Regression Project

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REGRESSION ANALYSIS Prediction of growth rate on the basis of other economic variables

Prepared by Richa Srivastava GSB Summer 2012

Index
1 2 3 4 5 6 7 8 Description of the Analysis Calculation of descriptive statistics Initial regression run Regression Run-II Regression Run-III Regression Run-IV Graphical Representation Ex-Post Simulation

Introduction
The level of economic growth for a particular country is a combination of many economic aspects. There are several macroeconomic and microeconomic indicators that can be used to make economic growth predictions. Some of these variables have been selected for this analysis and a linear regression model for GDP growth levels% has been prepared. The description of independent and dependent variables used in the analysis is presented below: Economic Indicator Exports of goods and services (% of GDP) Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) Gross capital formation (% of GDP) Imports of goods and services (% of GDP) Inflation, GDP deflator (annual %) Abbreviated form Exp FDI GDP GCF Imp Inf

1. Exports of goods and services (% of GDP)- Increase in Exports will have a direct impact on the GDP because it enables the inflow for foreign currency into the country and gives a boost to the GDP. It will have a +ve impact on the GDP growth. 2. Foreign direct investment, net inflows (% of GDP) - Foreign Direct Investment is generally linked with higher growth levels because FDI brings in cheaper manufacturing facilities and new technology along with better managerial skills and provides an impetus to economic growth. It is known to have a +ve impact on the GDP growth. 3. GDP Growth – This is the economic indicator which is to be predicted using the chosen independent variables.

4. Gross Capital Formation (% of GDP) – The impact of capital flows on growth is influenced by the fact whether the country is relaxing the capital controls and the degree to which the capital control is changing. It will have a +ve impact on the GDP growth.

5. Imports of goods and services (% of GDP)- Increased imports means less production sufficiency or decreased demand within the country and it has a –ve impact on the GDP growth. 6. Inflation, GDP deflator (annual %) - Inflation can be considered a GDP deflator and has a –ve impact on GDP growth. For the Analysis GDP Growth in % has been taken as the dependent variable. The base data is taken from the World Bank database http://www.worldbank.org/ for the last 30 Years. The independent variables are all expressed as percentages of the GDP for that particular year.

Base data used for Analysis Economic indicators influencing GDP growth (figures in %s) Year Foreign direct Exports of goods and investment, net services (% of GDP) inflows (% of GDP) GDP growth (annual %) Gross capital Imports of goods and Inflation, GDP formation (% of GDP) services (% of GDP) deflator (annual %)

Exp 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 5.6599 5.7796 6.9598 8.5268 8.5438 8.2638 7.9112 8.2118 9.0466 10.1463 9.8331 8.7740 7.8987 7.7531 7.2166 7.2384 7.7422 8.7694 9.2487 9.6004 10.0595 10.1409 9.9591 10.3056 11.0637 11.1945 11.5594 10.9129 10.6365 11.0438 10.0421 9.4710 9.3874 10.0036 10.3874 11.0481 11.9018 12.9880 11.4184 12.7347

FDI 0.0782 0.1102 0.1548 0.2241 0.1577 0.1796 0.1440 0.2570 0.3420 0.6117 0.8116 0.3865 0.2986 0.6348 0.4782 0.8004 1.2444 1.1406 1.2547 0.8432 0.3908 0.3164 0.7805 0.6596 0.7876 1.1162 1.2789 2.0482 3.1120 3.2456 1.6320 0.7967 0.5749 1.2372 0.8965 1.8262 1.5841 2.1808 1.1439 1.6351

GDP 3.4580 5.5218 5.9111 -0.5193 -0.1960 5.4188 4.6382 5.6265 3.1478 -0.2873 2.5412 -1.9802 4.5160 7.1948 4.1120 3.4272 3.1671 4.1001 3.5650 1.8561 -0.2612 3.4048 2.8726 4.1145 2.5490 3.7861 4.5057 4.4014 4.8689 4.1732 1.0934 1.8280 2.5526 3.4798 3.0756 2.6591...
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