MIDTERM REPORT OF ECONOMETRICS TOPIC THE FACTORS EFFECTING GPD OF COUNTRIES IN THE WORD IN 2015

That is why our team decided to study the topic: “Some factors affecting the gross domestic product GDP of countries in the world in 2015.. The research object is the degree of influence

BANKING ACADEMY

INTERNATIONAL SCHOOL OF BUSINESS

Lecturer: PhD Dinh Thi Thanh Binh Class: CityU 7C

Members of team:

- Le Nhu Nguyet CA7-074

- Le Mai Phuong CA7-077

- Nguyen Thi Yen CA7-116

- Bui Thi Thao Van CA7-113

- Nguyen Thi Thanh Thuy CA7-098

HA NOI, THANG 12 NAM 2020

MIDTERM REPORT OF ECONOMETRICS

TOPIC: THE FACTORS EFFECTING GPD OF COUNTRIES

IN THE WORD IN 2015

CONTENTS

Introduction 2

Chapter 1: Theoretical and practical basis of GDP and a number of factors affecting GDP 3

1.1 Rationale of the study 3

1.2 Definition 3

1.3 Literature review on the factors affecting GDP in countries around the world. 5

Chapter 2: Research methodology and econometric model 6

2.1 Method Research 6

2.1.1 Model building method 6

2.1.2 Methods of data collection and processing 6

2.2 Building econometric models 6

2.2.1 Overall model: 7

2.2.2 A random sample regression model 7

2.3 Description of the data 7

2.3.1 Data source 7

2.3.2 Describe the statistics 8

3.1 Regression model 9

3.2 Analyze the results after run regression model 9

3.3 Meaning of Partial Regression Coefficients 9

3.4 Check the suitability of the model 10

3.5 Check the model's defects 10

3.5.1: Multicollinearity 10

3.5.2 Variable error variance 12

3.6 Correct model errors 15

Conclusion 17

Reference 18

Appendix 19

Introduction

Econometrics is a social science in which the tools of economic theory, mathematics and statistical speculation are applied to the analysis of economic problems Econometrics use methodological tools of accounting to find out the nature of the statistics, make conclusions about the collected statistics from which to make predictions about economic phenomenon Since its inception up to now, econometrics have provided economists with a sharp measuring tool for measuring economic relations As students studying economics major, they recognize the need to study and learn about econometrics in logic analysis and problem research In order

to understand more deeply about bringing econometrics into real life and applying econometrics properly and effectively, the group cm would like to build the REPORT ON ECONOMETRICS under the guidance of PhD Dinh Thi Thanh Binh

Gross domestic product (GDP) is a basic indicator reflecting economic growth, economic size, per capita economic development, economic structure and price changes a country Therefore, GDP is an important and suitable tool widely used around the world to survey developments and changes in the national economy Accurate perception and proper use of this indicator have important implications in surveying and evaluating the state of sustainable, smooth and comprehensive development of the economy Any country wants to maintain a growing economy with currency stability and jobs for the population whose GDP

is one of the specific signals for government efforts Therefore, studying the key factors of GDP growth, the factors that influence GDP, can help the government change its policies to achieve its goals to promote economic growth These are macro issues that everyone working

in the economic sector is concerned about That is why our team decided to study the topic:

“Some factors affecting the gross domestic product (GDP) of countries in the world in 2015

This essay will use table data analysis methods to study and analyze some factors

to GDP in 60 countries in 2016 The research object is the degree of influence of the four main influencing factors, including: investment, export, import and inflation rate

By applying the knowledge from econometrics with socio-economic knowledge to analyze and find relationships between variables, the essay of the research team will answer the questions : How do the main factors affecting GDP ? What is the specific level of influence? …During the study, usage data were collected from the World Bank and used the econometric analysis tool STATA software to analyze and research based on the data

The research team has put a lot of effort in searching for information to complete this essay, but due to many limitations in expertise and experience, the essay cannot be avoided The research team is looking forward to receiving comments from TS.Dinh Thi Thanh Binh to be able to complete the essay better

The team sincerely thanks!

Chapter 1: Theoretical and practical basis of GDP and a number of factors affecting GDP

1.1 Rationale of the study

Economic growth and development is the first goal of all countries in the world, the primary measure of the progress of nations in each stage Each country has its own definition of its own strategy for socio-economic development Not only a country, but

in Vietnam, too, always considers economic development a very urgent task After more than 20 years of renovation, Vietnam has made remarkable progress, our country has moved from a stagnant subsidized economy to a market economy in the socialist orientation The annual gross national income has increased Moreover, our country is now joining the WTO global economy, integrating into the international economy This

is a very important step and opens up a promising economy Economic growth takes place, it is manifested that the GDP growth rate is increasing and stable for a long time, the economy will have many great achievements Thus, the more stable people's income and living standard, the more developed the country is Therefore, economic growth is considered as an attractive issue in economic research, it is the focal point to reflect the changing face of the national economy To evaluate a country's economy, economists evaluate the gross domestic product GDP

1.2 Definition

Gross domestic product or GDP is the monetary value of all final products and services produced within a territory over a specified period of time, usually a year GDP

is a measure of the value of a country's economic activity In terms of nature, GDP is

an index given to assess the overall growth rate of the economy, assessing the development level of a region / country

Investing has different implications in finance and economics In economics, investment is related to saving and delaying consumption Investment is related to many sectors of the economy, such as business management and finance whether for households, businesses, or government In finance, financial investment is placing money in an asset with the expectation of capital appreciation, often in the long term This may or may not be supported by research and analysis Most or all investment involves some form of risk, such as investments in equity, real estate and even fixed-rate securities that could, among other things, inflation risk

According to classical international trade theory, when the division of social labor reaches a certain level, production specialization is carried out allowing for higher productivity, more and more goods do not just respond To fully satisfy domestic consumption demand, which inevitably leads to the exchange of goods outside the

national territory Thus, in essence, export is the exchange of goods between countries, there are many different interpretations of export such as:

According to the Vietnam Open Learning Library (VOER), exporting is a basic activity

of foreign trade, it has been around for a long time and has grown steadily From the first basic form of goods exchange between countries, up to now it has been very developed and manifested in many forms Today's export activities take place on a global scale, in all industries and sectors of the economy, not only tangible goods but also intangible goods with an increasing proportion Export is aimed at collecting foreign currencies, increasing accumulation for the State budget, developing production and business, exploiting the advantages of the country potentials and improving the quality of people's life

Import means the import of goods and raw materials from other countries in the world to their own territory for consumption or to meet production needs This is how most people define an import normally However, in the Wikipedia and Vietnam's commercial law, imported goods are defined in more detail

According to Wikipedia, imports are understood as transactions related to goods or services from an external source through national borders This is an international business, not a single wholesaling, but operated under a system, including organizations inside and outside the importing country This exchange of goods, materials and services will be based on the principle of par value, with currency used as a broker

In Article 28, Clause 1 of the Commercial Law 2015, the import definition is as follows: “Import of goods means the goods brought into the territory of Vietnam from abroad or from a special area located in the territory of Vietnam is considered a private customs area as provided for by law.”

Inflation is the continual increase in the general price of goods and services over time and the loss of the value of a currency When the overall price rises, a single currency can buy less goods and services than before, so inflation reflects a decrease in purchasing power per unit of currency When compared to other countries, inflation is a decrease in the monetary value of one country relative to the currencies of another In the first sense, one understands that inflation of a currency affects the scope of a country's economy, while in the second one understands that inflation of a currency affects the scope of the economy actual use of that currency The sphere of influence of these two components remains a controversial issue among macroeconomists The opposite of inflation is deflation An index

of zero inflation or a small positive index is called "price stability"

1.3 Literature review on the factors affecting GDP in countries around the world

There have been numerous studies on the factors affecting GDP in the world through quantitative and qualitative research

In the 2015, Master Nguyen Minh Sang & Ngo Nu Dieu Khue's study is conducted to test the non-linear relationship between inflation and economic growth by using self-regression method with a sample of 17 developing countries, including Vietnam period from 2000 to 2012 The model estimation results showed that there exists an inflation threshold that when inflation exceeds this threshold, it will have a negative impact on economic growth Based on Vietnam's practice, the research team discusses the causes

of the growth differences between Vietnam and other countries and makes some policy suggestions to improve inflation control capacity at a reasonable level and bring into play the positive impact that inflation can have on Vietnam's economy

According to study of Rebeca and Marcelo (2006), This study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries Multivariate VAR analysis is carried out using both linear and non-linear models The latter category includes three approaches employed in the literature, namely, the asymmetric, scaled and net specifications Evidence of a non-linear impact of oil prices on real GDP is found In particular, oil price increases are found to have an impact on GDP growth of a larger magnitude than that of oil price declines, with the latter being statistically insignificant in most cases Among oil importing countries, oil price increases are found to have a negative impact on economic activity in all cases but Japan Moreover, the effect of oil shocks on GDP growth differs between the two oil exporting countries in the sample, with the UK being negatively affected by an oil price increase and Norway benefiting from it

Based on 2 studies we just learned, we decided to choose 5 variables for the model, including:

Dependent variable: Y Gross Domestic Product GDP (Unit: billion USD) Independent variables:

- Investment I (Unit: billion USD)

- Export XK (Unit: billion USD)

- Import NK (Unit: billion USD)

- Inflation L (Unit: %)

Chapter 2: Research methodology and econometric model

2.1 Method Research

2.1.1 Model building method

Regression analysis method: Find the dependencies of a variable, called the dependent variable on one or more other variables, called independent variables for the purpose of estimating or predicting the expected value of the dependent variable of the foreseeable values of the independent variable, specifically in this study, analyzing the relationship between the independent variable (Investment, Export, Import and Inflation) and dependent variable (GDP)

2.1.2 Methods of data collection and processing

- Methods of data collection

For research and modeling purposes, the team collected samples and their estimated values based on data of 60 observations in 2015 from 60 countries around the world Data of the model are cross-sectional data, collected statistically with reliable data sources from World Bank

- Data processing method

By estimating the coefficients of the normal minimum average model OLS, the data is selected and checked the statistical significance of the regression coefficients and the suitability of the model based on observations, also as compared to previous and similar studies to find the best results to use for analysis During the homework, the group used the knowledge of econometrics and macroeconomics, quantitative methods with the main support of STATA, Microsoft Excel, and Microsoft Word software to synthesize and complete this essay

2.2 Building econometric models

After studying and referencing studies that have been done before, our team decided to use multiple regression analysis to find out the dependence of GDP dependent variable for 4 independent Investment, Export, Import and Inflation for the

2015 period

The model consists of 5 variables:

- Dependent variable: Y Gross domestic product GDP (Unit: USD)

- Independent variables:

+ Investment I (Unit: USD)

+ Export XK (Unit: USD)

+ Import NK (Unit: USD)

+ Inflation L (Unit: %)

• 2: Angular coefficient of variable I

• 3: Angular coefficient of variable XK

• 4: Angular coefficient of variable NK

• 5: Angular coefficient of variable L

• ui: Population random error corresponding to ith observation, which represents other

factors affecting GDP but not mentioned in the model

2.2.2 A random sample regression model

Inside:

: estimate of intercept

: the estimated slope of the variable I

: the estimated slope of the variable XK

: the estimated slope of the variable NK

: the estimated slope of the variable L

: remainder, estimate of random error

2.2.3 Predict expectations between variables:

- positive: An increase in investment will lead to an increase in gross domestic product

- positive: When the export value increases, it will lead to an increase in gross domestic product

- negative: When the import value increases, the gross domestic product of GDP will decrease

- negative: When the inflation rate increase, the gross domestic product of GDP will decrease

2.3 Description of the data

2.3.1 Data source

- Data found from the World Bank

- Sample space: The survey was conducted in 60 countries around the world, with different levels and development histories Therefore, we realize that this sample space

is large enough, objective and reliable enough to build up a regression model

2.3.2 Describe the statistics

In order to help the reader have the most overview as well as give some initial assessment, the group will describe the data before proceeding to analyze the data Through this description, the team is able to predict some possible errors when running

the model due to lack of data

The figures include: Total investment capital (I), Total Export value, Total import value, Inflation rate(L) and Gross Domestic Product (GDP) of countries in the world in

2015

Table 2.1 Statistical description of the variables

Variable | Obs Mean Std Dev Min Max

Concern about Import, China shows the biggest import rate at 25.8% compared

to the smallest figure for Gambia, being at 0.26%

In the last category, the highest inflation rate is Ghana with 17.15% while Bahamas has the lowest figure at -30.24%

Chapter 3: Quantitative Analysis 3.1 Regression model

Table 3.1 Regression Model

reg gdp investment export import inflation

Source | SS df MS Number of obs = 60 -+ - F(4, 55) = 567.13 Model | 133847507 4 33461876.7 Prob > F = 0.0000 Residual | 3245135.9 55 59002.4708 R-squared = 0.9763 -+ - Adj R-squared = 0.9746 Total | 137092643 59 2323604.11 Root MSE = 242.9 - gdp | Coef Std Err t P>|t| [95% Conf Interval] -+ - investment | -26.54081 1.923016 -13.80 0.000 -30.39462 -22.687 export | 3.382309 .274932 12.30 0.000 2.831333 3.933285 import | .3527466 .2331067 1.51 0.136 -.1144097 819903 inflation | -4.512621 5.712118 -0.79 0.433 -15.95996 6.934719 _cons | -101.4596 35.13832 -2.89 0.006 -171.8784 -31.04083

3.2 Analyze the results after run regression model

From the regression model above, we have the following table of data:

Table 3.2 Data synthesis table from regression model

Variable t p-value Confidence Interval _cons -101.4596 -2.89 0.006 [-171.8784; - 31.04083] Investment -26.54081 -13.80 0.000 [-30.39462;-22.687] Export 3.382309 12.30 0.000 [2.831333;3.933285] Import 3527466 1.51 0.136 [-.1144097;.819903] Inflation -4.512621 -0.79 0.433 [-15.95996;6.934719] From the table above we have the sample regression equation SRF:

= -101.4596 + -26.5408*investment+ 3.382309*export + 0.3527466*import + -4.512621*inflation +

The model shows that: Investment, Export, Import and Inflation have an impact on Gross Domestic Product

It means that the independent variable (Investment, Export, Import, and Inflation) in the model can explain 97.63% of the variation of GDP

So, 2.37% of the variation of GDP is explained by other variation that is excluded from the model By theory, they are included in

3.3 Meaning of Partial Regression Coefficients

- For 1:When the variables Investment, Export, Import, Inflation has value equal to 0, the average GDP is -101.4596 units, it is the average effect of other factors that are not

in the model to GDP

- For 2: : When the factors remain constant and if the investment capital increases

(decreases) by 1 unit, the gross domestic product decreases (increase) 26,54081 units

- For 3: When factors unchanged and if export increases (decreases) by 1 unit, gross domestic product increases (decreases) 3,382309 units

- For 4: When factors remain constant and if import increases (decreases) by 1 unit, the gross domestic product increases (decreases) by 0.3527466 units

- For 5: When the factors remained constant and if inflation increased (decreased) by

1 unit, the total domestic product decreased (increased) - 4.512621 units

3.4 Check the suitability of the model

This test is to consider whether the parameters of an independent variable at the same time equal to 0 can occur or not

H0: R2 =0

H1: R2≠ 0

Method 1: P value method

If the Prob> F value is smaller than the significance level α = 0.05, then reject H0, accept H1, which means the regression model is suitable

.ovtest

Ramsey RESET test using powers of the fitted values of gdp

Ho: model has no omitted variables

F(3, 52) = 234.47

Prob > F = 0.0000

Have: Prob> F = 0.0000 <0.05 Reject H0, accept H1

Conclusion: The pattern is consistent at the 5% significance level

Method 2: Testing overall significance of a regression

Have: F = 514.926> 2.009 => Reject H0, the model is significant

3.5 Check the model's defects

3.5.1: Multicollinearity

a) Nature:

A good model is one that must achieve the BLUE (linear, unbiased, most efficient) properties However, in reality, due to the wrong model construction or the nature of the data, the model does not achieve all of the above properties One of the problems that affects the model we call the violation of assumptions, is

multicollinearity Multicollinearity is a fault of the regression analysis model that occurs when the independent variables Xi look linearly correlated with each other

b) The causes:

There are 3 causes of multicollinearity problem

• Perfect multicollinearity occurs when wrong model is placed In fact, perfect multicollinearity occurs rarely

• Incomplete multicollinearity occurs due to the socioeconomic phenomenon that independent variables already have collinearity relationship with each other

• Incomplete multicollinearity occurs because the survey data are not large enough, or the survey data are not randomized

c) How to detect multi-collinearity

Method 1: Use the corr command to check multicollinearity

If the independent variables are strongly correlated with each other (r> 0.8), the multicollinearity phenomenon can occur Using the corr command, the following output

Method 2: Use the variance inflation factor (VIF)

If VIF> 10, the phenomenon of multicollinearity occurs

Using the vif command in stata software, we obtained the following result:

We see that all VIF values are <10, so it can be concluded that the model does not occur multicollinearity

Conclusion: From the two tests above, we can conclude that: The model does not occur multi-collinearity phenomenon

3.5.2 Variable error variance

a) Nature:

Another problem that the model may face is the variance of the variance The consequence of the variance of variance is that the least squared estimates are still not biased but no longer effective, and the estimates of the variances will be biased, thus invalidating the test This makes the model less efficient The variance of each random

Ui, given that a given value of the explanatory variable Xi is constant, that is:

Var (Ui/Xi)= E[UI-E(Ui)]2=E(Ui)2=σ2; i=1,2,3,…n

When that assumption is violated, the model has variable variance error The name of this bug is Heteroskedasticity

b) The causes:

* Due to the nature of economic phenomena: If spatial economic phenomena are investigated on subjects of different scales or economic phenomena over time are investigated over periods of with different fluctuations, the variance of error may be uneven

* Due to incorrect format of the model function It could be due to omitting an appropriate variable or the analysis of the function being wrong

* Because the data does not accurately reflect the nature of the economic phenomenon, for example, outliers appear

* The inclusion or elimination of these observations greatly affects the regression analysis

* Due to the improved data collection, preservation and processing techniques, the error tends to decrease

c) Consequences:

If the model only has variable variance error, the OLS estimate is still an unbiased and consistent estimate, but it is not the best estimate (the most efficient) again Because, the variance of error in this case cannot reach the smallest value anymore Then, the regression coefficients and the F-tests of the model become unreliable Therefore, drawing conclusions based on these tests will be inaccurate d) How to detect variance of variation:

First run the model regression