Economic Statistics Research Paper Example | Topics and Well Written Essays - 2000 words

Economic Statistics - Research Paper Example The existence of autocorrelation in our estimation is determined using the Durbin Watson test and the Breusch Godfrey test to check for first order correlation. Autocorrelation however has its own remedies and one of the remedies involves time lagging variables also known as general least square method, this method involves replacement of the model with the serially correlated error term with a model with a serially independent error term. Estimation of the model one LGDPt = 1 + 2LXt + 3LFDIt + 4LDIt+5INF involves the use of the data for the period 1970 to 2002 regarding the UK economy, estimation of the above model using Eviews had the following results: From the results of the correlation of determination R squared which is equal to 0.99229 we can conclude that 99.22% of variations in LGDP are explained by the independent variables, this shows a very strong relationship between the dependent and the independent variables. From the results if we hold all other factors constant and the level of LX, LFDI, LDI and INF are equal to zero then the level of LGDP will be equal to 11.158 which is also our autonomous value, we can explain the coefficient of the log of exports by stating that if we hold all other factors constant and increase the level of LX by one unit then the level of LGDP will increase by 0.366704 units, also if we hold all other factors constant and increase the level of LFDI by one unit then the level of LGDP will decrease by 0.006544 units. If we also hold all the other factors constant and increase the level of LDI by one unit then the level of LGDP will increase by 0.265253 units, finally if we hold all factors constant and increase the level of INF by one unit then the level of LGDP will decline by 0.00131. Having explained the coefficients of the estimated model we can conclude that if we increase the level of exports and domestic investment then the level of gross domestic product will increase, on the other hand an increase in the level of inflation and foreign direct investment will reduce the level of gross domestic production. Statistical significance: Our estimated coefficients may be statistically significant of statistically insignificant, for this reason there is a need to undertake hypothesis test to determine their significance in the model, a two tail T test at 95% level of test showed the following results: 95% TEST LEVEL VARIABLE coefficient null hypothesis alternative hypothesis T calculated T critical reject or accept null C B1 B1=0 B10 14.3179 2.04841 REJECT INF B2 B2=0 B20 -1.459259 2.04841 ACCEPT LDI B3 B3=0 B30 5.183639 2.04841 REJECT LFDI B4 B4=0 B40 -1.010641 2.04841 ACCEPT LX B5 B5=0 B50 13.04894 2.04841 REJECT From the above test of hypothesis it is clear