Question

Beginning in 1997, New York State has published annual "report cards" (available on the internet) that provide information on a variety of measures of the "success" of elementary and secondary school systems. In examining the data for 1996, a reporter for the Syracuse Newspapers, observed that a relationship appeared to exist between academic performance and the level of student poverty for the 124 schools in central New York area. To evaluate this relationship, a regression model was formulated as:

RD_i = β_o + β₁LUN_i + u_i

where:

RD_i = proportion of 3rd grade students in school i achieving a "mastery" level score
LUN_i = proportion of students in school i eligible for free or reduced price lunches

Can you predict the sign of the coefficient β₁? Explain in full details

Answer 1

It can be predicted from the empirical observations done by economists that there exists a negative relationship between level of poverty of the students and their academic performance. As the level of poverty of students increases they are able to invest less time in their studies because they are also providing income support to their parents, the expenditure incurred on books and stationery falls which reduces their overall performance. Also, the families which are poor do not consider education to be important for their children and they are generally seen as income earners for their family since childhood. The poor students cannot devote more time to their studies and thus their overall performance falls. Thus, it has been observed that coefficient in the equation will be negative.