Trade Openness and Economic Growth

The correlation coefficient is a commonly used basic statistic for describing the relationship between two continuous variables. In order to answer the research question posed above, we will estimate, test, and predict the correlation coefficient between these two variables in the population. Specifically, we estimate the size and direction of the correlation between growth and trade openness, test whether they are correlated in the population or not, and identify the strength of the correlation in the population. Before we discuss the correlation coefficient, however, we must first learn about its essential building block—covariance—and how to estimate it in R.