ECONOMETRICS PROJECT REPORT topic factors affecting GDP of vietnam from 1995 to 2019

After more than 20 years of revolution, first of all, is "economic thinking", shifting from acentrally planned economy to a socialist-oriented market economy, promoting industrialization

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM

-o0o -ECONOMETRICS PROJECT REPORT

Topic: Factors affecting GDP of Vietnam from 1995 to 2019

Tutor’s name: Ms Tran Thi Hoang Anh Tutorial class: Tutorial 3

Group 2

Phan Thi Hoang Yen

Nguyen Minh Anh

Nguyen Thuy Linh

LINK OF THE GROUP PRESENTATION VIDEO:

TABLE OF CONTENTS

I NATURE AND BACKGROUND OF THE STUDY 5

1 Introduction 5

2 Statement of the problem 6

3 Background of the statement 6

4 Rationale for the study 7

5 Research questions 7

II REVIEW OF LITERATURE 8

III METHODOLOGY 9

1 Definition of population 9

2 Sampling method use 9

3 How the data was collected 9

4 Research design used 10

5 Statistical tests 10

IV DATA ANALYSIS AND RESULTS 10

1 Descriptive Statistics 10

2 Interpretations: 13

2.1 Interpret coefficient 14

2.2 Coefficient of determination 14

3 Hypothesis Testing: 14

3.1 Testing the overall significance of all coefficient 14

3.2 Testing the individual partial coefficients 15

V CHECKING ERRORS IN THE MODEL 17

1 Multicollinearity 17

1.1 The nature 17

1.2 Consequences 18

1.3 Detection 18

1.4 Remedial measures 19

2 Heteroscedasticity 19

2.1 The nature 20

2.2 Consequences 20

2.3 Detection 20

2.4 Remedial 22

3 Autocorrelation 23

3.1 The nature 23

3.2 Consequences 23

3.3 Detection 23

3.4 Remedial 25

4 Summary of checking errors of the model 26

VI SUMMARY, CONCLUSION AND RECOMMENDATIONS 27

1 Summary and conclusion: 27

2 Recommendation 27

APPENDIX 28

REFERENCES LIST 29

TABLE OF FIGURE

8 Figure 2 : Correlation matrix 9

Figure 3: Covariance matrix 9

Figure 4: Relationship between GDP and its factors 10

Figure 5: Estimation of the best model 11

Figure 6: Variance Inflation Factor 16

Figure 7: White’s Heteroscedasticity test 18

Figure 8: White Heteroskedasticity-consistent standard errors & covariance test 22

Figure 9: Breusch-Godfrey serial correlation LM test for AR (2) 25

Figure 10: Newey-West HAC standard errors & covariance 26

The research would not be done completely without any assistance Thus, we appreciate

every support and motivation during the time doing this research

Thanks to the knowledge that we learned from the Econometrics textbook we absorbed thebasics which would help us build up the idea of this research Moreover, we want to giveacknowledgment to the author of the prior research which gave us detailed information in

our study

Finally, we deeply thank two dedicated teachers, Ms Dao Binh, Mr Pham Hung and Ms HoangAnh

I NATURE AND BACKGROUND OF THE STUDY

1 Introduction

The global economy is undergoing significant changes, the countries around the world aretending to integrate globally, helping to grow the economy through the exchange and trading ofgoods not only in the region but also in other continents Economic development affects theprosperity as well as political factors of nations, Vietnam is no exception

After more than 20 years of revolution, first of all, is "economic thinking", shifting from acentrally planned economy to a socialist-oriented market economy, promoting industrialization,modernizing, proactively and actively integrating into the world, Vietnam has made manyremarkable achievements in the domestic economy From an agricultural, backward, small-scaleeconomy, with a GDP of only 14 billion USD and GDP per capita of only about 250 USD in theearly years of Doi Moi, Vietnam has come out of poverty, moved to implement and step upindustrialization and modernization of the country By 2019, Vietnam had official relations with189/193 countries of the United Nations (compared with 11 countries in 1954); havingeconomic, trade, and investment relations with over 224 countries and territories worldwide; has

16 strategic partners, 11 comprehensive strategic partners; join more than 500 bilateral andmultilateral agreements in many fields (including 16 FTAs); 71 countries have recognizedVietnam as a market economy, etc Vietnam has opened its doors, became a member of ASEAN,APEC, the WTO, and many other international organizations participating in many free tradeinstitutions, proactively and actively contribute to building and shaping multilateral institutions,becoming a reliable partner and a responsible member of the international community,integrating more deeply and broadly into the global economy, gradually expanding integrationinto all fields of politics, defense, security, and culture – society, etc This is a very importantstep and opens up a promising economy

Economic growth takes place, it is reflected in the increasing and stable GDP growth rate for along time, the economy will have many great achievements Thus, the more stable the incomeand living standard of the people, the more developed the country is Therefore, economicgrowth is considered an attractive issue in economic research, it is the focal point to reflect thechanging face of the national economy

2 Statement of the problem

We can easily see that economic development has a great influence on life, culture, and politicalactivities in countries around the world in general and Vietnam in particular Economicdevelopment when looking at a country's GDP, the components of GDP generally are the mainfactors in the economy

To evaluate a country's economy, economists evaluate the gross domestic product GDP

3 Background of the statement

First of all, GDP is an economic term that stands for the English phrase Gross Domestic Product.This term means the gross domestic product (also known as gross domestic product) This is anindex given to assess the overall and generalized growth rate of each country's economy andassess the development level of that country

GDP is the value calculated according to the quantity of all goods and all services formed in aterritory in a given period of time The time to calculate the value of GDP in each type of goods

or service is usually from 3 months, 6 months, 9 months or 1 year depending on each specificsector GDP is the index to calculate the value of all products and services in the domesticeconomy, including foreign companies based in Vietnam

Constructed in a three-step sequence, the GDP is calibrated to four sub-indices, reflectingeconomic factors that influence the development of the economy of Vietnam:

• Population (P):

The population is a collection of people living in a certain geographical area or space that is avaluable source of labor for socio-economic development, often measured by census andexpression by population chart

Population is both the production force and the consumer force The size of the populationaffects the workforce, which will give the country the ability to comprehensively developeconomic sectors, while at the same time having profound labor expertise, creating conditionsfor productivity improvement labor, thereby promoting economic and social development

• Investment (I):

The total personal investment includes the business's expenditure on equipment and factories orthe construction and purchase of a new home by the household In addition, inventories, whenbeing put into stock, and not yet sold, are also included in GDP In macroeconomics, it is onlynecessary to increase capital to strengthen future production capacity.

Private gross domestic investment can have a major effect on accelerating economic growth bycreating new businesses that attract more workers, thereby solving economic difficulties,society's unemployment More than women, private investment also facilitates increased budgetrevenue in the form of taxes

• Exports (X): Domestically produced goods that are sold abroad (the proceeds from the sale ofgoods and services abroad - which increases GDP)

• Imports (M): goods that are produced abroad, but purchased for domestic demand (the amountpaid abroad by the purchase of goods and services - reduces GDP)

When we export, it will reduce the net worth bringing to the economy and it will increase the networth in the economy if we do an import

4 Rationale for the study

GDP accurately reflects the economy of a country, it clearly shows the change and the level ofequilibrium that keep the main factors that make up GDP and its index of change as well as theefforts of the government to do it factors that make up GDP over the years

It is essential to determine the factors influencing GDP and the correlation among these factors.Building the model based on these factors, we can know our strengths and weaknesses in theeconomy; That has the potential to carry out more appropriate economic adjustment strategies,helping to increase GDP over the years and develop the economy

In this study, we will present the procedures in collecting data and the process of making ourconclusion about:

- What is the relationship between GDP and four sub-indices? How do these determinants affectthe economy?

- Are there any connections among these determinants?

- Are there any errors shown while running the model?

II REVIEW OF LITERATURE

Prior research related literature

Before taking the projects, we looked for other research to see how the GDP was studied throughprevious research:

Macroeconomicstheory: GDP

PracticalTheoretical

Randomvariables

NospecificanalysisoffactorsaffectingGDP

2 Alex Reuben

Kira (2013)

Theinfluence

of factors

on UK’sGDP from

Macroeconomicstheory: GDP -Consumptionand Export

Cross tabulation

-Analyzingfactorsaffecting GDP

in DevelopingCountries: The

Nospecificanalysisoffactors

1965 to2010

Tanzania

affectingGDP

of factors

on UK’sGDP from

1965 to2010

Macroeconomicstheory: GDP -FDI, Net FIIequity, Net FIIdebt, Import andExport

Cross tabulation

-To investigatethe impact ofvarious

macroeconomicfactors on GDPcomponents

NospecificanalysisoffactorsaffectingGDP

It is clearly seen that GDP in Vietnam is a crucial index for both domestic and foreigneconomists The economists and organizations desire to know which element is the mostimportant factor affecting the Vietnamese economy

Overall, the three reports have limitations in that they do not contain specific 4 indicatorsaffecting the GDP and taking the examination within 25 years

III METHODOLOGY

1 Definition of population

The scope of the research is the GDP which includes population, investment, exports andimports

2 Sampling method use

To be more precise, we evaluated the GDP by collecting the statistics of 25 years in Vietnam.Thus, the sample size is 25 Therefore, to demonstrate the data and organize them properly, weused Microsoft Excel

3 How the data was collected

The data table is provided in the Appendix of the report All statistics were obtained fromsecondary sources, which is the website of GDP Vietnam On this website, we could find therelevant and reliable data of Vietnamese GDP from 1995 to 2019 to support our project

4 Research design used

In order to determine the change of GDP depended on the four variables that are mentionedabove, we use an econometrics model of the linear regression with the four variables:

GDP (Y) = β1 + β2*P + β3*I + β4*X + β4*M + u

5 Statistical tests

With an aim to find out the best-fitted model, we run OLS on Eviews program of the four mainfunctional forms such as Lin-Lin Model, Log-Log Model, Lin-Log Model, and Log-Lin Model Then, after having a result, we compare and evaluate the models which have the highest R2 andthe lowest coefficient of variation (CV) In the case of conflict between R2 and CV, we willchoose the model with the lowest CV In order to test the overall significance of all coefficients,

we used F-test with the conclusion to determine whether the estimators equal zero or not

The t-test is used to test the significance of each coefficient, particularly 10 coefficients This is

to show whether each independent variable has any effect on the dependent variable

Moreover, to check the error terms in the model, we applied three tests The first one ismulticollinearity with the variance inflation factor (VIF) The second one is heteroscedasticitywith White’s general heteroscedasticity test (with cross term)

Finally, to check for autocorrelation, the Durbin-Watson and Breusch-Godfrey tests areconducted

IV DATA ANALYSIS AND RESULTS

1 Descriptive Statistics

Some statistical information:

Figure 1: Statistics Description

Figure 2: Correlation matrix

Figure 3: Covariance matrix

The following graphs show the relationship between GDP and others factors which are Population, Investment, Export and Import respectively:

Figure 4: Relationship between GDP and its factors

2 Interpretations:

Based on the EViews’ result, we have the equation:

GDP= 1 + 2*Population + 3*Investment + 4*Export + β5*Import

In stochastic form:

GDP= 1 + 2*Population + 3*Investment + 4*Export + β5*Import + Ui

Figure 5 Estimation of the best model

Thus, we have the Sample regression function is:

GDP = 3053843 + 0.040863*Population + 1.473427*Investment + 0.763855*Export 0.401301*Import

-2.1 Interpret coefficient

β̂1 = -3053843: Regardless of other variables, the GDP is expected to decrease 3,053,843 billion

VND per year

β̂2 = 0.040863: There was a positive relationship between GDP and Population If Population

increases by 1 million people and other variables unchanged, GDP is expected to increase by0.040863 billion VND

β̂3 = 1.473427: There was a positive relationship between GDP and Investment If Investment

increases by 1 billion VND and other variables unchanged, GDP is expected to increase by1.473427 billion VND

β̂4 = 0.763855: There was a positive relationship between GDP and Export If Export increases

by 1 billion VND and other variables unchanged, GDP is expected to increase by 0.763855billion VND

β̂5 = -0.401301: There was a negative relationship between GDP and Import If Import increases

by 1 billion VND and other variables unchanged, GDP is expected to decrease by 0.401301billion VND

2.2 Coefficient of determination

R-squared = 0.996421 is measure of “Goodness of fit”, which means that approximately

99.64% of total variation of GDP can be explained by the variation of four factors: Population,Investment, Export, Import

3 Hypothesis Testing:

3.1 Testing the overall significance of all coefficient

According to the test of functional form, the OLS for the model gets the followingrepresentation:

GDP = β̂1 + β̂2 * Population + β̂3 * Investment + β̂4 * Export + β̂5 * Import

We use the F-test to test the overall significant test to check the effect of all independentvariables

In hypothesis testing, we use a significance level of 5% and a number of observations n = 24

Hypothesis testing: