THE DEPENDENT VARIABLE

The dependent variable

The Dependent Variable

Introduction

The study will focus the interpretation of the economic growth of Country 'A'. Economic growth is most commonly defined as the rate of increase in the value of a country's output over a period of time. It is often presumed that economic growth is necessary and valuable to a society because it is accompanied by an improved quality of life for that society's citizens. For example, increased economic growth may allow a society to become better educated. As a result, more effective medical systems will be developed that allow for healthier lifestyles within that society. In this example, societal gains are achieved from both fiscal and health perspectives.



Hypothesis

Ho Gross Domestic Product is significantly affected with the change in Government Spending, Retail Expenditures, Exports and Inventory Levels

HA Gross Domestic Product is significantly not affected with the change in Government Spending, Retail Expenditures, Exports and Inventory Levels



Selection of Dependent Variable

To interpret the economic growth of the country, we need to take GDP of that country as the dependent variable. The reason behind choosing GDP for the analysis is that the GDP growth rate is the most important indicator of economic health.

The GDP growth rate is driven by government spending, retail expenditures, exports and inventory levels.

Model

Y= a + ßx1 + ßx2 + ßx3 + ßx4

Y= Gross Domestic Product (GDP) - Dependent Variable

x1 = Government spending

x2 = retail expenditures

x3= exports

x4= inventory levels

a = Constant

ß= Coefficients

Economic growth

The crucial role of financial development in any process of economic development has been subject to numerous debates in the economics and finance literature. The early studies of Gurley and Shaw (1955), Goldsmith (1969) and Hicks (1969) seem to have suggested that financial development stimulates economic growth. Similar ideas are reported by Show (1973) who advocates that financial intermediaries promote investment and consequently contribute in boosting economic growth rates. Furthermore, Braun and Raddatz (2007), Ranciere et al (2007), Jung (1986), Roubini and Sala-I-Martin (1992) and King and Levine (1993) believe that level of financial intermediation is a good indicator of economic growth and that financial development is an important key to economic growth. In this line of thinking, Ang (2008), in a study on Malaysia, concludes that a developed financial system positively contributes to achieving higher economic growth rates through the increase of savings and private investments. Likewise, Baltagi et al (2009) advocate that banks development, sustained by a liberalization process, is an important mechanism of long-term growth in developed and developing countries. Research suggests that causality depends on the level of development. According to the proponents of this thesis, financial development causes economic growth during the first phases of development. However, this effect gradually diminishes all along the development process till it reverses back. Subscribing to this idea, Greenwood and Smith (1998) elaborated models in which financial markets grow after a period of economic development, in turn promoting real growth. In some empirical studies, the causality thesis is very controversial despite the use of more elaborated ...