PAMANTASAN NG LUNGSOD NG MAYNILA(University of the City of Manila)

` INTRAMUROS, MANILACollege of Accountancy and Economics

THE EFFECTS OF INFLATION AND EMPLOYMENT TO GDP GROWTH RATE OF THE PHILIPPINES

In Partial Fulfilment of the

Requirements of the Degree

Bachelor of Science in Business Economics

Submitted by:

ANGAT, JONAS IAN J.

ASEJO, ARJAY A.

CASTILLO, FREDERICK KIM R.

DUMAGAN, JOMARI S.

FRANCISCO, LOUIEMAR C.LABAJOY, CHRISTIAN PATRICK

Acknowledgement

We would like to take this opportunity to dedicate our gratitude to each and

everyone that helped made this thesis possible.

First of all, we would like to thank God Almighty for giving us the motivation

and perseverance to conduct and accomplish this study. We would like to thank Him

for his guidance throughout the entire working process and Him being one of our

great inspirations.

We would like to thank our adviser, Dean Eloisa M. Macalinao, for her usual

support, encouragement, and contributions, especially her suggestions and

recommendations for the betterment of our study.

We would like to thank the Labajoy and Abogado family for accommodating

us and providing us food and shelter for the nights that we're doing this paper. We

are grateful and overwhelmed for your kind gestures.

We would like to express our deepest gratitude towards our families: The Angat Family, The Asejo Family, The Castillo Family, The Dumagan Family, The Francisco Family, and The Labajoy Family for their entire support and

guidance throughout the entire working process and for serving as our inspirations

for this study. We are here, giving back all the love and hardship that they gave us.

The product of this thesis will not be possible without them.

And to all of our loved ones, friends, classmates, batchmates, schoolmates, and all the people that helped us and supported us and became part

of our study.

1

TABLE OF CONTENTS

Title Page i

Acknowledgement ii

Table of Contents iii

List of Tables 3

List of Figures 3

CHAPTER 1 – PROBLEM AND ITS BACKGROUND 4

Introduction 4

Statement of the Problem 5

Objectives 5

Hypothesis 6

Significance of the Study 7

Scope and Limitation 8

Theoretical Framework 8

CHAPTER 2 – REVIEW OF RELATED LITERATURE 11

CHAPTER 3 – METHODOLOGY 19

Model specification 19

Statistical treatment of Data 21

CHAPTERE 4 – PRESENTATION, ANALYSIS AND INTERPRETATION

OF DATA 23

List of Tables 23

List of Figures 28

Analysis of Data 32

CHAPTER 5 – SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS 34

Summary of Findings 34

Conclusions 34

Recommendations 35

Webliography and Bibliography 36

2

List of Tables

Table 1: T - test Critical Values 23

Table 2: F-test Critical Values 24

Table 3: Durbin Watson Table 25

Table 4: Rates of GDP per Capita, Employment and Inflation 26

List of Figures

Figure 1: Regression Equation using the OLS Estimator 27

Figure 2: Normality Test 28

Figure 3: Heteroskedasticity Test: ARCH 29

Figure 4: Ramsey Reset Test 30

3

Chapter 1 Problem and its Background

Introduction

Philippines, in the economic viewpoint, have been experiencing a consistent

growth for the past few years. GDP rate has increased from 1.1% in 2000 to 7.3% in

2010. It’s because some factors that makes up the GDP had a sudden increase . One factor that mainly caused the drastic acceleration of the economic growth of the

Philippines was the booming of BPO industry that made a huge impact on the

investment factor on the GDP and gave a large contribution on the increase in job

opportunities that has lead the employment rate to grow. But despite the fact that the

nation is growing economically, the rate of cost of living is somewhat still in the high

rate where many Filipinos still consider themselves in the "poor" class of the society

even though the Philippines has been experiencing a satisfactory economic growth.

In fact, in the 3rd quarter of 2013, the Philippines harvested a 7 .9% GDP growth

rate. It was the highest rate that the Philippines achieved and made the country top

some other developed south-east Asian countries based on GDP growth ranking . And despite of this positive reports, some Filipinos still can’t feel the thing that every

country want and needs to sustain, the thing called DEVELOPMENT.(no more

caps)

Many countries in the world has been experiencing a hard time to sustain their

economic development because of some economic factors that hinder their positive

economic growth run, And one of these negative factors is the INFLATION.(No

More Caps) Inflation is defined as the sustained increase in the price level of

goods and commodities in the economy and the main causes of it are either excess

aggregate demand(economic growth increase too fast) or cost push factors (Supply

side factors). In other words, inflation is not good for any country’s economy.(Not at

all) But as we go deep about this inflation, we(researchers) found out that this

negative factor can be somewhat(Use other words aside from somewhat) a positive

4

economic contributor to the GDP of a country. We(researchers) have searched and

found that some countries that(remove ‘that’) were economically developed despite

the fact that their inflation rate was high, meaning that high level of prices of their

country’s product and commodities are good for their economy.(It does not mean

that if a country is economically developed And this is what this research

paper is about to find out, if INFLATION could be a POSITIVE factor to the

Philippines GDP growth rate or not. In this research paper, we will do a series of

economic test to find out the effect of inflation, alongside with employment rate, to

the GDP growth rate quantitatively and qualitatively.

Statement of the Problem

The researcher conducts this research in order to examine the correlation that exists between inflation rate and employment with GDP so that we can help the

country to mitigate the problem occurs by supporting the government’s policies to

increase the country’s GDP. In addition, this research is also useful since the results

of the studies can be used in policy’s decision for resource allocation in order to

accelerate economic growth.

ObjectivesThe Objectives of the study are

1) Analyze the relationship between inflation rate and Gross Domestic Product

per Capita Rate in terms of magnitude and direction.

2) Analyze the relationship between employment rate and Gross Domestic

Product per Capita Rate in terms of magnitude and direction.

5

Hypothesis

In classical test of significant, two kind of hypothesis are used. They are Null

Hypothesis and Alternate Hypothesis. Hypothesis is a conjectural statement that

describes the relationship among variable even negative or positive. Null hypothesis

which is represent by H0 symbol to show that the relationship between independent

and dependent variable is not exist. However alternate hypothesis is representing by

H1 symbol to show that the relationship is existing between both dependent and

independent variable

Therefore the hypothesis can be tested as follows:

Ho: Employment and Inflation rate have no significant effect on Gross Domestic

Product per Capita growth rate.

H1: Employment Rate and Inflation rate have significant effect on Gross Domestic

Product per Capita growth rate.

6

Significance of the Study

The significances of this study are as follow:

ResearchersThis study will help the researchers to complete their course requirement and will be

a guideline for their field of work in the future. The researchers can gain many

experiences in order to complete this research. There are lot of weaknesses may be

obtained and this will encourage the researchers to provide the better research in the

future. Future researchers will know and will have more understanding about gross

domestic product when conducting about this research. It will give the knowledge to

the researchers to identify the correlation exist between inflation rate and

employment and it always make the researcher briefing to know deeply and applied

the study.

OrganizationThis study might help the organization in analyzing the country’s economic condition

in order to prevent and reduce the risk during the inflation and know the effects of the

crisis occurs to them. This study also may give some guidance to them to protect

their company and industry itself.

PublicThis study can inform and gives some knowledge to the public the relationship

between economic growth, inflation rate and employment. They also can make

preparation to face the increasing in inflation rate and able to survive in that

situation.

7

Scope and limitation

The researchers choose to conduct the research about the GDP in the Philippines

from 1980 until 2012. In this study, the researchers want to determine the correlation

exist between inflation rate and employment with GDP in the Philippines. It is

important because as economic planners and forecasters used the GDP per capita

in monitoring economic growth trend for time series. The collection of data of GDP,

inflation rate and total employment were collected from www . worldbank . org .

Theoretical Framework

Using the employment rate as one of our independent variables, we can also relate

this study to Classical Theory of Employment by Karl Marx and it has two (2) broad

features, The assumption of full employment and The flexibility of prices and wages.

The first assumption says that the economy is always at full employment status. It

cannot be undergo general over-production and general unemployment. If for an

instance it experience unemployment, it is assumed as temporary or abnormal and it

will only persist for a short period of time and the tendency is it will go back to full

employment status again.

The second assumption is The flexibility of prices and wages where it says

that if there is general over-production resulting in depression and unemployment,

prices would fall as a result of which demand would increase, prices would rise and

productive activity will be stimulated and unemployment would tend to disappear. Similarly, the unemployment could be cured by cutting down wages which would

increase the demand for labour and would stimulate activity.  Thus, if the prices and

wages are allowed to move freely, unemployment would disappear and full

employment level would be restored.

8

This theories tells us of having a nearly perfect economy in terms of

employment but logically, analysing the two theories are impossible to happen

because of some misinterpretations of factors that’s why many economists disproved

this theories and leads to Keynesian theory of employment.

As for the Keynesian theory of employment, it says that in the short run, it is

assumed that the capital equipment, population, technical knowledge, and labour

efficiency remains constant that is why the volume of employment depends on the

level of national income and output meaning an increase in national income would

also an increase in the level of employment and vice versa. This theory simply tells

us that the greater the factors that affect national income, the more the employment

it will produce.

This research explicates about the relationship of inflation and employment to

the growth rate of the GDP of the Republic of the Philippines. The focal objective of

this research is to scrutinize and emphasize correlation amongst Inflation and

Employment with the Gross Domestic Product of the Philippines

Inflation and Employment here in the Philippines are constantly changing in

the past years, whether it is increasing or decreasing, it is evidently and colossally

affecting one’s economic progress and development.

Inflation is the sustained increase of price level of goods and services in an

economy, here in the Philippines Inflation is always felt by individuals because of

some factors, whilst the employment rate is supervised by the government in order

for it to constantly increase to help eradicate poverty and to continue the economic

development.

According to the economic theory of cost push inflation, the higher the costs

of production factors decreases in aggregate supply in the economy, because there

are fewer goods being produced and demand for these goods remains consistent,

the prices of finished goods increase. In the present time, the Philippines is facing a

material push inflation because of the continues increase of raw materials to produce

products, by then the producers pass the burden of this happening to consumers

9

that leads to inflation, thus inflation marks a great impact in the GDP because

consumption lowers down.

We are all aware that oil is an essential material needed for people in order to

use machineries and equipment, In the Philippines, oil is almost monopolized, and oil

companies are only handful that’s why there are chances of cartel and according to

Profit-Push Inflation, inflation sometimes occur because of the business monopoly

power, hence people tend to lessen the purchase of oil and use alternatives and

such.

For Filipino households, rice is the cynosure of their tables, some Filipino say

that they cannot live without rice, thereupon the demand for rice in the Philippines is

high, and in some point in it, it occurs inflation. Because according to the demand-

pull theory, many individuals purchase the same good, it causes its price to increase,

therefore it affects the GDP of a country because of the inevitable consumption of

consumers.

In the Short run, higher level of employment can be acquired by applying

macro-economic measures which will lead to increase of aggregate demand for

goods and services. Keynesian General Theory of employment implies full

employment is not a normal feature in the economy, whilst unemployment

equilibrium is normal, employment in the Philippines is given emphasis by the

government in order to boost the development of the economy as well as to

eradicate poverty. The Philippines’ employment rate for the last ten years is

constantly increasing, it gives an effect to the GDP for people, if employed, gains

salaries for consumption.

10

Chapter 2

Review of Related Literature and Studies

This study about “ The Effect of Employment Rate and Inflation Rate to

GDP Per Capita.”, completed by the researcher with the help of some related

literature.

Presented in this chapter is review of some related studies that discuss

significant variables for the research that are worth mentioning.

Bengana Patrick (2014) made a research that investigates the effect of

inflation on economic growth in Uganda during the period of 2005 – 2014. He carried

out the reserch on the long-run and short-run effects of inflation on economic growth.

The author performed correlation analysis and the result revealed that there is a

weak correlation between the two, but using Johansen- cointegration test, the

researcher found out that the long-run relation between inflation and economic

growth exist.

Fakhri Hasanov (2011) investigated the effect of inflation on economic growth

in Azerbaijaini from 2001 to 2009. In his study, the inflation has a positive effect

on GDP at first, but if the inflation rate rises up to 13% the effect would be

negative which leads GDP to decline by 3%.

Osama Sweiden (2004) made a study about the effect of inflation on

economic growth in Jordan during the period of 1970-2000. Osama used Auto 11

Regressive Conditional Heteroskedastisity (ARCH) model to estimate a proxy to the

inflation variability and multiple regression stylized facts about determinant of

economic growth. The study provides an evidence that there is a negative

relationship between inflation and economic growth. However, the author also

found out that the effect of inflation to economic growth is postive below

inflation rate equal to 2%.

Mahmoud Al-Habees and Mohammed Abu Rumman (2012) conducted a

study that identifies the relationship between unemployment and economic growth

and it highlights the relationship in between. The study reveals reality of

unemployemnet in Arab countries. The researchers found out that the high rates of

economic growth and the decline in the unemployement rate do not confirm the

existence of strong relationship between growth and unemployment. Despite the rate

growth is positive, it’s not possible at present to reduce unemployment rate

significantly in some Arab countries such as Algeria due to restructuring Algerian

economy which relies heavily on growth in the hydrocarbon sector which despite its

importance does not create jobs in large numbersFor Jordan, the finding of this study

does not apply across years. It is recommended to separate policies of support

growth and policies of reduction unemployment rates. That is because the first

policies are dependent on government spending, while the second ones on

encouraging investment to create job opportunities.

Maria Amezaga conducted a study about the impact of economic growth on

unemployment rate in Peru. The scope of the study ranges from 2001-2012 in order

to obtain a more precise estimate. The techniques applied in the study clearly

say that there is a negative association between real GDP and unemployment

12

rate. This conclusion is supported by the Okun’s Law, series of descriptive analysis

and other spatial explorations.

Mohammad, Shamsudin et.al. (2011) made a study that examined the

correlation between inflation rate and total employment with gross domestic product.

It uses time series data ranging from 1982 to 2006 and the scope is in Malaysia. In

the study, the researchers found out that inflation rate and employment rate

influence the GDP in the short run. On the other hand, the GDP is unable to affect

the inflation rate and employment rate. In addition, there is no relation between

inflation and economic growth in the long-run. At the same time, there is a

negative relationship between employment and GDP in the long-run.

Fadli Fizari Abu Hassan Asari, Zuraida Mohamad, Teh Sofia Alias, Norazidah

Shamsudin, Nurul Syuhada Baharuddin, and Kamaruzaman Jusoff published a study

entitled: “Multivariate Time Series Analysis on Correlation Between Inflation

Rate and Employment Rate with Gross Domestic Product” that examined the

correlation between inflation rate, and total employment with gross domestic product.

The study uses time series data ranging from 1982 to 2006 and the scope is in

Malaysia. The study showed that inflation rate and employment rate influence the

GDP in the short run. On the other hand, the GDP is unable to affect the inflation

rate and employment rate. Therefore, the result is called unidirectional since only

one variable can influence the other variable in the short run. In addition, there is no

relationship between inflation rate and the GDP in the long run. At the same time,

there is a negative relationship between employment and GDP in the long run. They

recommended that future researchers should improve the reliability and validity of

13

the results by replacing the other independent variables such as level of income,

population, and others.

Muhammad Umair and Raza Ullah conducted a study entitled: “Impact of

GDP and Inflation on Unemployment Rate: A Study of Pakistan Economy in

2000-2010” that examined the impact of inflation on GDP and unemployment rate in

Pakistan. It was a longitudinal study for the period in 2000-2010. The data has been

taken from secondary sources. The study concludes that inflation insignificantly

influences GDP and unemployment and the correlation is negative. The correlation

between unemployment and inflation is positive i.e. 0.477 and is insignificant at 10%

level of significance. The correlation between GDP and unemployment rate has also

been found insignificant with a value of 0.196. It is, therefore, concluded that inflation

has a role which influential but for GDP and unemployment with insignificant levels in

the macroeconomics factors of Pakistani economy. The conclusive outcome of the

research study is that inflation is found as insignificantly influential for GDP and

unemployment with negative correlation. The value of F-test found as very low and

below the standards values of rule of thumb value of 4.00 while the value of R

square is found with very limited variation that is 0.70 and 22.8 percent from the

inflation to GDP and unemployment. It is, therefore, concluded that inflation

possess a role which is influential but for GDP and unemployment with

insignificance levels in macro-economic factors of the Pakistan.

14

Evans Agalega and Samuel Antwi published a study entitled: “The Impact of

Macroeconomic Variables on Gross Domestic Product: Empirical Evidence

from Ghana” The main objective of the study was to investigate the effect that

changes in the inflation and interest rates have on the Gross Domestic Product

(GDP) in Ghana over a period of thirty one (31) years from 1980-2010. Data were

collected from Bank of Ghana publications and bulletins, Ghana Statistical Service,

the Institute of Statistical, Social and Economic Research (ISSER). The paper

employed multiple linear regressions to establish that there exists a fairly strong

positive correlation between GDP, Interest rate and Inflation, but Inflation and

Interest rate could only explain movement in GDP by only 44 percent. The paper

further established that, there existed positive relationship between inflation and

GDP and interest rate is negative. It is recommended among others that the

Government together with the Bank of Ghana should develop and pursue prudent

monetary policies that would aim at reducing and stabilizing both the micro and

macroeconomic indicators such as inflation targeting, interest rate, so as to boast the

growth of the economy.

The study showed that there exist a strong positive correlation (relationship)

of 0.66 between GDP, interest rate and inflation rates over the period under study.

This therefore also implies that the behavioral patterns of interest and inflation rates

have had some influence on GDP. Furthermore, the study revealed an R2 value of

0.435 (44%); this implies that an approximately 44% of the proportion of variations in

GDP are explained by both inflation and interest rates. It can simply be put as

inflation and interest rates accounted for or explained only 44% of the changes in the

GDP of Ghana with regard to the data for the period 1980 to 2010. Therefore there

are about 56% of the changes in the GDP of the Ghanaian economy that could not 15

be explained by inflation and interest rates that need to be investigated. It can also

be concluded from the findings that indeed there exist some relationship between

GDP, inflation and interest rates as already established and this is given by the linear

multiple regression model: Y = 14.988 + 0.055X1 - 0.305X2, where Y is the GDP; X1

is the inflation rate; and X2 is the interest rates over the period 1980 through to 2010.

Furthermore, it was revealed that there is a positive relationship between GDP and

inflation rate given the data for the period under consideration and it therefore means

that both GDP and inflation rate behaved or moved in the same direction. As inflation

rate increased GDP also increased and vice versa. However, it indicated a negative

or inverse relationship between GDP and interest rate. This means that interest rate

and GDP move in opposite direction. That is as interest rate increases, GDP

decreases and vice versa. Also, the test of hypothesis with the analysis of variance

table have revealed that overall multiple regression model developed for GDP,

interest rate and inflation rate was significant with the individual parameter estimates

also being significant. Therefore given any projected interest and inflation rates for a

given period, the projected corresponding GDP can be estimated but with a precision

of only 40% or 44%. Finally, it can be concluded based on the individual examination

of the relationship between GDP, inflation and policy rate that there exists some

relationship between GDP and inflation rate as well as GDP and policy rate. It is

recommended that the Government together with the Bank of Ghana should develop

and pursue prudent monetary policies that would aim at reducing and stabilizing both

the micro and macroeconomic indicators such as inflation targeting, interest rate, so

as to boast the growth of the economy.

Kirandeep Kaur published a study entitled: “An Empirical Study of Inflation,

Unemployment, Exchange Rate and Growth in India” that analyzed the 16

relationship between unemployment, exchange rate, Growth rate and inflation rate

from period 1990-2013 with the use of simple linear regression analysis. The study

found that there is negative and significant impact of inflation rate and

exchange rate on unemployment whereas the GDP growth rate effect

negatively to unemployment but it is not significant. The study found that there

is trade-off between unemployment and inflation but more research work is needed

for further analysis of these variables.

Oliver Ike Inyiama published a study entitled: “Does Inflation Weaken

Economic Growth? Evidence from Nigeria” evaluated the link between

inflationary rate and economic growth in Nigeria. It also examined the nature and

form of association between inflationary rate and exchange rate as well as interest

rates from 1979 to 2010. Ordinary least squares approach in the form of multiple

regression was adopted in examining the relationship among the variables while the

causalities were evaluated using Granger Causality model. The study believes that it

is pertinent to check whether the short run relationships would be sustained in the

long run. To achieve this, Johansen and Juselius cointegration technique was

adopted while the variables were adjusted for stationarity using the Augmented

Dickey- Fuller (ADF) tests for unit root. It was found that inflationary rate is negatively

related with real gross domestic product while exchange rates and interest rates are

positively related with inflationary rate though not to a very significant extent. This is

sustainable even in the long run and the implication is that when inflationary rate is

rising, it affects the economy negatively as growth is dampened. On causality, at

both lag 2 and lag 4, the study reveals that there is no causality between inflationary

rate and real gross domestic product. However, at lag 2, there is an unidirectional

causality running from inflationary rate to interest rate and also an unidirectional 17

causality running from interest rate to real gross domestic product. At lag 4, there is

an unidirectional causality running from interest rate to inflationary rate and from

interest rate to exchange rate and also an unidirectional causality running from

exchange rate to real gross domestic product. Consequently, efforts should be

geared towards keeping inflationary rate at a single digit level to enhance the growth

and development of Nigeria economy and to ensure that macroeconomic activities

are kept alive. The causal relationships among the variables indicate no causal

relationship. Findings of this study reveal that the short run relationships can also

be sustained at the very long run. Hence, monetary and fiscal policy setters

should take a clue from this to fashion out strategies for the efficient regulation

of these macroeconomic indices in order to grow the economy more rapidly.

18

Chapter 3

Methodology

Model Specification

This study is to analyze and examine the relationships that exist between inflation

rate and total employment with gross domestic product. It uses secondary data

which is based on time series data. The collection of time series data from 1980 to

2012 and the scope is in Philippines. The researcher applied Eviews7 software to

process the data and create a regression model in this study.

Multiple Linear regression analysis is an analysis of the relationship between one

variable (dependent variable) and set of variable (independent variables). It is used

by the researcher to test the hypothesis.

As in all hypothesis tests, the goal is to reject the null hypothesis and accept the

alternative hypothesis. This technique will identify how much of the variance in the

dependent variables can be explained by independent variables. This analysis is

used primarily for the purpose of prediction. The regression model can be used to

predict the value of the proposed model in the study is:

GDP = f (Employment, Inflation)

19

GDP = α + β1 Inflation + β2 Employment + ε

Where

GDP = GDP per Capita Rate

α = Constant

β1 = Inflation Rate

β2 = Employment Rate

ε = Error Terms

Dependent Variables

A dependent variable is what you measure in the experiment and what

is affected during the experiment. The dependent variable responds to the

independent variable. It is called dependent because it “depends”. In the study, the

dependent variable is the GDP per capita growth rate.

Independent Variables

An independent variable is a variable that stands alone and isn’t

changed by the other variables the researchers are trying to measure. They are

used to get the dependent variable. In the study, the independent variables are

Employment rate and Inflation Rate.

20

Statistical Treatment of Data

In this research, the researcher has applied unit Eviews7 in order to determine time

series data is stationary or non stationary about the correlation between inflation rate

and employment with gross domestic product. The researchers …. (Different tests

used in the study and its purpose) including solution when solved manually

Durbin Watson test

o This is a test that the residuals from a linear regression or multiple

regressions are independent. Because most regression problems

involving time series data exhibit positive autocorrelation, the

hypotheses usually considered in this test are

If d < dl reject Ho: p = 0

If d > du do not reject ho: p = 0

If dl < d <du test is inconclusive

Jarque Bera Normality test

o This is a test of the normality of the error terms. If the terms are not

normal, the least squares estimators are not normally distributed in

small samples: hence, the confidence intervals and tests of

significance are not valid. And the normality of the residuals may be

tested using the Jarque-Bera test.

Heteroskedasticity

21

o A collection of random variables is heteroscedastic if there is sub-

population that has different variabilities from others. The presence

of heteroscedasticity can invalidate statistical tests of significance

that assume that modelling errors are uncorrelated and normally

distributed and that their variances do not vary with the effects

being modelled.

o Heteroscedasticity test is an assessment if the variance of the

regression is constant or not constant over time. Autoregressive

Conditional Heteroscedasticity (ARCH) test was used because the

data involve time series with time varying volatility.

Ramsey Reset Test

o Specification of error means that the model must be correctly

specified and this could be detected using the Ramsey Reset Test. More specifically, it tests whether non-linear combinations of the

fitted values explain the response variable. The intuition behind the

test is that that if non – linear combinations of the explanatory

variables have many power in explaining the response variable, the

model is mis-specified.

T-test

o A t – test is any statistical hypothesis test in which the test statistic

follows a student’s t distribution if the null hypothesis is supported. It can be used to determine if two sets of data are significantly

different from each other, and is most commonly applied when the

test statistic would follow a normal distribution if the value of a

scalling term in the test statistic were known.

R^2

22

o R – squared is a statistical measure of how close the date are to be

fitted regression line. It is also known as the coefficient of

determination, or the coefficient of multiple determinations for

multiple regressions. 0 % indicates that the model explains non of

the variability of the response data around its mean.

Chapter 4

Presentation, Analysis and Interpretation of Data

List of Tables

Table 1: T - test Critical Values

23

Table 2: F-test Critical Values

24

Table 3: Durbin Watson Table

25

Table 4: Rates of GDP per Capita, Employment and Inflation

Year Employment

rate (X1)

Inflation Rate

(X2)

GDP per capita growth

rate(Y)

1980 92.1 17.6 2.3

1981 91.2 10.8 0.6

1982 90.6 10.4 0.8

1983 89.6 9.5 -0.9

1984 89.6 50 -9.8

1985 87.4 22.6 -9.8

1986 88.2 1 0.7

1987 88.8 4 1.5

1988 90.4 14.1 4

1989 90.8 12 3.5

1990 91.6 12.3 0.5

1991 89.4 19.4 -3

1992 90.1 8.6 -2

1993 90.7 6.7 -0.2

1994 90.5 10.5 2

1995 90.5 6.7 2.30

1996 91.4 7.5 3.50

1997 91.2 5.6 2.90

26

1998 89.7 9.3 -2.7

1999 90.2 5.9 0.90

2000 88.8 4 2.2

2001 88.9 6.8 0.8

2002 88.6 3 1.5

2003 88.6 3.5 2.9

2004 88.2 6 4.6

2005 91.325 7.6 2.8

2006 92 6.2 3.4

2007 92.7 2.8 4.8

2008 92.6 9.3 2.4

2009 92.5 3.2 -0.5

2010 92.7 3.8 5.8

2011 93 4.4 1.9

2012 93.02 3.2 5

List of Figures

27

Figure 1: Regression Equation using the OLS Estimator

Figure 2: Normality Test

28

Figure 3: Heteroskedasticity Test: ARCH29

Figure 4: Ramsey Reset Test

30

ANALYSIS OF DATA

31

Durbin Watson test (fig 1)

o According to the rule, Du < Dw < 4 – DL, where Du is the upper

limit, Dw is the Durbin – Watson stat value and the DL is the

Lower limit. Du and DL can be known in the Durbin Watson

table.

o Based on the Durbin-Watson statistic table (table 3), the value of

Du for 33 observations and 2 independent variables is 1.358 and

the lower limit is 1.114.

o 1.114 < 1.68 < 2.642

o No first order auto regressive correlation

Jarque Bera Normality test (fig 2)

o According to the rule, if the skewness is near to zero and the

kurtosis is near to three then it shows normality on the

distribution.

o Skewness is equal to -0.38 which is near to zero and kurtosis is

3.52 which is near to three therefore passing the jarque-bera

normality test.

Heteroskedasticity (fig 3)

o According to the rule, if Obs*R-squared is greater than the

chosen level of significance, then it shows that there is no

heteroskedasticity present in the data.

o Obs*R-squared must be > 0.05

o Obs*R- squared of the test is = 0.65

o 0.65 > 0.65

o There is no heterocedasticity present in the data.

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Ramsey Reset Test (fig 4)

o According to the rule, there is no specification error if the computed

f-value is lower than the f-critical value and the p-value is greater

than the level of significance. (Fc<Ft), (P > 0.05)

o The value of F-statistic is 0.75 which is less than the F-tabulated of 3.29

and the p value is .39 which is greater than the chosen level significance

of 0.05. Therefore passing the test and proving that there is no error in

the specification of the model.

T-test (fig 1)

o According to the rule, absolute value of t computed must be

greater than the t tabulated otherwise the variables are not

significant.

o Employment ( t computed > t tabulated ) (3.06 > 2.035)

o Inflation (t computed > t tabulated) ( 5.96 > 2.035 )

o The t tabulated of both independent variables is greater than the t

tabulated.

R^2 (fig 1)

o 63.73% of the variances of dependent variables can be

explained by both independent variables.

Chapter 5

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Summary of Findings, Conclusions and Recommendations

A. SummaryThe result of the tests showed that there is a positive relationship between the

Employment and the GDP per Capita rate while an inverse relationship is shown

between the inflation rate and the GDP per Capita rate. There is also no first auto

regressive correlation. Figure 2 displayed that the least squares estimators are not

normally distributed in small samples. Based on the t-test, there is enough evidence

to conclude that Inflation and employment rate have a significant effect on GDP per

Capita growth rate.

B. Conclusions

The result only proves that we are still a Labor inclined Economy. That majority of

our Gross Domestic Product is affected by the labor force. The study help the

politicians on their taglines “ Pag maraming trabaho, lahat aasenso “. Using the

coefficient of employment of the equation, for every .76 increase in the employment

rate, there is a 1 increase in the GDP per Capita rate.

The study also shows the relationship of inflation rate to the GDP per Capita Rate of

the country. Using the coefficient of inflation rate of the equation, for every decrease

in inflation rate of 0.26, there is a 1 increase in the GDP per Capita. The result is

unexpected because generally, inflation is expected to have bad effects in the GDP.

The misconception of some people is that it has bad effects in the economy but

inflation is also a result of the movement of demand and supply of money in the

economy. The Government and the Bangko Central ng Pilipinas are the two

institutions assigned on controlling the money supply using monetary and fiscal

policies. These policies especially the expansionary policies have corresponding

effects in our economy and one of that is increasing the inflation rate of the

Philippines. The public must understand that inflation is a way of life of every

economy and needed to stabilize the economy.

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C. Recommendations

To the future researchers

The econometric table satisfy all the assumptions of a multiple linear

regression except for 1 thing, which is the R Squared. Almost 63 percent

of the dependent variable can be explained by the independent variables.

The researchers recommend if there is someone that will use the said

topic to add another variable that will increase the R squared without

sacrificing the other assumptions of multiple linear regressions. The

Variables that can be used are Population growth rate, age dependency

rate or any variable that can be use depending on the topic.

To the Households

The study proves that being an employed citizen of the state will not only

help the family but the whole economy. The government is doing all of its

efforts to offer the citizens jobs. “Job Mismatch” is the main problem of our

economy in relation to the employment. One of the best examples of this is

the Nursing Service Industry. It is a fact that there is an abundant number

of nurses in the Philippines that is why nursing graduates are advised by

the government to apply outside to country. In relation to that, the country

lacks teachers because of the increasing population of enrolees every

year. It could be possible that these nurses could apply as science

teachers. There are a lot of alternatives for our professionals to work for.

They just need to look and discover for them.

To the Government

Get more job opportunities to satisfy the needs of the people and the

economy. The study proves that an increase in the employment rate will

increase also the GDP per Capita Rate.

Strengthen the information dissemination about the effects of inflation in

our Economy. The government must do all of its efforts to remove the

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misconception of some people that our economy is not based on the

increase of price of basic commodities.

Webliography

36

www.academia.edu

http://dirp4.pids.gov.ph/ris/pdf/pidsdps9922.pdf

http://dirp3.pids.gov.ph/ris/pjd/pidspjd10-1population.pdf

http://www.adbi.org/…/2006.05.rp68.pvf.evidence.philippines…

http://www.cicred.org/Eng/Publications/pdf/c-c42.pdf

http://jobmarketmonitor.com/…/the-effect-of-population-gro…/

http://home.wlu.edu/…/spring07devsemi…/growthregressions.pdf

https://www.google.com.ph/url…

http://www.federalreserve.gov/…/f…/2005/200566/200566pap.pdf

https://www.fas.org/sgp/crs/misc/RL30344.pdf

https://www.google.com.ph/url…

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http://www.academia.edu/4262915/THE_RELATIONSHIP_BETWEEN_INFLATION_AND_ECONOMIC_GROWTH_IN_PAKISTAN_AN_ECONOMETRIC_APPROACH

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http://www.ase.tufts.edu/gdae/pubs/te/Smithsonian.pdf

http://www.investopedia.com/terms/c/costpushinflation.asp

Bibliography

Danao, Rolando. University of the Philippines Press. Manila: 2002

Dela Torre, Amalia Dolores. Time Series Econometrics. Manila: 2005

Stock, James; Watson, Mark. Pearson Education, Inc. Jurong, Singapore: 2008

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