Senior Statistician

Practice session

In estimating an aggregate Cobb-Douglas production function ln(Y) = beta_0 + beta_1*ln(K) + beta_2*ln(L) + beta_3*ln(Energy) + u across industrial sectors, the regression yields an overall R^2 of 0.88 with a highly significant F-statistic (p < 0.001), but none of the individual t-statistics for beta_1, beta_2, or beta_3 are statistically significant. The Variance Inflation Factors (VIF) for ln(K) and ln(Energy) both exceed 14.5. What econometric pathology is present, and what is its mathematical cause?

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