tiểu luận kinh tế lượng THE IMPACT OF MACROECONOMIC FACTORS ON ECONOMIC GROWTH IN SOME ASEAN COUNTRIES FROM 1993 TO 2018

FOREIGN TRADE UNIVERSITY
FACULTY OF INTERNATIONAL ECONOMICS
*****___*****

ECONOMETRICS REPORT
THE IMPACT OF MACROECONOMIC
FACTORS ON ECONOMIC GROWTH IN SOME
ASEAN COUNTRIES FROM 1993 TO 2018
Group 12

: 1. Le Duc An
2. Cong Hoang Long

- 1814450008
- 1814450048

3. Pham Duc Nam

- 1814450057

4. Nguyen Trong Nhan

- 1814450059

CLASS

: KTEE218(1-1920).1_LT

Instructors

: Ms. Nguyen Thuy Quynh

Ms. Vu Thi Phuong Mai

Hanoi, September 2019


TABLE OF CONTENTS
ABSTRACT.......................................................................................................................................... 1
INTRODUCTION................................................................................................................................ 2
SECTION 1: OVERVIEW THE TOPIC............................................................................................ 4
1.1. Introduction to Economic Growth theory.................................................................................... 4
1.2. The theory of Economic Growth.................................................................................................. 4
1.2.1 Definition............................................................................................................................... 4
1.2.2. The importance of GDP growth rate.................................................................................... 5
1.2.3. The Cobb-Douglas Function................................................................................................ 5
1.3 Literature review.......................................................................................................................... 6
1.3.1. The factors have effect on GDP growth rate......................................................................... 6
1.3.2 Research hypotheses............................................................................................................ 10
SECTION 2: MODEL SPECIFICATION........................................................................................ 15
2.1 Methodology.............................................................................................................................. 15
2.1.1 Method used to gather the data........................................................................................... 15
2.1.2 Method used to analyze the data......................................................................................... 15
2.1.3. Method applied to derive the model................................................................................... 15
2.2 Theoretical model specification.................................................................................................. 16
2.3 Description of data..................................................................................................................... 17
2.3.1 Data source......................................................................................................................... 17
2.3.2 Statistical description.......................................................................................................... 20
2.3.3 Correlation matrix between variables................................................................................. 20
SECTION 3: ESTABLISHMENT AND STATISTICAL DIMENSION........................................ 22
3.1 Estimated model......................................................................................................................... 22
3.1.1 Estimation result................................................................................................................. 22

3.1.2 The sample regression model.............................................................................................. 23
3.1.3 The coefficient of determination.......................................................................................... 24
3.2 Hypothesis testing...................................................................................................................... 24
3.2.1 Coefficients.......................................................................................................................... 24
3.2.2 Testing the overall significance of the sample regression.................................................... 28
3.3 Discussion and recommendation................................................................................................ 29
CONCLUSION.................................................................................................................................. 32
REFERENCES................................................................................................................................... 32
APPENDIX......................................................................................................................................... 34
INDIVIDUAL ASSESSMENT.......................................................................................................... 37


ABSTRACT
Economic growth is regarded as the key indicator to a country’s development.
According to the economists it allow the living standard of people to rise and more
people to find jobs. Researches in the last decades have shown several factors that
have huge impacts on a country’s economic growth. We found out that FDI, ODA,
international trade, inflation rate and population all possess significant influence.
Know about the importance of economic growth, we decide to have a thorough
research about few factors we have mentioned above and came up with this topic: “The
impact of macroeconomic factors on economic growth in some Asean countries from
1993 - 2018”. This report aims at evaluating the impact of the five factors above on
economic growth in 3 developing countries (Vietnam, Indonesia and the Philippines).

Last but not least, due to the limited amount of time as well as some certain
difficulties in understanding and data collecting, this report may hardly avoid
mistakes. Our group is always willing to receive feedback from readers to complete
our report to the fullest.
Many thanks!

1


INTRODUCTION
Econometrics is the quantitative application of statistical and mathematical
models using data to develop theories or test existing hypothesis in economics and to
forecast future trends from historical data. It subjects real - world data to statistical
trials and then compares and contrasts the results against the theory or theories being
tested. Depending on whether you are interested in testing an existing theory or in
using existing data to develop a new hypothesis based on those observations,
econometrics can be subdivided into two major categories: theoretical and applied.
Those who routinely engage in this practice are commonly known as econometricians.
For every country around the world, economic growth is one of the most
important issues that governments have to deal with. In history, many people have
tried to figure out how to boost up the economic growth, what are the factors that
affect GDP and its growth rate, etc… According to the classical theory of Economic
Growth, there are four primary inputs of the economy which are: Natural resource,
Investment, Labour and Technology.
Foreign direct investment (FDI), International trade (TRADE), Official
Development Assistance (ODA), Inflation and Population are some factors we like to
discuss that play important roles in economic growth in all economic, cultural, social
fields. The relationship between these five factors and the economic growth have been
studied for several decades and these results show there are correlation among them.
In this report, our team conduct a research about the impact of FDI, ODA, Trade,
Population and Inflation on economic growth. To be more specific, we investigate
these factors in 3 different country (Vietnam, Indonesia and the Philippines) in the
period of time between 1993 and 2018.
This study will be essential to policy maker know more about the performance of
these 5 factors and economic growth. It will also assist in providing the frame work of
where work has been done by earlier researchers. It will also provide a framework on

which further research in economic growth could be carried out. This study will also
2


be an invaluable tool for students, researchers, research institutions and general public
that specialize in economics who wants to study more about factors that impact the
economic growth.
The report of our group has 3 main sections:
-

Section 1: Overview of the topic: In this section, we give a very

brief look through the three theories and models about economic growth.
-

Section 2: Model specification: We compare our topic with some

previous reports having the same object as ours.
-

Section 3: Estimated and statistical inference: The methodology

and explanation of the variables are mentioned in this section. Data description
is included. This part also includes the estimated model using the OLS method
and Hypothesis testing.

3


SECTION 1: OVERVIEW OF THE TOPIC

1.1. Introduction to Economic Growth theory
From time to time, various theories, perspectives and models were provided to
account for the sources of economic growth and the determinants of economic
development. For most people, a theory is an impractical contention and it has no
support in fact. For the economist, however, a theory is a systematic explanation of
interrelationships among economic variables and its purpose is to explain causal
relationship among these variables. A theory is usually used not only for a better
understanding of the world, but for the basis of politics.
Economics, just like people, has moods. Sometimes it’s in wonderful shapeit’s expand, at the other times, it’s depressed. The moods of the economy are
associated with different problems. Generally, when an economy is growing or
expanding, economic activity- the production of goods and services (output) is
increasing. When people produce and sell their goods, they earn income. So when an
economy is growing, bot total output and total income are increasing. Since most of us
prefer more to less, growth is easy to take. Growth economics is about how to increase
the economic full-employment GDP productive capacities.
1.2. The theory of Economic Growth
1.2.1 Definition
Economic growth is concerned with the question of how to increase the
economy’s productive capacity of full employment - GDP.
Economic growth is defined and measured in two related way. Specifically,
economic growth may be defined as the increase in real GDP per capita that occurs in
a period of time or as the increase in the real GDP per capita that occurs overtime. For
example, if one is concerned with the military potential or political preeminence, the
4


first definition is more relevant. But per capita output is clearly superior when
comparing living standard among nations or regions, we should focus on the second.
Economic growth by either definition is usually calculated in term of annual
percentage rates of growth.

1.2.2. The importance of GDP growth rate
The growth of total output relative to population means a higher standard of
living. An increasing in real output results in more satisfactory answer to the
economizing small different perspective. Growth is the key to meet new needs and
resolve socio-economic problems both domestically and internationally. In the same
way, the economic development can, for example, under take the environment without
impairing existing bulls of consumption, investment and public goods production.
Moreover, by easing the burden of scarcity, reducing society’s production constraints economic growth allow nation to realize existing goals more fully and to undertake
new output. Over period of years, a slightly difference in the rate of growth can
becomes significant change because of the “miracle” of compound interest. The
importance of the growth rate is undeniable.

1.2.3. The Cobb-Douglas Function
In economics and econometrics, the Cobb–Douglas production function is a
particular functional form of the production function, widely used to represent the
technological relationship between the amounts of two or more inputs (particularly
physical capital and labor) and the amount of output that can be produced by those
inputs. The Cobb–Douglas form was developed and tested against statistical evidence
by Charles Cobb and Paul Douglas during 1927–1947.
The Cobb-Douglas production function, in its stochastic form, may be
expressed as:
Yi= 1X2i 2X3i 3eui
Where: Y = output
X2 = labour input
X3 = capital input
5


u = stochastic disturbance term
e = base of natural logarithm

From equation, it is clear that the relationship between output and the two
inputs is nonlinear. However, if we log-transform this model, we obtain:
ln Yi = ln
=

1+

2ln

0+ 2ln

X2i +

3ln

X3i + ui

X2i + 3ln X3i + ui

Where 0 = ln 1

Thus, the model is linear in the parameters and therefore is a linear regression
model. The Cobb-Douglas help us to identify the impacts of 2 explanatory variables
on the explained variable.

1.3 Literature review
1.3.1. The factors have effect on GDP growth rate
There is also a number of FDI researches in general. Although there are
sensible theoretical bases to assume that FDI will have a beneficial effect on financial
development, current empirical proof on this nexus is not conclusive. Many studies

support the beneficial financial development impact of FDI. Authors found that their
empirical findings show the beneficial effects on financial development of FDI inflow,
national investment, trade openness, and secondary education. Bahname (2012) studies
the impact of FDI on economic growth in Southern Asia for the period 1977-2009. The
results reveal that FDI, along with other variables such as human capital, economic
infrastructure and capital formation have positive and significant effects on economic
growth. Nguyen Thi Phuong Hoa (2004) studies the effects of FDI on productivity growth
in the whole economy, under the analytical framework of relationship between FDI and
poverty. She then draws a conclusion of FDI’s positive effect on provincial economic
growth, via formation and accumulation of capital assets. In another research, Nguyen
Mai (2003), which considers the effect of FDI on economic growth, both vertically and
horizontally, based on Vietnam's FDI statistics from 1988 to 2003, with additional
forecasts to 2005. According to him, FDI has positive effect on economic growth at the
national level, and therefore, Vietnam needs to expand the market and

6


seek new partners in order to attract more FDI inflows. Most research has found the
positive impact of FDI on economic growth.
Certain other studies do not support that FDI affect positively on economic
growth. They assume that the FDI has an unclear effect on development. The hypotheses
of FDI development in Jordan by Louzi and Abadi (2011), based on time series data from
1990 to 2009, the econometric framework of cointegration and error correction
mechanism is employed to capture two way linkages between interested variables. The
empirical results show that FDI inflows do not affect an independent influence on
economic growth, while domestic investment and trade liberalization have positive
impacts on GDP growth. Geijer (2008) also used a multiple regression analysis with GDP
per capita as dependent variable in Mexico. He found that FDI and openness in both in
the short and long run, are not significantly causing the GDP per capital.

Some individuals believe that FDI's impact on economic growth is conditional
positive effect. Jyun-Yi and Chih-Chiang (2008) investigate whether the impact of FDI on
economic growth is dependent upon different absorptive capacities by using threshold
regression methods, created by Caner and Hansen (2004). The empirical results show that
FDI alone plays an ambiguous role in contributing to economic growth based on a dataset
of 62 countries covering the period from 1975 to 2000. Moreover, under the threshold
regression, FDI is found to have a positive and significant impact on growth when host
countries have better levels of initial GDP and human capital.

In both theoretical and empirical literature during the last three decades, a lot
has been paid to the relation between trade openness and economic growth. There is,
however, no agreement on whether greater openness to trade stimulates economic
growth.
There are a number of studies that deal with the effect of FDI and trade on
global and (these SEA countries) financial development in general. However, few
have a fundamental view of the impact on economic growth of FDI, TRADE, ODA,
POP, INF, especially between 1993 and 2008. We are determined to carry out this
study by adding results from Vietnam, Indonesia, Philippines analysis using classical
7


econometrics panel data to contribute to the existing literature on the impact of FDI,
TRADE, ODA, POP, INF on economic growth.
Developing countries seem to benefit from international capital flows,
especially FDI and ODA, in the 1980s and 1990s. From a theoretical perspective, FDI
inflows seem to provide more benefits than other capital flows because, in addition to
increasing a country's total capital, FDI has a positive peripheral effect of increasing
the productivity of the economy through technology transfer as well as experience and
technology management skills (De Mello, 1997). However, empirical evidence does
not support this view such as Gorg and Greenaway (2004), Mencinger (2003), Kose

and ctg (2006), Prasad and ctg (2006) and many other papers.
In addition, ODA is also an important factor in determining factors for
economic growth of developing countries. Neoclassical economists argue that
developing countries are short of capital because of weak capital accumulation, so
external funding is needed to enable them to develop (Sachs, 2005). However, some
argue that ODA actually only plays its positive role in economic growth for
developing countries in an environment of good institutional quality (corruption).
At the same time, the relationship between trade and economic growth is
currently controversial with two conflicting views on the relationship between these
two factors. The commercial view that has a positive impact on economic growth is
supported by famous economists such as Adam Smith (1776), David Ricardo (1817),
Edwards and Sebastian (1992) and many research papers. Besides, there is some
opinion that the positive impact of trade openness on economic growth is not really
strong according to empirical evidence found by Rodriguez and Rodrik (1999). ,
Rodrik et al (2002), Alcala and Ciccone (2002) and Dollar and Kraay (2003)
In "An Essay on the Principle of Population", Thomas Robert Malthus argues
that the population increases exponentially: 1; 2; 4; 8; 16; 32; ..., the time needed to
double the population by about 25 to 30 years. Meanwhile, food increased only by
exponentially: 1; 2; 3; 4; 5; 6 ... Thus, the gap between supply and demand for food
widens. This correction is the cause of poverty. Today, people still develop this
8


perspective to the point of attributing all economic, social and environmental
negativity to the rapid population growth in developing countries like Vietnam,
Indonesia, Philippines.
Julian Lincoln Simon (1932-1998) is a professor of business administration at
the University of Maryland (USA). Contrary to Malthus, he said that: Population has a
positive impact on the economy by the following reasons: Increasing population size
leads to increased consumer demand, expanding markets to promote production

development. Large-scale production will bring about higher economic efficiency. On
the other hand, there are many who will increase their knowledge through additional
learning and competition. Moreover, the pressure of demand will wake up science and
technology development. All of these factors will increase per capita output. That is,
production increases faster than the population, not slower than Malthus's model. The
Green Revolution is an example.
The neutral view of population and economic relations was evident in the
International Conference on Population and Development in Bucharest (Rumania),
1984, with the following main contents:
 Population growth is not some of the main or even important causes leading
to low living standards.
 The problem of population is not simply a question of quantity but the
quality of human life and their convenience.

of

The rapid increase in population actually exacerbates the problems
underdevelopment.

Inflation is a phenomenon macroeconomic common, influential sweeping to
the economic, major social and political values of the nations in stages of economic
development. Because “Inflation is a chronic disease counted, the only time when the
symptoms stopped incubation period and onset of attack like a blazing fire” (Maurice
Flamant, 1992) so it was stable and inflation control is always the same in these
important goals leading business executive macroeconomics of each country. Over the
past decades, the world economy has many fluctuations, especially crises the global
economy has slowed down economic growth and inflation inflated in many countries.
9

In that cycle appears in Vietnam vortex "low growth - inflation high". Due to policy
expectations too level of high growth but inflation the use of monetary factors has
caused inflation emission at a high level, causing impacts the opposite is true for
growth economy. In the context of inflation Constant volatility and influence
significantly to the main direction macroeconomic books like that, from year on. In
2011, the Vietnamese government paid attention to a new monetary policy - inflation
targeting policy thereby maintaining a reasonable inflation and stabilization becomes
the target of goods beginning of monetary policy. Chien Inflation target
implementation strategy is a complicated process. Firstly, The Central Bank has to
build build yourself a point or one about inflation target. Above that The world has
had many case studies justify the existence of a threshold inflation for countries'
samples different as Sarel (1996), Khan and Senhadji (2001), Drukker and et al
(2005), ... Particularly in Vietnam Not many authors have implemented these yet
Quantitative research to determine inflation threshold, therefore, The research team
used the equation quantitative method to find out Effective threshold for inflation,
from It sets out control policies inflation and promote reciprocity in this relationship,
not to inflation becomes a disadvantage for the economy.
1.3.2 Research hypotheses
After studying related theories and referring to domestic and foreign studies,
the research team searched and synthesized hypotheses to study the factors affecting
the average life expectancy of countries in the world gender.
a) The impact of FDI on growth through investment
FDI can affect the economy in all economic sectors, cultural and social sectors.
However, for developing countries, especially poor ones, the greatest expectation of FDI
attraction is primarily for economic growth. This expectation seems to be expressed in the
minds of economists and policymakers for three main reasons: First, FDI contributes to
increasing the surplus of capital accounts, contributing to improving the balance payment
in general and macroeconomic stability. Second, developing countries often have low
rates of capital accumulation, therefore, FDI is considered an important source of capital
to supplement domestic investment capital for economic growth. Thirdly, FDI creates

opportunities for poor countries to access more advanced
10


technology, facilitate technology transfer, accelerate the process of knowledge
dissemination, improve management skills and labor skills, etc. This effect is
considered to be the spillover effects on FDI productivity, contributing to increasing
productivity of domestic enterprises and ultimately contributing to economic growth
in general. In fact, not all countries achieve these goals at the same time. Some
countries have attracted a large FDI inflow, but spillover effects are unlikely to occur.
In a different situation, FDI inflows into a country may increase investment capital for
the economy but its contribution to growth is low. Both cases are considered
unsuccessful with policies to attract FDI or have not fully utilized and wasted this
resource from the perspective of economic growth. This situation makes economists
more and more interested in assessing the impact of FDI on economic growth,
especially of developing countries, through the two impact channels mentioned above.
b) The impact of TRADE rate on economic growth.
International trade is simply known as the exchange of goods and services
between nations of the world. At least two countries should be involved in the
activities, that is, the aggregate of activities relating to trading between merchants
across borders. Traders engage in economic activities for the purpose of the profit
maximization

engendered

from

differentials

among

international

economic

environment of nations (Adedeji, 2006).
The most important fact about the relationship between trade openness and
economic growth is that trade openness drives growth. In Vietnam, the impacts are
very significant in the economy.
The followers of Ricardo ignored the question of the foundations of comparative
advantages and didn’t identify factors, resulting from IT, that could raise in a lasting form
the rate of EG and its tendency in the long-term. In general, the changes introduced in the
Ricardo’s theory demonstrated the increase of welfare caused by IT, but ignored eventual
gains in the rate of EG. It was in the context of neoclassical general equilibrium that the
model of Hecksher (1919) appeared, whose contributions, Samuelson (1948 and 1949)
completed in the late 40’s. In a rigid analysis of the model, we observe that it permits to
advocate the opening of the countries to IT, showing that

11


it is efficient, mutually beneficial and positive for the entire world. However, it limits
the analysis to the static gains of welfare.
c) How Net ODA received per capita contributes to economic growth.
Since Erixon stated his opinion, whether ODA contributes to economic
growth or not is a matter of concern in the current economic debate. There are three
different schools of thought in the current economic debate, including "more aid", "not
so", and "conditional aid" (Tierney et al., 2011). The most influential statements in the
debate argue that ODA is an important source for economic growth with the view that
there is a negative relationship between ODA and economic growth (Easterly and

Easterly, 2006). ; Moyo, 2009; Doucouliagos and Paldam, 2009; Lacerda, 2010).

Jeffery Sachs, the most prominent economist in the field of development
assistance, asserts that most developing countries have fallen into the trap of poverty
as well as negative economic growth, will not be able to escape poverty. hunger,
unless the country has the development assistance capital to meet their goals (Sachs,
2005). Moreover, the author adds that development assistance organizations need to
be urgently needed. the amount of ODA, so the author calls this event a "push" to
bring these countries back on the path of growth.
However, some researchers oppose the view that ODA has failed to promote
growth, moreover, it has detrimental to the development of many countries (Easterly and
Easterly, 2006; Moyo, 2009). Easterly rejected the claims of Jeffrey Sachs and concluded
that the growth of the countries in recent years is not due to the flow of ODA, but also to
other factors contributing to the GDP growth of the countries. Similarly, other studies
show that ODA is unlikely to support economic growth in all countries (Easterly and
Easterly, 2006; Murphy and Tresp, 2006). Easterly and Moyo emphasize that, in fact,
ODA is not conducive to economic development but stagnates economic growth. The
authors mention a variety of reasons: (1) ODA causes an increase in consumption,
reduces savings and causes investment losses, (2) ODA causes inflation, (3) ODA
reducing exports and (4) ODA limiting the absorption of cash flow. When the country
receives ODA, saving decreases leading to a decrease in investment. High inflation is due
to the fact that ODA is not saved to create investments but simply consumed. As a result,
the increase in demand curve leads to an increase in the price of
12


food and imported goods. Moreover, Easterly argues that ODA reduces the volume of
exports. Foreign currency inflows increase the value of the local currency, as the
demand for converting foreign currencies into local currencies increases. The increase
in demand for the local currency, the value of the local currency, will appreciate. As a

result, the country will lose its competitiveness and export goods will be relatively
expensive in the global market, which will lead to a drop in exports, eventually
leading to economic growth stagnation. Arellano et al (2009) increase the robustness
to Easterly's conclusions that ODA does not really affect economic growth because
ODA does not lead to investment but merely consumption.

d) The relationship between population and economic growth rate
Population size and human resources are closely related: large population size
will be an abundant labor supply, one of the important forces for economic development
especially in developing countries including Vietnam, Indonesia and the Philippines. With
a large population (more than 95 millions in Vietnam, 106 millions in Philippines and 267
millions in Indonesia), these countries have plentiful labor resources.

The population is not only a productive force but also a commodity
consuming force - one of the great drivers for economic development. Developing
countries with large populations will be a strong consumer market. Vietnam,
Indonesia, and the Philippines are also not outside that group of countries. Since the
process of strong consumption of goods, it has made invisible competition between
manufacturers, making them constantly innovate science and technology, improve
service quality to meet the needs of customers.
e) The impact of Inflation on economic growth.
Firstly, inflation can work positive impact on economic growth via the savings
channel and the beginning from. Sidrauski (1967) emphasized reasonable low inflation
will do investments become more attractive than grasp hold cash for holding money face
reduces its value fast than investing. When the economy inflation always has time lag
time between price increases of top products and increase in input costs now in latency on
wage increases. Tobin (1972) stated inflation moderate as the lubricant of
13

economy (grease effect), inflation transmitter helps manufacturers possible reduce real
costs to buy early into labor, thereby increasing periods save and invest, encourage
them expand the scale of production. Second, inflation has a billion relationship
proportional to growth through stimulating effect. Inflation created Psychological
price increases so people have more consumer trends or buy hoarded goods, thus do
increase in aggregate demand. Besides that, inflation usually leads to the breaking the
price of local currency, improve strength competitive economy and yes tendency to
increase net exports. Increasing export demand stimulated an increase demand for
goods and services in the country - Source for export. In general theory of Keynes,
one the economy is affected by both two factors: total supply and aggregate demand.
However, aggregate demand often lower than total supply by trend direction of saving
in using receipts enter, which is the cause of the crisis economic crisis. To ensure
increase the chief needs the intervention of the House countries through policies like
expand fiscal and money policy currency to improve aggregate demand, in then
lowering interest rates will create inflation play, thereby stimulating people to use
using cash for consumption and investment business. Third, the state can
communicate by increasing the money supply to increase enhance education - training
development, science

and Technology Building infrastructure. Construction

investment building more schools and educational institutions education, research
institutes, salary increase for construction personnel factories, factories, ... will
contribute improve the quality of human resources force, scientific - technological
level, meet infrastructure conditions cater to the development requirements economy.

14


SECTOR 2: MODEL SPECIFICATION

2.1 Methodology
2.1.1 Method used to gather the data
The collected data is information of each country's macroeconomic factors over
the 26 - year period from 1993 to 2018. The data source is from verified sources of high
accuracy, collected through Worldbank, OECD National Accounts data sources.

2.1.2 Method used to analyze the data
Using Stata software to process statistics and calculate the correlation matrix
between the variables.
2.1.3. Method applied to derive the model
In this project we use the traditional or classical methodology of Econometrics.

Traditional econometric methodology proceeds along the following lines:
Step 1: Statement of theory or hypothesis.
Step 2: Specification of the mathematical model of the theory.
Step 3: Specification of the statistical, or econometric, model.
Step 4: Obtaining the data.
Step 5: Estimation of the parameters of the econometric model.
Step 6: Hypothesis testing.
Step 7: Forecasting or prediction.
Step 8: Using the model for control or policy purposes.

We running Stata software for most of these steps and building regression
model using the Ordinary least squares method (OLS) to estimate parameters of
multivariate regression models. With Stata software we easily consider VIF
magnification molecule identifies multi-collinearity. Use the White test to check
variance error variance. Conduct Breusch-Godfrey tests to identify self-correlation.
Use the F test to evaluate the fit of the model and the t test to estimate the confidence
interval depend on the parameters in the model.

15


2.2 Theoretical model specification
2.2.1. Variables

Applying the methodology of econometrics, when we know the value of three
variables over years, namely GDP growth rate, FDI value, Trade value, ODA value,
Population and Inflation rate, we can absolutely assume that 5 variables have linear
relationship and establish the multiple regression model to perform relationship
between them as:
Y=

1

+ 2X2 + 3X3+ 4X4+ 5X5+ 6X6

In this model, the variables are explained as:
Name

Type

Explanation

Unit

Y

Explained

Economic growth rate

%

X2

Explanatory

FDI - Foreign direct

%

investment
X3

Explanatory

International trade

%

X4

Explanatory

ODA - Official Development

US$

Assistance

X5

Explanatory

Population

Person

X6

Explanatory

Inflation rate

%

16


However, GDP growth rate also depends on many other factors such as labor,
unemployment rate, etc. Therefore, to build the model more exact, we will set u i to
represent those disturbance. This will fill the disturbance and make the model more
reliable:
Y=

1+

2X2

+

3X3 +

4X4 +

5X5 +

6X6 +

ui

2.2.1. Explanations of the variables
Expected sign
No.

Variable

Meaning

Unit

of regression
coefficient

1

FDI

Foreign direct investment

%

+

2

TRADE

sum of exports and imports

%

-

3

ODA

Net official development

US$

+

assistance per capita
4

POP

Population

total

+

5

INF

Inflation

%

-

2.3 Description of data
2.3.1 Data source
Abbreviations

Variable Definition

Source

17


GDP growth
(annual %)

Annual percentage growth rate of

World

Bank

national

GDP at market prices based on

accounts data, and OECD

constant local currency. Aggregates

National Accounts

are based on constant 2010 U.S.

files.

data

dollars. GDP is the sum of gross
value added by all resident producers
in the economy plus any product
taxes and minus any subsidies not
included in the value of the products.
It is calculated without making
deductions

for depreciation

of

fabricated assets or for depletion and
degradation of natural resources.
FDI, net inflows

Foreign direct investment are the net International

(% of GDP)

inflows of investment to acquire a
lasting management

interest

Fund,

Monetary
International

(10 Financial Statistics

percent or more of voting stock) in an Balance
enterprise operating in an economy

of

databases,

and

Payments
World Bank,

other than that of the investor. It is the International

Debt

sum of equity capital, reinvestment of Statistics, and World Bank
earnings, other long-term capital, and and

OECD

GDP

short-term capital as shown in the estimates.
balance of payments. This series
shows net inflows (new investment
inflows less disinvestment) in the
reporting economy

from foreign

investors, and is divided by GDP.

18


TRADE

(% of GDP)

Trade is the sum of exports and
imports of

goods

World

Bank

and services accounts data, and OECD

measured as a share of gross

National

domestic product.

files.

Net official development assistance

World

received per

(ODA) per capita consists of

accounts data.

capita (current

disbursements of loans made on

Net ODA

US$)

concessional

national

terms

(net

Accounts data

Bank

national

of

repayments of principal) and grants
by official agencies of the members
of the

Development

Assistance

Committee (DAC), by

multilateral

institutions, and by non-DAC
countries

to

promote

economic

development and welfare in countries
and territories in the DAC list of
ODA recipients.
Population

Total populatin in country.

(total)

Inflation rate
(annual %)

World

Bank

national

accounts data.

Inflation refers to an overall increase World
in the Consumer Price Index (CPI),

Bank

national

accounts data.

which is a weighted average of prices
for different goods

19


2.3.2 Statistical description
Before analyzing the data, the team will describe the data to give the reader the
most general view of the collected data sets. This explains some of the errors
encountered when running the model due to a data error. As stated in the theoretical
part, the data set consists of three variables. The group will then provide a
description of each variable in the model.
Describing data using des, we obtain the following results:
Variable name

Storage type

Display format

Gdpgrowth

float

%8.0g

Fdi

float

%8.0g

Trade

float

%8.0g

Odapercapita

float

%8.0g

Population

long

%8.0g

Inflation

float

%8.0g

Value label

Variable label

2.3.3 Correlation matrix between variables
Before running the regression model, we consider the correlation between
variables using the “corr” command. We obtained the correlation table between the
variables as follows:

GDP
GROWTH

FDI

TRADE

ODA

POP

INF

GDP
GROWTH

1.0000

0.4523

0.0801

0.1302

-0.1576

-0.6257

FDI

0.4523

1.0000

0.5452

0.5627

-0.4620

-0.0020

TRADE

0.0801

0.5452

1.0000

0.8449

-0.6167

-0.0050

ODA

0.1302

0.5627

0.8449

1.0000

-0.4662

0.0289

POP

-0.1576

-0.4620

-0.6167

-0.4662

1.0000

0.1622

INF

-0.6257

-0.0200

-0.0050

0.0289

0.1622

1.0000

As we can see from the table, the independent variables correlate with the
dependent variable, and between the independent variables also correlate. Furthermore,
20

most of this correlation coefficients greater than 0.8 were observed, so this model was
not affected by multi-collinearity.
The correlation coefficient between FDI and GDPgrowth is 0.4253, which is
positive and not so high. Therefore, FDI has a positive effect on GDPgrowth, any
change in the FDI will lead to a significant inverted change in the GDPgrowth
The correlation coefficient between TRADE and GDPgrowth is 0.0801 which is
positive and very low. Therefore, TRADE has a positive effect on GDPgrowth, any
change in the TRADE rate will just lead to a slight inverted change in the GDPgrowth.

The correlation coefficient between ODA and GDPgrowth is 0.1302, which is
positive and low. Therefore, ODA has a positive effect on GDPgrowth, a slight change
in the ODA will lead to a small inverted change in the GDPgrowth.
The correlation coefficient between POP and GDPgrowth is −0.1576, which is
negative and also low. Therefore, POP has a negative effect on GDPgrowth, which
means the POP has a small influence on unemployment, any change in the POP will
lead to sightly inverted fluctuations in GDPgrowth.
The correlation coefficient between INF and GDPgrowth is −0.6257, which is
negative and high. Therefore, INF has a negative effect on GDPgrowth, a slight
change in the ODA will lead to a huge inverted change in the GDPgrowth

21


SECTION 3: ESTABLISHMENT AND
STATISTICAL DIMENSION
3.1 Estimated model
3.1.1 Estimation result
We use sum command to determine Obs (Observations), Mean, Std. Dev.

(Standard Deviation), Max and Min of the variables.
No.

Variables

Obs

Mean

SD

Min

Max

1

GDP GROWTH

78

5.461427

2.763348

-13.12673

9.540481

2

FDI

78

3.053049

2.753481

-2.75744

11.93948

3

TRADE

78

90.33265

40.78893

37.42134

200.3846

4

ODA

78

12.08372

12.07682

-1.922464

45.96455

5

POP

78

1.33e+08

6.96e+07

6.66e+07

2.68e+08

6

INF

78

8.875179

9.455043

-.5865737

75.27117

From the table above it can be seen that:
There are 78 observations.
GDP growth rate from 1993 to 2018 ranges from -13.12673 to
9.540481 with average value at 5.461427.
FDI rate during this period ranges from -2.75744 to 11.93948 on average
of 3.053049.
TRADE percentage between 1993 and 2018 ranges from 37.42134 to
200.3846 with average value at 90.33265.
Net ODA received per capita (US$) from 1993 and 2018 ranges
from -1.922464 to 45.96455 on average value of 12.07418.
Population total during this period ranges from 6.66e+07 to 2.68e+08
with average value at 1.33e+08.
Inflation between 1993 and 2018 ranges from -.5865737 to 75.27117
with average value of 8.875179.
22


We use reg command to estimate the coeffecients as below:
Variables

̂̂

T

P-value

Confidence Interval
(95%)

Coefficient

Constant

6.188015

5.51

0.000

[3.949923; 8.426106]

FDI

0.5326986

5.66

0.148

[.3452359 ; .7201613]

TRADE

-0.0156468

-1.46

0.556

[-.0369933 ; .0056996]

ODA

0.0196728

0.59

0.382

[-.0466823 ; .086028]

POP

3.49e-09

0.88

0.000

[-4.42e-09 ; 1.14e-08]

INF

-.1849991

-8.32

0.000

[-.2293342; -.1406641]

1
2
3
4
5
6

= 6.188015

= 0.5326986
= −0.0156468
= 0.0196728
= 3.49 − 09
= − 0.1849991

3.1.2 The sample regression model
The sample regression function is written as:
GDPi = 6.188015 + 0.5326986 FDIi − 0.0156468 TRADEi + 0.0196728 ODAi + 3.49e-09 POPi – 0.1849991
INFi + ̂

Superficially analyzing figures:
Number of observations: n = 78
Total Sum of Squares: SST = 587.978951
Explained Sum of Squares: SSE = 353.185172
Residual Sum of Squares: SSR = 234.79378
2

Determination Coeffiecient (R-squared): R = 0.6007
̅̅

Adjusted R-squared: 2 = 0.5729

R

23