Modeling the Determinants of Saudi GDP Growth Rate - samples

Question: Discuss about the Modeling the Determinants of Saudi GDP Growth Rate. Answer: Economic theory states that GDP growth rate of a country depends on some factor such as exchange rate (EXCHR), exports value (Exports), population of the country (POP), inflation level (INF) and government consumption expenditure (GCE) or spending. Saudi Minister of Economy is interested to see the relevance of this economic theory in Saudi Arabian context in particular due to the impact of Vision 2030 and related changes such as VAT, reduction in subsides, population and labor force, oil exports and value of currency, etc. You have been asked to advise the Minister on the impact of these factors on economic growth rate. The data on Saudi Arabia for these variables is collected and given to you (uploaded on LMS). Use the data and answer the following questions: Use these variables to model determinants of GDP growth rate (build a regression model). Gross Domestic Product of a country in question that is Saudi Arabia just like any other country from a global perspective is affected by some determinants. Basing on the available data in excel and the prior information it is clear that SA's GDP is profoundly affected by country's population, inflation levels (which on its own is contributed by many factors), the government consumption expenditure, the exports and import values to mention but a few. The elements work so tightly in control of the country's GDP and as a whole impacting on the economic stability of the nation regarding the exchange rate for the national currency as well as the international stock exchange rates. The global empirical model for regimes put the SA as the alternative currency that has gone through a series of reformation. Microeconomic as well as macroeconomic features in most cases played a downside role in the ensuring that SA linkages with the entire market on the global arena were interfered with Determine the effect of each variable (positive or negative) based on your intuition and economic theory Inflation; it is brought about by too many imports in the country and other factors for instance reduced rates of borrowing which encourage people to borrow. In the process, there is more money chasing fewer commodities in the country. The result of inflation is a reduction in the country exchange value on international markets as well as low pricing for the country exports ( Al-Torkistani et al Pg.23). In that regard there would be a reduction in the GDP unless the situation takes a reverse turn. Exports; they are the sources of the country's national income and as such an increase in exports improves the GDP as a reduction has the same effect on the GDP. Exchange rate; it is determined by some factors majorly by political and economic factors. Political factors derail economic activities and a reduction in operations in business reduce the national currency exchange value for money on the international exchange rate platform. The currency is devalued and as such fetches low in comparison to other currencies. A proper and peaceful political environment breeds business activities through the attraction of investors and hence an improvement in the national currency value that translates to an increase in the GDP of the nation. Government Consumption expenditure; government expenditure is a result of the acquisition of the items by the government to facilitate the routine and administrative running of the government projects. Meeting of population public needs for instance medication and education were some of the concerns (Alshehry, Atef andMounir Pg 45). An increase in the government spending reduces the GDP as a reduction increases the GDP. The population of the country; the higher the people of the country, the more the government spending on the facilities for the people and thus registering for a more senior amount regarding expenditure. The GDP of the country drops since the expenditure is a credit account on the national treasury. The lower the population, the less the spending by the government and as such a debit account to the national treasury. Build hypothesis (null and alternative) and explain. Null Hypothesis: The Saudi Arabian economy is profoundly affected by the movements in the country GDP Alternative Hypothesis: The Saudi Arabian economy is not dependent on the GDP Now draw scatter plot of each independent variable against dependent variable and make a commentary regarding relationships (draw a trend line alongside scatter plot to observe relations: positive/negative) Scatter Plot for independent Variables Now perform multiple regression and observe the statistical significance level and signs of the coefficients. Does the regression results confirm your earlier hypothesis or not? If not, what could be the reason? Provide detailed explanation. Interpretation of the regression results as done in excel confirms the validity of the null hypothesis in the following ways. The economy dis-aggregation about other stakeholders on the national stock exchange works contrary to the success of SAR currency as the nation had poor economic pillars for use in a bid to save the reputation of the SAR.The SAR fetched way below par on the foreign exchange market and as such that the country put in measures to oversee its improvement in the future. The attaining of the stable economy to the extent that SAR is used as a reserve currency has not come quickly (Darlington, Richard and Andrew Pg 33). It has taken some considerations for economic parameters both at the local level as well as the international outlook to bring the sanity of the initially unfamiliar currency in the global stock exchange arena. SA as a nation has recently put in place economic reforms over its policies in the business. The country reforms have been in line with the restructuring of the banking system of the country. The electricity sector had also been put in the limelight as well as transportation of materials. The state has cut down on the corporate tax rate. It is such that businesses the policies are flawless to allow entry of new businesses.Owing to the lowering of the corporate tax and introduction of incentives in the economy, the country has started experiencing a rise in the economic growth (Samargandi and Nahla Pg 101).The government of SA has taken initiatives in making sure that there is divest in the public companies through plans. The nation however is experiencing a break down in some other parts of its economy due to a weakening business environment thus affecting competitiveness in business. The exchange rates regime for the country have been proposed in many cases by the government and the head financial institutions for SA but a few worked in favor of the current stability that AS currency enjoys making it third in matters of the weight of the currency and price at which the yen fetch in comparison to the standard US dollar. The US dollar has been used and is still in use courtesy of its higher value. The section provide a preliminary evidence on the effects alternative regimes taken by the SA government have on the country foreign exchange as well as the impact the same have on the trade partners in the global arena. The global empirical model for regimes put the SA as the alternative currency that has gone through a series of reformation ( Fox and John Pg 40). Microeconomic as well as macroeconomic features in most cases played a down side role in the ensuring that SA linkages with the entire market on the global arena was interfered with. Look at the R2 and adjusted R2 values and comment on the explanatory power of your statistical model. The statistical model employed in the analysis of the data basing on the R2 and adjusted R2 indicate a collective influence of the economic contributors to the GDP as a whole. It is clear that the GDP of the country has other underlying factors. The analysis in excel has employed the test hypothesis as one tail test. The regression as such has taken that approach and as such compared the arithmetic mean averages to come up with the R2. The values of the R2 and R2 adjusted bear a smaller deviation unlike they should because of the effect of many variables in the dependent variables ( Al-Torkistani et al Pg.56). The basic linear model as a method used in the analysis of the data has exposed the GDP as a function of the determinants of the economic parameters resulting to the formation of the following regression equation: GDPG= -52.8303739148481+16.3500517091564*EXCHR+7.53863787504361E-03*Exports-0.306616502791003*POP+0.429397456046636*INF-8.48529061353034E-03*GCE The equation is derived from the common linear regression formula below as a continuous equation (n) tending to infinity Y= + 1X1 + 2X2 + n Xn + Now, look at the predicted and actual values of the dependent variable and comment on the predictive power of your model. Is there any message coming out of your model predictions. Suggest ways to improve the predictive power of your model. The model predictive power of the model from the findings and evidence shown cannot be overlooked. The model is evident in the showing proof that the GDP makes an essential element in the control of the country economy and as such, it cannot belittle in any form (Alshehry, Atef, and Mounir Pg 45). The GDP from the model has also been presented as a dependent on factors, for instance, the country's population, inflation levels (which on its own is contributed by many factors), the government consumption expenditure, the exports, and import values to mention but a few. It is clear at the same time that the model is a representation of an aggregate of factors of which a few have been highlighted for a description of the entire scenario. The message from the regression model is open in that it speaks majorly of the impact various factors have on the ability to determine the direction to which the economy of Saudi Arabia takes (Muthn and Muthn Pg 121).Any small deviation in any of the economic parameters either by a positive or negative improvement affects the aggregate GDP mostly. There are however ways that can be used for the improvement of the model. The first one should entail the use of more factors in the regression model (Chatterjee, Samprit, and Ali pg 89). That would mean that employment of multiple regression models would do better as it removes the spells of biases. The model in any respect would lower the degree of errors as the sum of squared errors would be reduced to the minimum depending on the longevity of the approach used and the factors acting in the place of the dependent variables take ( Al-Torkistani et al Pg.56). The beta values at the same time would impact less, and the conclusion on the model would bear a true meaning of the prediction at hand. References Alshehry, Atef Saad, and Mounir Belloumi. "Energy consumption, carbon dioxide emissions and economic growth: The case of Saudi Arabia."Renewable and Sustainable Energy Reviews41 (2015): 237-247. Al-Torkistani, Habiballah Mohammed, Mohammed Adaya Salisu, and Khalid A. Maimany. "Modeling a sustainable Saudi Arabian economy: the real issues."International Journal of Sustainable Development World Ecology23.2 (2016): 186-193. Chatterjee, Samprit, and Ali S. Hadi.Regression analysis by example. John Wiley Sons, 2015. Muthn, L. K., and B. Muthn. "Mplus."The comprehensive modelling program for applied researchers: users guide5 (2015). Darlington, Richard B., and Andrew F. Hayes.Regression analysis and linear models: Concepts, applications, and implementation. Guilford Publications, 2016. Fox, John.Applied regression analysis and generalized linear models. Sage Publications, 2015. Samargandi, Nahla. "Sector value addition, technology and CO2 emissions in Saudi Arabia."Renewable and Sustainable Energy Reviews78 (2017): 868-877.