lab7.Rmd

---
title: "In-Class Lab 7"
author: "ECON 4223 (Prof. Tyler Ransom, U of Oklahoma)"
date: "February 15, 2022"
output:
  pdf_document: default
  html_document:
    df_print: paged
  word_document: default
bibliography: biblio.bib
---

```{r setup, include=FALSE}
knitr::opts_chunk$set(echo = TRUE, results = 'hide', fig.keep = 'none')
```

The purpose of this in-class lab is to practice conducting hypothesis tests about regression parameters in R. The lab may be completed in a group. To get credit, upload your .R script to the appropriate place on Canvas. 

## For starters
Open up a new R script (named `ICL7_XYZ.R`, where `XYZ` are your initials) and add the usual "preamble" to the top:
```{r message=FALSE, warning=FALSE, paged.print=FALSE}
# Add names of group members HERE
library(tidyverse)
library(broom)
library(wooldridge)
library(magrittr)
library(modelsummary)
```

### Load the data
We'll use a new data set on Research and Development (R&D) expenditures, called `rdchem`. The data set contains information on 32 companies in the chemical industry.
```{r}
df <- as_tibble(rdchem)
```

Check out what's in the data by typing
```{r}
datasummary_df(df)
datasummary_skim(df,histogram=FALSE)
```

The main variables are measures of R&D, profits, sales, and profits as a percentage of sales (`profmarg`, i.e. profit margin).

## Regression and Hypothesis Testing
Estimate the following regression model:
\[
rdintens = \beta_0 + \beta_1 \log(sales) + \beta_2 profmarg + u
\]
Note that the variable $log(sales)$ already exists in `df` as `lsales`. $rdintens$ is in percentage units, so a number of 2.6 means that the company's total R&D expenditures are 2.6% of its sales.

**I won't show you the code for estimating this model, as it should be old hat by now. If you've forgotten, I recommend looking at code from a previous lab.**

```{r include=FALSE, message=FALSE, warning=FALSE, paged.print=FALSE}
est <- lm(rdintens ~ lsales + profmarg, data=df)
tidy(est)
modelsummary(est)
```
Answer the following questions:

1. Interpret the coefficient on `lsales`. If $sales$ increase by 10%, what is the estimated percentage point change in $rdintens$? 
2. Is this an *economically significant* relationship?
3. Using the output of `tidy(est)`, test the hypothesis that sales affects R&D intensity at the 10% level. In other words, test:
\[
H_0: \beta_1 = 0;
H_a: \beta_1 \neq 0
\]
4. Does your answer to (3) change if you instead consider a one-sided alternative? (i.e. $H_a: \beta_1 > 0$)
5. Now consider the $\beta_2$ parameter. Is there a statistically significant effect of profit margin on R&D intensity?