35 in equation 2 these moderate values of r 2 also

Info icon This preview shows pages 10–12. Sign up to view the full content.

variables, whereas its value is 0.35 in Equation 2. These moderate values of R 2 also show that none of the independent variables is highly correlated with the GDP growth variable (GDPG). Thus there are no chances of multicollinearity to be presented in the model. If the DW-statistic is considered, the value of it does not fall in the rejection region/critical region. In this case DW-statistic has a value that is within the acceptance range. Thus we can accept the null hypothesis that autocorrelation is absent from the regression errors. Now, coming to the behavior of individual regression co-efficients, we find that the estimated co-efficients are according to the theory. The negative intercept in the GDP growth function indicates that controlling all the independent variables in the model, as the level of CPI inflation rises; it impacts the GDP growth in the negative way as predicted by the theories. Our estimated model shows that, fixation of these independent variables to zero will harm the GDP growth. Analyzing the regression co-efficients individually, the results indicate that the co-efficient of CPI inflation is negative and significant at 5 percent level. This shows that 1 percentage increase in CPI inflation will cause about 0.13 percentage point decrease in GDP growth of the economy. Table 3 Parameter Estimates of Estimated GDP Growth Model (Dependent Variable is GDP Growth Rate) Independent Variables Equation (1) Equation (2) Intercept -9.054 (-0.841) -13.07 (-1.126) CPI Inflation (CINF) -0.130 (-2.152)** -0.099 (-1.435) Trade Openness (OPNS) 33.840 (2.664)* 37.732 (2.818)* Investment Growth (INVG) 0.059 (1.982)** 0.065 (2.122)** Labor Force Participation Rate (LFPR) 0.579 (2.259)** 0.659 (2.435)** Log of Population in Millions (LPOPM) -2.784 (-2.482)* -2.826 (-2.512)* Dummy Variable for Inflation 7 Percent (INF7) ----- 0.764 (0.935) R-Squared 0.33 0.35 Adjusted R-Squared 0.22 0.22 D W Statistic 1.97 1.94 Sample Size 38 38 Note: The t-Statistics (in Parenthesis) significant at 1% and 5% levels are indicated by *, ** respectively. All the estimations are carried out by E-views 3.1 (Quantitative Micro Software). Thus we accept the null hypothesis that CPI inflation has a negative impact on GDP growth. This result is in support with the estimated results of Fischer (1979), Gosh
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Muhammad Ayyoub, Imran Sharif Chaudhry, Fatima Farooq 61 and Phillips (1998) and Faria and Carneiro (2001), while Sidrauski (1967) and Malik and Chowdhury (2001) estimated the opposite result for these two variables. Trade openness plays a significant role to promote GDP growth as was hypothesized in our analysis. The co-efficient of the variable trade openness (OPNS) discloses the fact that it has a positive significant impact on GDPG. The co-efficient is significant at 1 percent level, so we accept the hypothesis that an increase in the trade openness increases the GDP growth. The co-efficient of trade openness is high, indicating that a 1 percent change in trade openness will bring about 33.8 percent positive changes in GDP growth. This result is reconciled with Gosh and Phillips (1998). As far as the investment growth variable (INVG) is concerned, its coefficient has very low value and significant at 5 percent level. The co-efficient of investment growth rate indicates that GDPG is less sensitive to change in investment growth but has positive impact on GDPG.
Image of page 11
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern