TERM PAPER

ECONOMETRICS

An Empirical Study on Tele- Density Using

Multiple Regression Model

Submitted by: Subject Instructor:

RAVI CHAUHAN Dr. SUJATA KAR
Enrollment No: R290108026 Assistant Professor
MBA (IFM) ECONOMETRICS
UPES Dehradun

University of Petroleum & Energy Studies

Dehradun

INTRODUCTION:
Telecom reforms’ across the world are energizing businesses and people. In fact, Telecom reforms have
been among the most visible face of reforms in India in the past decade. Long considered a natural
monopoly, recent technological developments have facilitated competition in this sector leading to
increased access to telecom services and gains in efficiency and quality of service. India has emerged as
an international destination for processing and distribution of information. Availability of infrastructure
for electronically transferring and assessing information are critical to maintaining the competitive
advantage that it currently enjoys and embracing telecom reforms is a part of achieving that goal. Though
the results of telecom reforms the world over have been positive on average; domestic political economy
and institutions have impacted every country experience and India is no exception.

Tele-communication is important not only because of its role in bringing the benefits of communication
to every corner of India , but also in serving the new policy objectives of improving the global
competitiveness of the Indian economy.

Indian telecom market is growing at rapid pace. Despite attaining a subscriber base of 429.72 million,
Tele-density in India is 36.98 (as on March 2009). And rural market is still under- tapped. New
generation telecommunication like 3-G is latest addition.

The Tele-density is an average regarding the overall Telecom scenario.

OBJECTIVE:
To study the impact of
1. Population Density
2. G.D.P Per Capita
On the Tele-density at the global level, using the multiple regression model.

LITERATURE REVIEW :
Sudeshna Ghosh (2004) has used state-level data to empirically analyze the impact of telecom
privatization on economic development in the Indian context. If privatizing telecom provides a stimulus
to state economic development, we would expect to see positive effect of telecom reforms on GSDP, FDI
and industrial productivity. We find evidence that telecom reforms have a positive effect on industrial
productivity as measured by number of exchanges and telephone network across states. The effect of
network on industrial productivity is robust to different specifications. We also find that teledensity is a
significant determinant of gross domestic product, that is, higher number of telephones facilitates
communication and raises the state domestic product. However, our results on the effect of teledensity on
state domestic product is not robust to all specifications. Telecom privatization does not appear to be an
important determinant of state level FDI in India. Instead, agglomeration effect is a more important and
significant determinant of FDI inflows.
Gurshaminder Singh Bajwa (from JNU) tries to bring out the role of Indian state as an actor in
responding to the ICT (Information and Communication Technology) policy with special reference to the
two task force reports highlighted in for carrying out this study. Response is here understood as the ‘role’
played by the Indian state towards putting policy statements into practice. The underlying intent of the
theories is the belief that information would be the prime mover in information or knowledge societies. It
is strongly believed that ICT will propel India into the league of developed nations. At the same time they
raise some important issues and questions: What are the broad objectives of major policies on ICT for
development? To what extent policies formulated at the highest decision-making bodies find their way
for implementation? Is there a gap between ‘Theory’ and ‘Practice’? To what extent ICT policies
influenced different stakeholders in the society? And what kinds of responses have been generated by
different policies? The aim focus of this study is on the responses of different stakeholders especially the
state with respect to the ICT policies and discourse. This will reveal developmental concern for the
overall built environment especially in education, health, energy and transportation systems sectors, but
the structure and orientation of ICT policy initiatives, in a large measure are directed towards market-
oriented demands of globalisation.
Swadesh Kumar Samanta (2007) did as study on Impact of price on mobile subscription and
Revenue. Access price or fixed monthly fee for mobile services is the major factor that governs the
percentage of people subscribing (penetration) to the services. Empirical analysis shows a strong
correlation between access price and penetration for developing and developed countries. They
demonstrate a trade-off between price of access and per-minute-call and show how subscription and
revenue to the operator can be increased.
Singh (2005), in his article “The role of technology in the emergence of the information society in India”
describes the role that information and communication technologies are playing for Indian society to
educate them formally or informally which is ultimately helping India to emerge as an information
society. Though India has a huge population, the illiteracy rate is also huge in this country. The paper has
taken an approach to find the historical situation and present the prevailing scenario as well as the change
that are taking place with the application of ICT to the advantage of the society in different areas
including daily life. India is making all out efforts to be counted among the developed nations of the
world. The article also describes the considerable attention India is taking for application of technology,
development of infrastructure and human resource for meeting national needs. Basically India is building
an information society. Technology has helped society to cut across the traditional boundaries for getting
converted into an emerging information society. The study concludes that The Indian software and
services industry has significantly helped to boost the Indian economy. In IT-enabled services too,
India has been clearly perceived to be the dominant hub. The Indian software sector is being recognized
as the single largest contributor to incremental market capitalization in India but the sector is still small
interms of contribution to GDP, especially when compared to other large sectors in the economy like
agriculture and manufacturing.
Similarly, the telecommunication sector has contributed a lot but still has a considerable way to go. The
paper also enforces that comparisons of India’s telecommunication statistics with those of developed and
other emerging economies show that the country is still far behind its contemporaries.
Manas Bhattacharya (2002) in his report Vision 2020 for Indian telecom sector bring about the
following observations.
LDCs are experiencing fastest growth in telecom network. In the mid-90s, growth in total telephone
subscribers per 100 inhabitants of the LDCs surpassed that of the developed countries. Given the
relationship between telecom expansion and growth, there is hope for narrowing down of digital-divide,
provided, LDCs are able to sustain growth momentum in the long run. Developing countries with liberal
policies have much better opportunity to leapfrog than before. Mobile experience of the low-income
countries bears testimony to this process. India is a participant in this global process. There is tremendous
appetite to absorb new technology. At the higher end of the market, India will mimic the most
sophisticated telecom technology of the world. After the cross-over between fixed line and mobile
phones, the next cross-over would be between data and voice. In order to guess the time frame over
which such technological and commercial cycles may run their courses in future it may be of interest to
look at the past experiences.

METHODOLOGY:
– Quantitative analysis of Tele-density.
– In this analysis we are using Multi-variat Linear Regression.
– The variables considered are:
 Tele-density, Population density, per capita GDP
– Data for the year 2008 of 196 countries of the world is taken for this purpose.
– The data collected is secondary data.
– Method of data collection: Research papers published in reputed refereed Journals, Articles,
Newspapers, magazines, Internet

MULTIPLE REGRESSION MODEL:

Researchers in the physical and social sciences often want to determine a relationship among a
number of variables based on a set of data that are observations or measurements of these variables
over a number of instances. Usually, one variable is called the dependent variable while the other
variables are independent variables. A linear regression tries to determine the dependent variable as
a linear function of the independent variables.

Linear regression is also called multiple regressions, or least squares estimation.

REGRESSION:
A statistical technique used to find relationships between variables for the purpose of predicting
future values.

MULTIPLE REGRESSION:

Multiple regression is a statistical technique that allows us to predict someone’s score on one
variable on the basis of their scores on several other variables.

In multiple regression we make the following assumptions:

• E(ui) = 0
• V(ui) = ‫סּ‬2 for all i
• Ui and uj are independent for all i ≠ j
• Ui and xj are independent for all i and j.
• Ui are normally distributed for all i.
• There are no linear dependencies in the explanatory variables, i.e. none of the explanatory
variables can be expressed as an exact linear function of the others.

WHEN SHOULD WE USE MULTIPLE REGRESSION?

I. We can use this statistical technique when exploring linear relationships between the
predictor and criterion variables – that is, when the relationship follows a straight line. (To
examine non-linear relationships, special techniques can be used.)
 II. The criterion variable that we are seeking to predict should be measured on a
continuous scale (such as interval or ratio scale). There is a separate regression method called
logistic regression that can be used for dichotomous dependent variables.

III. The predictor variables that we select should be measured on a ratio, interval, or
ordinal scale. A nominal predictor variable is legitimate but only if it is dichotomous, i.e. there
are no more than two categories. For example, sex is acceptable (where male is coded as 1 and
female as 0) but gender identity (masculine, feminine and androgynous) could not be coded as a
single variable. Instead, we would create three different variables each with two categories
(masculine/not masculine; feminine/not feminine and androgynous/not androgynous). The term
dummy variable is used to describe this type of dichotomous variable.

IV. Multiple regression requires a large number of observations. The number of cases
(participants) must substantially exceed the number of predictor variables we are using in your
regression. The absolute minimum is that we have five times as many participants as predictor
variables. A more acceptable ratio is 10:1, but some people argue that this should be as high as
40:1 for some statistical selection methods.

THE MULTIPLE REGRESSION EQUATION IN THIS CASE:

Yi = βo+ β1X1i+ β2X2i+ εi
βo = Y (Tele- density) intercept
β1 = slope of Y with variable X1 (Population Density in Population per Km2) holding variable
X2 constant
β2 = slope of Y with variable X2 (GDP per capita) holding variable X1 constant
εi = random error in Y for observation i.

Regression Statistics
Multiple R 0.663648587
R Square 0.440429447
Adjusted R Square 0.434630789
Standard Error 44.67644633
Observations 196

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

78.2939191
Intercept 70.58297254 3.909558871 18.053948 2.543E-43 62.87202592 7
1.92103302 0.00515494
X1 0.002543513 0.001324034 4 0.05620112 -6.79211E-05 8
11.7466693 0.00262693
X2 0.002249268 0.000191481 7 2.18978E-24 0.001871604 3

Computed values of the coefficients with the help of Microsoft excel, we get;

β0 = 70.58297254
β1 = 0.002543513
β2 = 0.002249268
Therefore the multiple regression equation can be expressed as
Ŷi = 70.58297254+0.002543513X1i +0.002249268X2i

Interpretation:

Intercept (β0): The value of the coefficient of intercept is 70.58297254. It is interpreted that 70.58297254
is the average value of population density and per capita GDP is assumed to be 0.

For β1: The Tele-density is expected to increase by 0.002543513 for each unit increase in the population
density considering per capita GDP to be constant.

For β2 : The Tele-density is expected to increase by 0.002249268 for each unit increase in GDP per
capita holding the population density constant.

Coefficient of determination (R square)

R square = SSR/SST
Where; SSR = regression sum of squares
SST = total sum of squares
R2 = 0.440429447
R2 is computed as 0.440429447, means that 44.0429447% of the variation in Tele-density can be
explained by the variation in the population density and GDP per capita.
i. Here R square is 44.04%, so it is clear that the regression power of independent or
explanatory variable(X1, X2,) is up-to-the mark in defining the dependent variable (Tele-
density).
Adjusted R Square: When dealing with multiple regression models, some staticians suggest that the radj2
should be computed to reflect the number of explanatory variables (k) in the model and the sample size.
We know that, radj2=1-1-R2n-1n-k-1.
n= total number of observations, here n = 196
k = number of explanatory variables, here k = 2
Also, radj2 = 0.434630789
Hence, 43.46 of the variation in the Tele-density is explained by the multiple regression model- adjusted
for the number of predictors and sample size.

RESIDUAL ANALYSIS FOR THE MULTIPLE REGRESSION MODEL:

The residual analysis was used to evaluate whether the multiple regression model was appropriate for the
set of data being studied.
The first residual plot examines the pattern of residuals versus the predicted values of Y. If the residuals
show a pattern for different predicted values of Y, this provides evidence of a possible quadratic effect in
at least one explanatory variable, a possible violation of the assumption of equal variance.
In the plot obtained from Microsoft Excel, there appears to be no pattern in the relationship between the
residuals and the predicted values of Y.

The second and third plots involve the explanatory variables. Patterns in the plot of residuals versus an
explanatory variable may indicate the existence of quadratic effect and therefore indicate the need to add
a quadratic explanatory variable to the multiple regression.
In the above plots, there appears to be no pattern in the relationship between the residuals and the value of
X1 (Population Density), the value of X2 (GDP per capita). Therefore, we can conclude that the multiple
regression model is appropriate for predicting the Tele-Density.

TESTING FOR THE SIGNIFICANCE OF THE MULTIPLE REGRESSION MODEL:

Now that the residual analysis has been used to determine whether the multiple regression model is
appropriate, we can determine whether there is significant relationship between the dependent variable
and the set of explanatory variables. Because there is more than one explanatory variable, the null and
alternative hypotheses are as follows:
H0: β1 = β2 = 0 (No linear relationship between the dependent variable and the explanatory variables.)
H1: At least one β j≠ 0 (Linear relationship between the dependent variable and at least one of the
explanatory variables.)
This null hypotheses is tested with an F- test by using values summarised in the table below.
ANOVA
Degrees
of Sum Of squares
freedom (SS) Mean Squares(MS) F=MSRMSE
(df) Significance F
SSR=303204.782 MSR=SSRk=151602.
Regression k=2 6 3913 75.95367809 4.65579E-25
n-k- SSE=385225.077 MSE=SSEn-k-
Residual 1=193 4 1=1995.98
Total n-1195 SST=688429.86

The F statistic is equal to the regression mean square (MSR) divided by the error mean square.
F=MSRMSE
F= test statistic from an F distribution with k and n-k-1 degrees of freedom.
The decision rule is
Reject H0 at the α level of significance if Fcalculated > Fcrit(k,n-k-1)
If a 0.05 level of significance is used, the critical value of the F distribution with k=2 and n-k-1=193
degrees of freedom obtained from the table is

Confidence and Prediction

Estimate Intervals

Data
Confidence Level 95%
1
X1 given value 373
X2 given value 947

23325
X'X 196 74490 90
1.19E 2.1E+
74490 +09 09
23325 2.1E+ 8.35E
 90 09 +10

0.0076 -1.1E- -2.1E-

Inverse of X'X 58 07 07
-1.1E- 8.78E- -1.9E-
07 10 11
-2.1E- -1.9E- 1.84E-
07 11 11

0.0074 2.03E-
X'G times Inverse of X'X 18 07 -2E-07

[X'G times Inverse of X'X] 0.0073

times XG 03
1.9723
t Statistic 32
73.66
Predicted Y (YHat) 176

For Average Predicted Y (YHat)

7.530
Interval Half Width 386
Confidence Interval 66.13
Lower Limit 137
Confidence Interval 81.19
Upper Limit 215