Figure 2. Illustration of the Econometric Model

Driver (e.g., Capital-per-Worker)

Productivity

The regression coefficient, 𝜷, is the slope of the line of best fit. It captures the relationship between productivity and the explanatory variable.

More variation in the explanatory variables increases the accuracy of estimated relationship.

Larger errors reduce the accuracy of estimated relationships.

Explanatory variable, X (e.g., Capital-per-Worker)

(Average of the explanatory variable)

Dependent variable, Y (Productivity)

Source: NERA analysis.