Contents

Introduction....................................................................................................................................................2
1. Descriptive Statistics..............................................................................................................................5
2. Normality Test.......................................................................................................................................6
3. Pair-Wise Correlation..........................................................................................................................10
4. Linear Regression................................................................................................................................12
5. Post estimation tests.............................................................................................................................15
5A. Multi collinearity...............................................................................................................................15
5B. Heteroskedasticity.............................................................................................................................20
5C. Autocorrelation..................................................................................................................................23
5D. Mis-specification Test.......................................................................................................................25
Conclusion...................................................................................................................................................27
References....................................................................................................................................................27

Introduction
Foreign direct investment in South Korea and other countries reflects the foreign ownership of
production facilities. To be classified as foreign direct investment, the share of the foreign
ownership has to be equal to at least 10 percent of the value of the company. The investment
could be in manufacturing, services, agriculture, or other sectors. It could have originated as
green field investment (building something new), as acquisition (buying an existing company) or
joint venture (partnership). Despite the South Korean economy's high growth potential and
apparent structural stability, South Korea suffers perpetual damage to its credit rating in the stock
market due to the belligerence of North Korea in times of deep military crises, which has an
adverse effect on the financial markets of the South Korean economy. Moreover, the dominance
of chaebols is unlikely to last and engenders risk of slowing down the transformation of the
South Korean economy for the benefit of future generations. South Korea's rigorous education
system and the establishment of a highly motivated and educated populace is largely responsible
for spurring the country's high technology boom and rapid economic development. Having
almost no natural resources and a high population density in its territory, which deterred
continued population growth and the formation of a large internal consumer market, South Korea
adapted an export-oriented economic strategy to fuel its economy, and in 2019, South Korea was
the eighth largest exporter and eighth largest importer in the world. Bank of Korea and Korea
Development Institute periodically release major economic indicators and economic trends of the
economy of South Korea.

Renowned financial organizations, such as the International Monetary Fund, have complimented
the resilience of the South Korean economy against various economic crises, citing low state
debt, and high fiscal reserves that can quickly be mobilized to address any expected financial
emergencies. Other financial organizations like the World Bank describe Korea as one of the
fastest-growing major economies of the next generation along with BRIC and Indonesia. South
Korea was one of the few developed countries that was able to avoid a recession during the
global financial crisis, and its economic growth rate reached 6.2% in 2010, a sharp recovery from
economic growth rates of 2.3% in 2008 and 0.2% in 2009 when the global financial crisis hit.
The South Korean economy again recovered with the record-surplus of US$70.7 billion mark of
the current account in the end of 2013, up 47 percent growth from 2012, amid uncertainties of
the global economic turmoil, with major economic output being the technology products exports

Data Set
We are getting panel data of GDP, FDI, S, and ER for over a period of 30 years. The
data is calculated by time series and is of South Korea. It depicts the situation of
these economic factors for over a period of 30 years.
TIME ER GDP FDI S
1989 .. 7808.405 -6.6E+08 38.71989
1990 132.723 8495.578 87600000 39.02619
1991 140.7738 9318.544 1.36E+08 39.03767
1992 131.4453 9793.863 3.74E+08 38.1335
1993 131.342 10361.64 6.11E+08 38.19792
1994 136.3014 11208.68 1.45E+09 37.8966
1995 152.702 12163.34 1.38E+09 37.68264
1996 164.3789 12998.67 2.17E+09 35.96581
1997 146.3541 13671.96 1.11E+09 35.91392
1998 97.97321 12877.37 -1.8E+09 37.72345
1999 99.30711 14252.34 -6.8E+09 35.37572
2000 104.6408 15414.29 -6.7E+09 33.89358
2001 98.42045 16038.73 -3.8E+09 31.93764
2002 104.4516 17178.17 -2E+09 31.4544
2003 103.0763 17627.21 -2E+09 32.98186
2004 107.2942 18470.02 -6.1E+09 35.46226
2005 126.9985 19225.01 -5.3E+09 33.76562
2006 136.1325 20131.07 3.4E+09 32.89055
2007 137.1166 21191.25 1.3E+10 33.45347
2008 107.9239 21664.61 8.35E+09 33.32191
2009 91.57963 21724.24 8.38E+09 33.28145
2010 100 23087.23 1.87E+10 35.04467
2011 97.244 23754.77 1.99E+10 34.6713
2012 104.8985 24197.94 2.11E+10 34.66391
2013 118.8757 24850.35 1.56E+10 34.84913
2014 134.442 25485.58 1.87E+10 34.98704
2015 148.8893 26063.71 1.96E+10 36.3486
2016 148.1186 26725.5 1.78E+10 36.78534
2017 153.3352 27492.58 1.62E+10 37.01428
2018 155.4545 28157.73 2.6E+10 35.85498
2019 146.9943 28675.03 2.5E+10 34.79264
2020 .. .. .. ..

 Dependent Variable
ER = Real Effective Exchange Rate
 Independent Variable

S = Gross savings
FDI = Foreign Direct Investment Gross Capital Formation
GDP = Gross Domestic Product per capita

1. Descriptive Statistics
Date: 12/17/20
Time: 05:17
Sample: 1989 2020

ER FDI GDP S

Mean 125.3062 6.82E+09 18743.23 35.41360

Median 131.3937 1.81E+09 18847.52 35.21019
Maximum 164.3789 2.60E+10 28675.03 39.03767
Minimum 91.57963 -6.76E+09 8495.578 31.45440
Std. Dev. 21.92920 1.04E+10 6277.777 2.067964
Skewness 0.002932 0.396152 -0.035117 0.053162
Kurtosis 1.589109 1.706531 1.717659 2.139913

Jarque-Bera 2.488311 2.876009 2.061665 0.938817

Probability 0.288184 0.237401 0.356710 0.625372

Sum 3759.187 2.05E+11 562297.0 1062.408

Sum Sq. Dev. 13945.81 3.16E+21 1.14E+09 124.0178

Observations 30 30 30 30

Skewness Kurtosis
Criteria for Skewness Criteria for Kurtosis
1. Skewness < -1 or Skewness > +1 = 2. Kurtosis > 3 = Leptokurtic
Highly Skewed
3. Skewness between -1 and -½ or 4. Kurtosis < 3 = Platykurtic
Skewness between +1 and +½ =
Moderately Skewed
5. Skewness between -½ and +½ = 6. Kurtosis = 3, Mesokurtic
Symmetric

GDP

 The skewness value of GDP is -0.035117 as shown in descriptive stats.

  The variable is symmetrically skewed. This is dependent variable.
 The data is skewed negative left.

2. Normality Test

Jarque- Bera Test Probability Test

Ho: Data is normally distributed Null hypothesis Ho: Data is normally
H1: Data is not normally distributed distributed
Alternative hypothesis H1: Data is not
normally distributed
Rejection Criteria Rejection Criteria

JB (P value > 0.05) = don’t reject Ho (Normal P value > 0.05 = don’t reject Ho, variable is
Distribution) significant
JB (P value < 0.05) = Reject Ho (Non normal P value < 0.05 = Reject Ho, variable is
Distribution) insignificant
 180
160
140
ER

120
100
80
3E+10

2E+10

1E+10
FDI

0E+00

-1E+10
30,000
25,000
20,000
GDP

15,000
10,000
5,000
40
38
36
S

34
32
30
80 100 120 140 160 180-1E+10 1E+10 3E+10 0 10,000 30,00030 32 34 36 38 40
ER FDI GDP S

GDP
5
Series: GDP
Sample 1989 2020
4 Observations 31

3 Mean 18390.50
Median 18470.02
Maximum 28675.03
2
Minimum 7808.405
Std. Dev. 6477.184
1 Skewness -0.027678
Kurtosis 1.718814
0
10000 15000 20000 25000 30000 Jarque-Bera 2.124147
Probability 0.345738

 The JB value is greater than 0.05 which is 2.124147

 Accept the null hypothesis and reject the alternative hypothesis.
 The P-value is greater than 0.05 which is 0.345738, which means accept Ho.
 Accept null hypothesis, and reject alternative hypothesis.
 The distribution is normal and the variable is significant.

ER
6
Series: ER
Sample 1989 2020
5
Observations 30

4
Mean 125.3062
Median 131.3937
3 Maximum 164.3789
Minimum 91.57963
2 Std. Dev. 21.92920
Skewness 0.002932
1 Kurtosis 1.589109

0 Jarque-Bera 2.488311
90 100 110 120 130 140 150 160 Probability 0.288184

 The JB value is greater than 0.05 which is 2.488311

 Accept the null hypothesis and reject the alternative hypothesis.
 The P-value is greater than 0.05 which is 0.288184, which means accept Ho.
  Accept null hypothesis, and reject alternative hypothesis.
 The distribution is normal and the variable is significant.

S
7
Series: S
6 Sample 1989 2020
Observations 31
5
Mean 35.52026
4
Median 35.37572
3 Maximum 39.03767
Minimum 31.45440
2 Std. Dev. 2.118149
Skewness 0.022977
1
Kurtosis 2.061361
0
31 32 33 34 35 36 37 38 39 40 Jarque-Bera 1.140743
Probability 0.565315

FDI
9
Seri es : FDI
8 Sampl e 1989 2020
7 Obs ervati ons 31

6
Mea n 6.58e+09
5 Medi an 1.45e+09
4 Maxi mum 2.60e+10
Mi ni mum -6.76e+09
3 Std. Dev. 1.04e+10
2 Skewnes s 0.450875
Kurtos i s 1.753293
1
0 Jarque-Bera 3.057930
0.02500 1.0e+10 2.0e+10 Probabi l i ty 0.216760

 The JB value is greater than 0.05 which is 3.057930

 Accept the null hypothesis and reject the alternative hypothesis.
 The P-value is greater than 0.05 which is 0.216760, which means accept Ho.
 Accept null hypothesis, and reject alternative hypothesis.
 The distribution is normal and the variable is significant.
 3. Pair-Wise Correlation

Correlation can determine the type of relationship two variables are sharing with each
other. The relationship can be positive and negative or neutral. The highest correlation
value is +1 and lowest is -1.

Correlation Criteria
Positive correlation = +1 or close to 1
Negative correlation = -1 or close to -1
Neutral = 0

ER FDI GDP S

ER 1.000000 0.277074 0.053209 0.482580

FDI 0.277074 1.000000 0.816191 -0.009983
GDP 0.053209 0.816191 1.000000 -0.413650
S 0.482580 -0.009983 -0.413650 1.000000

 GDP & ER

ER GDP

ER 1.000000 0.053209
GDP 0.053209 1.000000

 GDP & FDI

GDP FDI

GDP 1.000000 0.810526

FDI 0.810526 1.000000

The correlation value of GDP and FDI is 0.810526 and it is positive.

It is strong positive relationship among variable GDP and

FDI.
It is close to +1 but it is positive. It means if GDP rises, FDI increases and vice versa.
  GDP & S

GDP S

GDP 1.000000 -0.463374

S -0.463374 1.000000

The correlation value of GDP and S is -0.463374 and it is negative.

It is weak negative relationship among variable GDP and S.

It is far to -1 but it is negative. It means if GDP rises, S decreases and vice versa.

 ER & FDI

ER FDI

ER 1.000000 0.277074
FDI 0.277074 1.000000

The correlation value of ER and FDI is 0.277074 and it is positive.

It is weak positive relationship among variable ER and FDI variable.
It is far away to +1 but it is positive. It means if ER rises, FDI increases and vice versa.

 ER & S

ER S

ER 1.000000 0.482580
S 0.482580 1.000000

 FDI & S

FDI S

FDI 1.000000 -0.045865

S -0.045865 1.000000
 The correlation value of FDI and S is -0.045865 and it is negative.
It is weak negative relationship among variable FDI and S variable.
It is far away to +1 but it is negative. It means if INV rises, S increases and vice versa.

4. Linear Regression

Model
ERt=β1+β2GDPt+β3St+β4FDIt

Dependent Variable: ER
Method: Least Squares
Date: 12/17/20 Time: 05:39
Sample (adjusted): 1990 2019
Included observations: 30 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C -90.08878 101.6609 -0.886170 0.3836

GDP 0.000493 0.001377 0.357837 0.7234
S 5.753830 2.415225 2.382316 0.0248
FDI 3.51E-10 7.54E-10 0.466343 0.6449

R-squared 0.315725 Mean dependent var 125.3062

Adjusted R-squared 0.236770 S.D. dependent var 21.92920
S.E. of regression 19.15802 Akaike info criterion 8.866886
Sum squared resid 9542.771 Schwarz criterion 9.053712
Log likelihood -129.0033 Hannan-Quinn criter. 8.926653
F-statistic 3.998801 Durbin-Watson stat 0.805236
Prob(F-statistic) 0.018187

Criteria for Regression

Hypothesis Ho = Variables are significant
H1 = Variables are insignificant

T-test Value T-test value > 2 = Variable Significant

T-test value < 2 = Variable Insignificant

Probability Probability < 0.05 = Variable Significant

Probability > 0.05 = Variable Insignificant

 GDP
Accept H1 and reject Ho.
The variable is insignificant because the value of t-test is
less than 2. The value of T-test is 0.357837 which is less
than 2.
The probability is also 0.7234 which is greater than 0.05
All other variables remain constant, if we increase GDP by one unit; ER will increases
by 0.000493 units.

 S
Accept Ho and reject H1.
The variable is significant because the value of t-test is greater than 2.

The value of T-test is 2.382316 which

greater than 2. The probability is also
0.0248 which is less than 0.05
All other variables remain constant, if we increase S by one unit; ER will increases by
5.753830 units.

 FDI
Accept H1 and reject Ho.
The variable is insignificant because the value of t-test is
less than 2. The value of T-test is 0.466343 which less
than 2 is.
The probability is also 0.6449 which is greater than 0.05
All other variables remain constant, if we increase FDI by one unit, ER will increases
by 3.51E-10 units.

Model Significance
Criteria:
If F stat > F critical, reject Ho
 Conclusion
F stat is less than that of
F critical The F- value
is less than 0.05.
R-square value is 0.9869 that shows model is 98% fit.

Log-Log Double Regression

Dependent Variable: LNER

Method: Least Squares
Date: 12/17/20 Time: 05:44
Sample (adjusted): 1990 2019
Included observations: 22 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C -3.574212 4.135108 -0.864358 0.3988

LNGDP 0.230935 0.328355 0.703309 0.4909
LNS 1.939313 0.891888 2.174391 0.0433
LNFDI -0.034063 0.076534 -0.445077 0.6616

R-squared 0.251065 Mean dependent var 4.874621

Adjusted R-squared 0.126242 S.D. dependent var 0.166690
S.E. of regression 0.155813 Akaike info criterion -0.717349
Sum squared resid 0.437001 Schwarz criterion -0.518977
Log likelihood 11.89083 Hannan-Quinn criter. -0.670618
F-statistic 2.011371 Durbin-Watson stat 0.466484
Prob(F-statistic) 0.148421

Interpretations

 FDI
The increase in one percent of FDI, the ER is decreased by -0.034063 %. It implies
that there is decrease in the ER by the increase in one percent of FDI.
 S
The increase in one percent of S, the ER is decreased by 1.939313 %. It implies that
there is increase in the ER by the increase in one percent of S.

 GDP
The increase in one percent of GDP, the ER is increased by 0.230935 %. It implies
that there is increase in the ER by the increase in one percent of GDP.

5. Post estimation tests

5A. Multi collinearity
The correlational matrix shows the relationship among the variable. It shows the
correlation among the variable.

ER FDI GDP S

ER 1.000000 0.277074 0.053209 0.482580

FDI 0.277074 1.000000 0.816191 -0.009983
GDP 0.053209 0.816191 1.000000 -0.413650
S 0.482580 -0.009983 -0.413650 1.000000

 GDP & ER

30,000

25,000

20,000

15,000

10,000

5,000

0
1990 1995 2000 2005 2010 2015 2020

ER GDP

The correlation values of GDP and ER are 0.053209 and it

is positive. It is weak positive relationship among variable
GDP and ER.
 It is far to +1 but it is positive. It means if GDP rises, ER increases and vice versa.

 GDP & FDI

2.8E+10
2.4E+10
2.0E+10
1.6E+10
1.2E+10
8.0E+09
4.0E+09
0.0E+00
-4.0E+09
-8.0E+09
1990 1995 2000 2005 2010 2015 2020

FDI GDP

The correlation value of GDP and FDI is 0.810526 and it is positive.

It is strong positive relationship among variable GDP and

FDI.
It is close to +1 but it is positive. It means if GDP rises, FDI increases and vice versa.

 GDP & S

30,000

25,000

20,000

15,000

10,000

5,000

0
1990 1995 2000 2005 2010 2015 2020

S GDP
T
he correlation value of GDP and S is -0.463374 and it is negative.
It is weak negative relationship among variable GDP and S.
It is far to -1 but it is negative. It means if GDP rises, S decreases and vice versa.

 ER & FDI

2.8E+10
2.4E+10
2.0E+10
1.6E+10
1.2E+10
8.0E+09
4.0E+09
0.0E+00
-4.0E+09
-8.0E+09
1990 1995 2000 2005 2010 2015 2020

ER FDI

The correlation value of ER and FDI is 0.277074 and it is positive.

It is weak positive relationship among variable ER and FDI variable.
It is far away to +1 but it is positive. It means if ER rises, FDI increases and vice versa.

 ER & S

180
160
140
120
100
80
60
40
20
1990 1995 2000 2005 2010 2015 2020

ER S

The correlation value of ER and S is 0.482580 and it is positive.

It is weak positive relationship among variable ER and S variable.
It is far away to +1 but it is positive. It means if S rises, ER increases and vice versa.
  FDI & S
2.8E+10
2.4E+10
2.0E+10
1.6E+10
1.2E+10
8.0E+09
4.0E+09
0.0E+00
-4.0E+09
-8.0E+09
1990 1995 2000 2005 2010 2015 2020

FDI S

The correlation value of FDI and S is -0.045865 and it is negative.

It is weak negative relationship among variable FDI and S variable.
It is far away to +1 but it is negative. It means if INV rises, S increases and vice versa.

Variance Inflation Factor (VIF)

Hypothesis Ho = Data is normal (no multicollinearity)

H1 = Data is not normal, no normal
distribution (multicollinearity exists)

Criteria for Detection of Multicollinearity Centered VIF < 10 = No multicollinearity

Centered VIF > 10 = Multicollinearity exist

Variance Inflation Factors

Date: 12/17/20 Time: 05:54
Sample: 1989 2020
Included observations: 30

Coefficient Uncentered Centered

Variable Variance VIF VIF

C 10334.93 844.7490 NA
GDP 1.90E-06 60.34493 5.903739
S 5.833312 599.9357 1.971052
FDI 5.68E-19 7.052019 4.894062
 Interpretations

 GDP
1. The centered VIF value of GDP is 5.903739 which is less than 10.
2. It means there is no existence of multicollinearity.
3. Accept Ho and reject H1
4. The data of GDP is normal.

 FDI
1. The centered VIF value of FDI is 4.894062 which is less than 10.
2. It means there is no existence of multicollinearity.
3. Accept Ho and reject H1.
4. The data of FDI is normal.

 S
1. The centered VIF value of S is 1.971052 which is less than 10.
2. It means there is no existence of multicollinearity.
3. Accept Ho and reject H1.
4. The data of S is normal.

Accept the null hypothesis Ho and reject the alternative hypothesis H1.

5B. Heteroskedasticity
Heteroskedasticity Test: White
Null hypothesis: Homoskedasticity

F-statistic 1.815223 Prob. F(9,20) 0.1279

Obs*R-squared 13.48791 Prob. Chi-Square(9) 0.1417
Scaled explained SS 7.891438 Prob. Chi-Square(9) 0.5451

Test Equation:
Dependent Variable: RESID^2
Method: Least Squares
Date: 12/17/20 Time: 05:56
Sample: 1990 2019
Included observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C 13218.85 54427.88 0.242869 0.8106

GDP^2 -3.63E-06 1.24E-05 -0.291810 0.7734
GDP*S 0.035892 0.030107 1.192140 0.2472
GDP*FDI -1.90E-12 1.03E-11 -0.185316 0.8548
GDP -1.204519 1.398927 -0.861031 0.3994
S^2 -5.338251 34.19537 -0.156110 0.8775
S*FDI -2.14E-08 1.82E-08 -1.174117 0.2541
S -169.7469 2688.441 -0.063140 0.9503
FDI^2 7.22E-19 2.80E-18 0.257983 0.7991
FDI 8.16E-07 7.38E-07 1.105847 0.2819

R-squared 0.449597 Mean dependent var 318.0924

Adjusted R-squared 0.201916 S.D. dependent var 403.8160
S.E. of regression 360.7513 Akaike info criterion 14.87546
Sum squared resid 2602830. Schwarz criterion 15.34252
Log likelihood -213.1318 Hannan-Quinn criter. 15.02487
F-statistic 1.815223 Durbin-Watson stat 2.065107
Prob(F-statistic) 0.127894

Hypothesis Ho = Heteroscedasticity don’t

exist H1 = Heteroscedasticity
exist
Rejection Criteria Prob. Chi Square > 0.05 = no heteroscedasticity
Prob. Chi Square < 0.05 = heteroscedasticity
exist
F tab > F stats = accept Ho, no heteroscedasticity
F tab < F stats = accept H1, heteroscedasticity exist

Probability Chi-Square
The probability Chi-square value is 0.1417 which is
greater than 0.05. There is no heteroscedasticity.
Accept Ho and reject alternative hypothesis H1.

F-test
The F-tab is greater than F stat
There is no existence of
heteroscedasticity So accept
Ho and reject H1
The F stat value is 0.127894 and F tab value
is 1.815223. The F tab value is greater and it
states that F stat is less.

LM = nR-square
The nR-square value is 13.48791.
It shows that heteroscedasticity
don’t exist. Accept Ho and
reject H1
The R-square value is 0.449597; it shows that model is 44% fit
.

 GDP
GDP
32,000

28,000

24,000

20,000

16,000

12,000

8,000

4,000
1990 1995 2000 2005 2010 2015 2020

 The increase in one unit of GDP will decrease the price of ER by $-1.204519
 The variable GDP has no presence of heteroscedasticity
 So we accept Ho and reject H1.

 S
 S
40
39
38
37
36
35
34
33
32
31
1990 1995 2000 2005 2010 2015 2020

 The increase in one unit of S will decrease the price of ER by $-169.7469

 The variable S has no presence of heteroscedasticity
 So we accept Ho and reject H1.

 FDI
FDI
2.8E+10
2.4E+10
2.0E+10
1.6E+10
1.2E+10
8.0E+09
4.0E+09
0.0E+00
-4.0E+09
-8.0E+09
1990 1995 2000 2005 2010 2015 2020

 The increase in one unit of FDI will increase the price of ER by $8.16E-07
 The variable FDI has no presence of heteroscedasticity
 So we accept Ho and reject H1.
 5C. Autocorrelation
Autocorrelation represents the degree of similarity between a given time series and a
lagged version of itself over successive time intervals.
Model
Yt = bo + b1X1 + b2X2 +...................+ bkXk + Ut

Hypothesis Testing Ho = no
autocorrelation H1 =
autocorrelation exist
Rejection Criteria Chi-square Probability P < 0.05 = Autocorrelation
Exist Chi-square Probability P > 0.05 =
Autocorrelation don’t exist

Durbin Watson Test

Value near 2 = there is no autocorrelation
Value near 4 = negative correlation
Value near 0 = positive correlation

Interpretation
The Durbin Watson stat value in this regression model is 0.805236.
This shows that the result of no autocorrelation.
Reject H1 and accept Ho there is no correlation.
There exist no autocorrelation in the regression model.

Breusch-Godfrey Test
The test is done on log variables and the lag series of 2 is selected. It then shows whether there is
presence of autocorrelation or not.

Breusch-Godfrey Serial Correlation LM Test:

Null hypothesis: No serial correlation at up to 2 lags

F-statistic 13.67551 Prob. F(2,24) 0.0001

Obs*R-squared 15.97886 Prob. Chi-Square(2) 0.0003

Test Equation:
Dependent Variable: RESID
Method: Least Squares
Date: 12/17/20 Time: 06:03
Sample: 1990 2019
Included observations: 30
Presample missing value lagged residuals set to zero.

Variable Coefficient Std. Error t-Statistic Prob.

C -59.39043 75.37376 -0.787946 0.4384

GDP 0.000876 0.001005 0.871188 0.3923
S 1.316743 1.792528 0.734573 0.4697
FDI -5.56E-10 5.58E-10 -0.996450 0.3290
RESID(-1) 0.924504 0.176818 5.228557 0.0000
RESID(-2) -0.565030 0.186514 -3.029421 0.0058

R-squared 0.532629 Mean dependent var 2.46E-14

Adjusted R-squared 0.435260 S.D. dependent var 18.14004
S.E. of regression 13.63210 Akaike info criterion 8.239588
Sum squared resid 4460.018 Schwarz criterion 8.519827
Log likelihood -117.5938 Hannan-Quinn criter. 8.329239
F-statistic 5.470205 Durbin-Watson stat 2.109041
Prob(F-statistic) 0.001691

The probability chi-square value is 0.0003 which is less than 0.05

So there exist an autocorrelation. It also shows that F-statistics is greater than 4.

So accept null hypothesis Ho and reject alternative hypothesis H1.

The nR-square value is 15.97886 which shows that it is greater than chi-square

5D. Mis-specification Test

A functional form misspecification generally means that the model does not account
for some important nonlinearity.

RAMSEY- Test
This test helps us to know whether the data is specified or not.

Rejection Criteria F stat > F critical = Model is Misspecified

F stat < F critical = Model is not Mis specified

F stat > F critical = Model is Misspecified

F stat < F critical = Model is not Mis specified
 Hypothesis Testing Ho = Model is Misspecified
H1 = Model is not Misspecified

Interpretations
Ramsey RESET Test
Equation: UNTITLED
Omitted Variables: Squares of fitted values
Specification: ER C GDP S FDI

Value df Probability
t-statistic 0.906662 25 0.3732
F-statistic 0.822037 (1, 25) 0.3732
Likelihood ratio 0.970573 1 0.3245

F-test summary:
Mean
Sum of Sq. df Squares
Test SSR 303.7912 1 303.7912
Restricted SSR 9542.771 26 367.0296
Unrestricted SSR 9238.979 25 369.5592

LR test summary:
Value
Restricted LogL -129.0033
Unrestricted LogL -128.5180

Unrestricted Test Equation:

Dependent Variable: ER
Method: Least Squares
Date: 12/17/20 Time: 06:05
Sample: 1990 2019
Included observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C 729.6968 909.9158 0.801939 0.4301

GDP -0.002293 0.003369 -0.680679 0.5023
S -25.48144 34.53597 -0.737823 0.4675
FDI -1.48E-09 2.16E-09 -0.685965 0.4990
FITTED^2 0.022151 0.024432 0.906662 0.3732

R-squared 0.337508 Mean dependent var 125.3062

Adjusted R-squared 0.231510 S.D. dependent var 21.92920
S.E. of regression 19.22392 Akaike info criterion 8.901200
Sum squared resid 9238.979 Schwarz criterion 9.134733
Log likelihood -128.5180 Hannan-Quinn criter. 8.975909
F-statistic 3.184082 Durbin-Watson stat 0.831397
Prob(F-statistic) 0.030362

The probability value is 0.3732 which shows the data is free from
misspecification. Then accept H1 and reject Ho.
The F stat is also less than 4 which is 0.822037 that indicates that there is no
specification. So accept H1 and reject Ho.

 FDI
The probability of FDI is also 0.4990 which is greater than 0.05.
It implies there is presence of no specification and the variable is insignificant.
It also shows that for every one percent increase in FDI, the ER decreases by -1.48E-09
percent.

 S
The probability of S is also 0.4675 which is greater than 0.05.
It implies there is presence of no specification and the variable is insignificant.
It also shows that for every one unit percent in S, the ER increases by -25.48144 percent.

 GDP
The probability of GDP is also 0.5023 which is greater than 0.05.
It implies there is presence of no specification and the variable is insignificant.
It also shows that for every one unit percent in GDP, the ER decreases by -0.002293 percent.

Conclusion
The all test shows that the whole theoretical data is significant and the model is fit.
The analysis states that there is close relationship between inflation, GDP,
unemployment, gross saving in the economy of South Korea. The South Korea must
associates these thing so that it economy grows and get a good impact of country
effective real interest. South Korea, the basic determinant of current account deficits,
which are also defined as the difference between domestic investment and saving, is
the low saving rates that tend to decrease continuously. The E-views data shows the
relationship among the variable.

References
https://databank.worldbank.org/source/world-development-indicators#