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STATA
Introductory manual
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QUIZ
•
What are the main OLS
assumptions?
1. On average right
2. Linear
3. Predicting variables and error term
uncorrelated
4. No serial correlation in error term
5. Homoscedasticity
+ Normality of error term
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QUIZ
•
•
•
Do we know the error term?
Do we know the coefficients?
How can we know whether all the
assumptions are fulfilled
1.
2.
3.
4.
5.
3
On average right => ???
Linearity => ???
X and ε uncorrelated => ???
ε serially uncorrelated => ???
ε homoscedastic => ???
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Before STATA
• A little excercise in Excel
– we’ll take a data set
– compute x’x
– compute (x’x)^-1
– compute (x’x)^-1x’
– compute (x’x)^-1x’y…
… and guess what will come out in
result of all this 
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Matrix algebra in Excel
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Step 1- see the data
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Step 2 – get rid of empty cells
• STATA does that automatically
• In Excel one needs to do that
manually
• Best way I know is to sort and delete
empty
• … but we do not need to do it, ‘cause
I’ve already prepared the spreadsheet
(DATA nonempty)
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Step 3 – transposition and
multiplication
• To transpose:
– just copy and paste special, then clicking
on the transpose option
• To multiply:
–
–
–
–
need to know what comes out
select the „right” area
write =mmult(range1;range2)
to do ranges, you can select them with
the mouse 
– DO NOT press enter: press
ctrl+shift+enter
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Step 4 – matrix inversion
• To invert a matrix:
– need to know what comes out => select
this area
– type =minvers(range)
– DO NOT press enter: press
ctrl+shift+enter
– … and that’s it 
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Step 5 – just do it yourself 
• Get
• Get
• Get
• Get
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x’x
(x’x)^-1
(x’x)^-1x’
(x’x)^-1x’y
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STATA as calculator
• Multiplication and other simple operations
– display (7*(6+5)/4)^(-0.3)
• Statistical calculations
– display normal(1.96)
• Generating variables
– generate t=1967
• Etc...
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Getting data to STATA
• How to get data to STATA?
– From Excel [Copy&Paste, remember „commas”]
– Manually [if one has the time ... ]
– From other sources [import function]
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Reading data in STATA
• How to know what it is?
– describe [read the texts]
– summarize [statistical properties]
• Learning more about your data set
– correlate trade gdppc [just to see how it works]
– histogram gdppc [graphing is easier from the
menu]
– scatter trade gddpc [as above ]
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Regression with STATA
• How to do regression?
– regress gdppc fdi trade inv school2
– regress gdppc fdi trade inv school2, nocons
... and that’s it 
Source
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SS
df
MS
Model
Residual
2.0703e+09
691290985
4
88
517584509
7855579.38
Total
2.7616e+09
92
30017706.8
gdppc
Coef.
fdi
trade
inv
school2
_cons
508.1666
13.57583
-72.10749
110.629
-83.17579
Std. Err.
147.8113
12.64687
39.74305
10.25845
899.459
t
3.44
1.07
-1.81
10.78
-0.09
Number of obs
F( 4,
88)
Prob > F
R-squared
Adj R-squared
Root MSE
P>|t|
0.001
0.286
0.073
0.000
0.927
=
=
=
=
=
=
93
65.89
0.0000
0.7497
0.7383
2802.8
[95% Conf. Interval]
214.4226
-11.55717
-151.0885
90.24245
-1870.661
801.9106
38.70884
6.873478
131.0155
1704.31
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Regression with STATA
• Only now one should start thinking 
– Maybe there is something about groups of countries we
should look at more in detail?
– How about North/South division?
– We have a variable for lattitude, right? 
• gen south=0
• replace south=1 if lat<0
• sum south
• tab south
– bysort south: reg gdppc fdi trade inv school2
• We can also draw many of these things
– twoway (scatter inv gdppc, mlabel( ccode)), by( south)
... and many others 
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Diagnostics with STATA
• Normality of the residual
– predict e, residual [directly after regress]
– sktest e [Jarque-Bery test]
• RESET test
(so-called omitted variables or functional form test)
– ovtest, rhs
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Diagnostics with STATA
• Structural stability [Chow test]
–
–
–
–
–
–
–
–
–
–
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gen d=0
gen dfdi=0
gen dtrade=0
gen dinv=0
replace d=1 if lat<0 (why so????)
replace dfdi=fdi if lat<0
replace dtrade=trade if lat<0
replace dinv=inv if lat<0
reg gdppc fdi trade inv school2 d dfdi dtrade dinv
test (d=0) (dfdi=0) (dtrade=0) (dinv=0)
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Diagnostics with STATA
• Heteroscedasticity
– hettest, rhs [Breush-Pagan test]
– imtest, white [White test]
• Autocorrelation
(we would need time, not this dataset)
– tsset t
– dwstat [Durbin-Watson test]
– bgodfrey, lags(1 2 3) [Breush-Godfrey test]
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