econometrics questions 2

The Ministry of Education wants to know whether attending a private school has a positive causal effect on student test scores. The Ministry provides you with data that covers all students in the province of Ontario. The data include each student’s grade average and whether he or she attends a public or private school. Note that attending a private school is an active choice made by students and parents (all students are guaranteed a spot in a public school) and students are required to pay tuition to attend (public schools are free).

You define the independent variable of interest as

Di={10 if student i attends a private school; otherwise. Di={1 if student i attends a private school;0 otherwise.

Let gaigai denote the grade average of student ii. You consider estimating the following regression in order to evaluate the effect of attending a private school on student grade average:

gai=β0+β1Di+uigai=β0+β1Di+ui

Please answer the following questions.

Interpret the parameter β0β0. What does it represent