
factor(data$Time)8 -0.37964 0.05574 -6.811 2.68e-10 ***
factor(data$Time)9 -0.37973 0.05732 -6.625 7.03e-10 ***
factor(data$Time)10 -0.36279 0.06060 -5.987 1.73e-08 ***
factor(data$Time)11 -0.39968 0.06408 -6.237 5.02e-09 ***
factor(data$Time)12 -0.46585 0.07016 -6.640 6.53e-10 ***
factor(data$Time)13 -0.57207 0.07291 -7.846 1.03e-12 ***
factor(data$Time)14 -0.61339 0.07620 -8.050 3.33e-13 ***
factor(data$Sector)1 0.50895 0.03061 16.628 <>
---
Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
Residual standard error: 0.1126 on 139 degrees of freedom
Multiple R-Squared: 0.9663, Adjusted R-squared: 0.9595
F-statistic: 142.4 on 28 and 139 DF, p-value: <>
AES RESULTS 1989-2002
σKSKH -5.033649
t = -0.8299, df = 167, p-value = 0.2039
alternative hypothesis: true mean is less than 0
95 percent confidence interval:
-Inf 4.998998
sample estimates:
mean of x
-5.033649
σKHL 21.34182
t = 1.0949, df = 167, p-value = 0.1376
alternative hypothesis: true mean is greater than 0
95 percent confidence interval:
-10.89738 Inf
sample estimates:
mean of x
21.34182
σKSL 4.832529
t = 1.7212, df = 167, p-value = 0.04353
alternative hypothesis: true mean is greater than 0
95 percent confidence interval:
0.1885799 Inf
sample estimates:
mean of x
4.832529
| AES | Min | Q1 | Median | Mean | Q3 | Max |
| sHkSk | -964.676 | -1.548 | 1.893 | -5.034 | 4.714 | 190.236 |
| sSkL | -34.9753 | -1.3622 | 0.7433 | 4.8325 | 4.3724 | 464.2841 |
| sHkL | -132.179 | -2.496 | 0.712 | 21.342 | 6.659 | 3269.487 |
The results show that only software capital and hardware capital are complements, whereas the relationship between these components and labour are substitutes. Whilst the first results are expected the latter are not so much, since I hypothesised that a complementary relationship exists between software capital and labour and hardware capital and labour. However, the are in agreement with previous studies and I am currently finding more papers and material that can offer a robust explanation for the results encountered.
In my pervious post I also mentioned that I am conducting test for the aggregation of software capital and hardware capital into a single measure of IT capital. I have performed the test in accordance with the procedure outline by Aizcorbe (1990) and have rejected the null hypothesis that the two can be aggregated which was expected. This once again provides further evidence to investigate the relationship between these two capital inputs which was done via the AES calculation. Dr.Poon has also asked me to perform this test to test whether there can be a single measure of capital i.e. other capital and IT capital aggregated into one measure. I am yet to perform this test but will do so tomorrow and like the other test I expect to reject the null hypothesis that one single measure of capital can be used.
Once I complete this I only need to estimate to minor models which Dr. Poon will provide details about in my next meeting and all that is left is to finish the write up of my treatise which I have ample time to complete.
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