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ETSA ppt

The study analyzes the impact of population growth, inflation, and foreign direct investment (FDI) on GDP per capita over 20 years using a random-effects model, with data sourced from the World Bank. It finds that population growth and FDI positively contribute to GDP per capita, while inflation has a negative impact. The analysis also highlights the limitations of the model, including omitted variable bias and low explanatory power.

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2 views20 pages

ETSA ppt

The study analyzes the impact of population growth, inflation, and foreign direct investment (FDI) on GDP per capita over 20 years using a random-effects model, with data sourced from the World Bank. It finds that population growth and FDI positively contribute to GDP per capita, while inflation has a negative impact. The analysis also highlights the limitations of the model, including omitted variable bias and low explanatory power.

Uploaded by

aishajain937
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Model Equation

GDPit = β₀ + β₁Inflationit + β2FDIit + β3PopulationGrowthit + β4GDPit + εit

• GDPit is GDP Per Capita


• β0 is the intercept
• β1, β2, β3, and β4 are the coefficients,
• Inflationit is Inflation for country i at time t
• PopulationGrowthit is Population growth for country i at time t
• FDIit is foreign direct investment for country i at time t
• εit is the error term
Problem statement
The study investigates the impact of population growth, inflation, and foreign direct
investment (FDI) on GDP per capita over 20 years using a random-effects model. The
analysis aims to explore how these key economic indicators contribute to the
variation in GDP per capita across countries, with inflation expected to have a
negative coefficient. The data for the analysis is sourced from the World Bank.
Objectives
To assess the relationship between population growth, inflation, and FDI
on GDP per capita across countries.To evaluate the negative impact of
inflation on GDP per capita using a random-effects model.To provide
policy recommendations based on the findings to promote economic
stability and growth.
World Bank database (2000–2020)Variables:Dependent Variable: GDP
per capitaIndependent Variables: Population growth, Inflation (CPI), FDI
(percentage of GDP)
Comment: Values of Std. Deviation(+/-3), Skewness(+/-2) and Kurtosis(+/-7) are beyond threshold .
Results – Descriptive Statistics
Multicollinearity
heteroscedasticity
Process followed for Panel Regression

1. Conducted Pooled OLS Estimation as a baseline model.

2. Performed the Breusch-Pagan Test to determine if random effects are present, suggesting the
need for a more complex model than pooled OLS.

3. Selected a Two-Way Random Effects Model to account for both cross-sectional and time-
specific variations as random effects.

4. Used the Hausman Test to determine whether a Random Effects Model (REM) or Fixed
Effects Model (FEM) is appropriate. Since the p-value was high, the REM was preferred as it
does not show correlation between regressors and individual effects.
Pooled OLS

The regression model and all independent variables are significant.


Breusch Pagan Test

hypothesis is rejected, thus both time and cross-section has effect.


Random Effect Model

The regression model and all independent variables are significant.


Hausman Test

Failed to reject the null hypothesis. So the REM is preferred.


Discussions

• The results imply that independent variables (FDI, population growth) positively and significantly contribute to GDP
Per Capita in developing countries.
• Inflation contribute negatively and significantly to GDP Per Capita.
• Among the variables ,Population Growth has stronger positive impacts on the GDP Per Capita.
• R-squared (Adjusted): The adjusted R-squared for the regression model is 0.1177, which is relatively low. This
suggests that while the variables are statistically significant, they explain only about 11.77% of the variation in GDP
Per Capita.
Policy Implications
Limitations

• Exclusion of additional variables

• Low Accuracy of the model

• Potential Omitted Variable bias

• Data Constraints
Hypothesis

Null Hypotheses (H₀):


1.H₀₁: There is no significant relationship between GDP per capita and population growth in
developing countries.
2.H₀₂: There is no significant relationship between GDP per capita and FDI in developing countries.
3.H₀₃: There is no significant relationship between GDP per capita and inflation in developing
countries.
Alternative Hypotheses (H₁):
4.H₁₁: There is a significant positive relationship between GDP per capita and population growth in
developing countries.
5.H₁₂: There is a significant positive relationship between GDP per capita and FDI in developing
countries.
6.H₁₃: There is a significant negative relationship between GDP per capita and inflation in
developing countries.

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