Here I begin….

Dummy Variables (Binary variables)

References for my Presentation Lecture!

Books Literature

• Elements of Econometrics-Jan Kmenta

• Applied Econometrics-Dimitrios Asteriou & Stephen G. Hall

• Theory of Econometrics- A. Koutsoyiannis

• Basic Econometrics- DamodarGujarati

• Econometric Methods- Jack Johnston & John DiNardo

Research Paper Reference

• “What Determines Innovation in Manufacturing Sector?

Evidence from Pakistan”, By

Mahreen Mahmud and Hamna Ahmed

DUMMY VARIABLE

International Literature i.e. Books

• Elements of Econometrics –Jan Kamenta

• Theory of Econometrics – A. Koutsoyiannis

• Econometric Methods –Jack Johston & John DiNardo

• Basic Econometrics -Damodar N. Gujarati

• Applied Econometrics-Dimitrios Asteriou & Stephen g. Hall

Research Paper

• What Determines Innovation in the Manufacturing Sector? Evidence from Pakistan, By Mahreen Mahmud (Lahore School of economics) and HamnaAhmed

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

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.

Innovation as a Driver of Growth

Innovation Competitiveness Productivity Growth

Innovation can be in,

Product

• Definition,

“An article or substance that is manufactured or refined for sale.”

Process

• Definition,

“Perform a series of mechanical or chemical operations on (something) in order to change or preserve it.”

Innovative VS Non-Innovation- Firms

Firm’s Internal characteristics

Size

Age

Ownership structure

Past performance

Trade status

Quality of management

Training & education background

Manager’s & entrepreneur’s experience

etc.

Firm’s external characteristics

Geographical location

Demand growth in the industry

Industry concentration

Government policies

General institutional structure of the firm’s operating area

etc.

Firm’s size and innovation

Positive link b/w size of firms, innovation and productivity.

Data Source

o 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, and VI. 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.

Innovation Rates- Pakistan

50%

27%

23%

Innovative by firm type

Both prod & proc

Prod only

Proc only

Innovation Rates- Pakistan

10%

22%

52%

0%

10%

20%

30%

40%

50%

60%

By Size

Firms

22%

13%

0%

5%

10%

15%

20%

25%

Exporters Non exporters

Firm

Firm

Innovation Rates by Industry

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Product

Process

Innovation Rates by Location

0.00%10.00%20.00%30.00%40.00%50.00%60.00%

Kar

ach

i

Lah

ore

She

ikh

up

ura

Sial

kot

Fais

alab

ad

Gu

jran

wal

a

Waz

irab

ad

Isla

mab

ad/R

awal

pin

di

Sukk

ur

Hyd

era

bad

Qu

etta

Pesh

awar

Product

Process

Methodology

Empirical Framework

Ijt = αo+ ΣβiYjt-1+ΣγiYjt-1+εo

Ijt is a dummy variable taking on value

of 1 if firm j is an innovator in year 2006-07 and 0 else.

t refers to the second round of the panel

(2006-07) and t-1 is the first (2002).

Xjt-1 & Yjt-1 are the vectors of internal

& external vectors characteristics respectively that firm j had in 2002.

αo,βi and γi are the parameters

εo is the error term

Estimation strategy

Prob(Ijt = 1|X,Y) = αo+ΣβiXjt-1+ΣγiYjt-1+εo

Estimating probit model using MLE technique.

Probit model is the

econometric model having Dep. Variable as binary i.e. 0 or 1

Where logit model just

contains different cdf for indep. Var of probit model

Modified Dep. Var. Technique

Product equation

Prob(Prodjt = 1|X,Y) = αo+ ΣβiXjt-1+ΣγiYjt-1+εo

Prod refers to product innovation in the 2006-07 period, respectively.

In this way, through this equation estimates on the determinants of innovation are separate for product innovators.

Process equation

• Prob(Procjt = 1|X,Y) = αo+ΣβiXjt-1+ΣγiYjt-1+εo

• Proc refers to process innovation in the 2006-07 period, respectively.

• In this way, through this equation estimates on the determinants of innovation are separate for product innovators.

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%

Equation 2, 2(augmented) 3, 4

Table 3

• Shows the result of estimated equation 2 and augmented equation by involving the effect of firms in clusters, with their parameters and t statistics values along with marginal effects.

Table 4

• Shows the results of estimated equation 3 (product) and equation 4 (process) , with their parameters and t statistics values along with marginal effects.

Policy implication and conclusion

Who are they?

Summary• Conclusion

Questions & Answers

The Presentation Ends, But not my Time

Dedication of this Presentation and my motivation!

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’

Steve Jobs

Born: February 24, 1955 San Francisco, California

American business executive, computer programmer, and entrepreneur

Motivational Speech

Steve Jobs Stanford Commencement Speech 2005