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Christian Benedict B. ARGA

11027614

AE-FIN

A Study on the Effect of Inflation, Net Income, and Energy Use to the Fossil Fuel Consumption in the Philippines

An Empirical Paper Presented to The Faculty of the School of Economics De La Salle University

In Partial Fulfillment of the Requirements in ECONMET

Submitted by: Christian Benedict B. Arga 11027614 Submitted to: Dr. Cesar Rufino

December 14, 2012

1

Christian Benedict B. ARGA

11027614

AE-FIN

Table of Contents Introduction I. II. III. IV. Background of the Study Statement of the Problem Objectives of the Study Scope and Limitations

Review of Related Literature I. II. III. Inflation Net Income Energy Use

Operational Framework I. II. Variable Descriptions A-Priori Expectations

Methodology I. II. Data Gathered Model Specifications

Empirical Results and Interpretation I. II. Variable Analysis Critical Assumptions 2

Christian Benedict B. ARGA

11027614

AE-FIN

1. Multicollinearity 2. Homoscedasticity 3. Non-autocorrelation Remedial Measures and Adjusted Estimated Econometric Model I. II. Remedial Measures Adjusted Econometric Model

Conclusions and Recommendations Bibliography Data Presentation

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Christian Benedict B. ARGA

11027614

AE-FIN

Introduction I. Background of the Study In this empirical paper, the researcher aims to know the effects of net income, inflation and energy use on the consumption of fossil fuels in the country. This project will allow the student to use various econometric concepts and a variety of tests to determine the factors that will allow him a practical approach on the subject. Fossil fuel as defined by Encyclopedia Britannica is “any of a class of materials of biological origin occurring within the Earth’s crust that can be used as a source of energy.” It is a hydrocarbon containing natural resource that is not acquired from plants or animals. Fossil fuel is a general term for buried combustible geologic deposits of organic materials, formed from decayed plants and animals that have been converted to crude oil, coal, natural gas, or heavy oils by exposure to heat and pressure in the earth's crust over hundreds of millions of years. The depletion of fossil fuel has been an underlying problem in our economy. Unlike energy coming from hydroelectric power plants or windmills, the energy acquired from fossil fuel cannot be renewed and is gone forever.

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Christian Benedict B. ARGA

11027614

AE-FIN

II.

Statement of the Problem As said earlier, fossil fuel is a non-renewable energy source. All countries in the world are trying their best to conserve their respective resources. The problem in this empirical project is that whether various factors such as inflation, net income, and energy use of the country has an effect on its consumption of fossil fuels.

III.

Objectives of the Study There are various objectives to this study. First is to find out whether inflation, net income, and energy use has an effect on a country’s consumption on fossil fuels. Second, is to educate the readers of this paper which of the independent variables affects the consumption of fossil fuel the most. And lastly, this paper aims to apply the various lessons learned in class to show the effects of the chosen variables on the fossil fuel consumption.

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Christian Benedict B. ARGA

11027614

AE-FIN

IV.

Scope and Limitations

The data gathered that was used in this project was limited and only allowed the researcher to gather up to 35 observations because some variables lack values for previous years. Because of this reason, the sample size is relatively small and cannot be compared to other countries for reference.

Review of Related Literature I. Inflation Inflation is defined by Investopedia, as the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe...
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