A Dynamic Model on the Effect of Remittances and Money Supply on the Economic Growth in the Philippines

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De La Salle University – Manila
School of Economics
Economics Department

A Dynamic Model on the Effect of Remittances and Money Supply on the Economic Growth in the Philippines

In Partial Fulfillment
Of the Course Requirements in
ECOMET2 V24
2nd term, Academic Year 2012-2013

Presented to
Dr.Cesar Rufino

Presented by
Ching, Justin
Mamawal, Erle Virgilia
Pascual, Jane Camille

Table of Contents
I. Introduction
1. Background of the Study................................................................................. 3 2. Objectives........................................................................................................ 5 3. Significance of the Study.................................................................................. 5 4. Scope and Limitations....................................................................................... 6

II. Review of Related Literature
1. Labor Migration and Remittances.................................................................... 7 2. The Inflow of Remittances and its role in the Economy.................................. 8 3. Labor Migrants and Remittances in the Philippines....................................... 10 4. Monetary Policy and its Role.......................................................................... 14 5. Money Supply................................................................................................. 15

III. Theoretical Framework
1. Classical or Developmentalist Theory............................................................ 17 2. Informal Contracts.......................................................................................... 17 3. Monetary theory.............................................................................................. 18 IV. Methodology

A. Data Variables....................................................................................................... 20 B. Initial Tests............................................................................................................ 21 1. Initial Regression............................................................................................ 21 2. Unit Root Test................................................................................................. 22 3. Spurious Regression........................................................................................ 28 4. Cointegration Test........................................................................................... 29 5. Optimal Lag Structure..................................................................................... 30 6. Causality Test.................................................................................................. 31

C. Static Models........................................................................................................ 32 1. OLS Regression.............................................................................................. 32 2. Test for Multicollinearity............................................................................... 33 3. Test for Autocorrelation................................................................................. 33 4. Correction Measure for Autocorrelation......................................................... 34 5. Results of the Model....................................................................................... 35

D. Dynamic Models
1. Koyck Infinite Distributed Lag Model………………………………...…… 36 2. Two Stage Least Squares (2SLS)………………………………………...… 40

V. Conclusion................................................................................................................. 44

Bibliography

I. INTRODUCTION
Background of the Study
The Philippines has become a major...
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