CHAPTER IV

DATA ANALYSIS AND HYPOTHESIS TESTING

This chapter deals with the analysis of data of six developing countries from 1990 to 2013 on

annual basis, collected from different sources. This study is based on secondary data which has

been collected from various national and international sources. Initially, the researcher has

analyzed the CAGR of all variables of all countries followed by their ranking on country basis

and expenditure basis separately. Apart from it, this chapter also includes the analysis of

impact of selected Expenditure on economic growth (GDP, HDI and NI separately).

Furthermore, the researcher has predicted the economic growth for a study period on the basis

of relationship analyzed between selected public expenditure and selected Economic growth

variables of respective countries.

4.1 Introduction

There are a lot of tools and techniques to know the relationship between dependent and

independent variables. Selection of those techniques depends upon the nature of data and

objective of study. In this study, researcher is trying to find the relationship and impact between

selected items of public expenditure and selected determinants of Economic growth of selected

developing countries for a period of 24 years (1990-2013).

This is a panel data study in which 11 expenditure items(independent variables) and 3 growth

determinants(dependent variables) were selected for the study i.e. Health expenditure(HE),

Energy expenditure(EE), Transport expenditure(TRE), General government final consumption

expenditure(GE), Research and Development expenditure(RD), Telecoms expenditure(TE),

Water and sanitation expenditure(WE), Military expenditure(ME), Education Expenditure(EE),

adjusted savings: education expenditure(AEE), Other expenses(OE) ,Gross domestic

product(GDP), Gross National Income (GNI)and Human Development Index (HDI) but

Research and Development expenditure , Water and sanitation expenditure and Other expenses

are dropped due to non-availability of data. In this study, researcher will find relationship and

impact of selected expenditures over growth determinants separately. The data has annual
73

observation. Data is taken in Current (US$) to bring comparability among the countries. Data is

sourced from World Bank Database. Some observation are absent from some of the countries

and hence the panel is an unbalanced panel data set. Ahrens and Pincus (1981) Index value as a

control for extent of unbalancedness statistics is .821689 which can be interpreted as close to

mild unbalancedness. Observations are transformed into log values for the analysis of study.

Description of data along with summary is given in appendix. STATA 12 and Eviews9 is used

for analysis.

4.2 Methodology and Results

The main objective for this chapter is to obtain greater understanding of patterns of the selected

components of Public expenditures of selected countries during specified period which is

planned to achieve through Expenditure-GDP share and CAGR analysis of selected

expenditures.

Public Expenditure plays important role in the development of economy. Under this study, some

selected expenditures are analyzed in relationship to selected Economic growth. These

expenditures are done by government for better standard of living. It is required to know the

share of selected Public expenditure to GDP so that government can analyze and prioritize the

government expenditures to check it with the Development goals or objectives settled by

government for Public welfare and development. Below are the Figures (4.1 to 4.6) that display

the Share of Selected Expenditure to GDP.

 74

Brazil
22
AEE
19
EE
16
HE
13
10 GE

7 ME
4 ENE
1 TE
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-2 TRE

Figure 4.1: Brazil Selected Expenditures (% of GDP)

Source: World Banks Reports

In Brazil, General Government final consumption expenditure (GE) holds highest share of GDP

among other selected public expenditures and second highest percent expenditure is Health

Expenditures (HE). Other Expenditures like Education expenditure (EE), Adjusted Saving:

Education expenditure (AEE), Military Expenditure (ME), Transport Expenditure (TRE),

Telecom Expenditure (TE) and Energy Expenditure (ENE) have less share of GDP. These

Expenditures show linear trend.

Russia
25

20 AEE
EE
15 HE
GE
10
ME

5 ENE
TE
0 TRE
1995

2006
1990
1991
1992
1993
1994

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

2007
2008
2009
2010
2011
2012
2013

Figure: 4.2- Russia Selected Expenditures (% of GDP)

Source: World Banks Reports
In the case of Russia, Again General Government final consumption expenditure (GE) holds

highest share of GDP among other selected public expenditures and second highest percent

expenditure is Health Expenditures (HE). Other Expenditures like Education expenditure (EE),
75

Adjusted Saving: Education expenditure (AEE), Military Expenditure (ME), Transport

Expenditure (TRE), Telecom Expenditure (TE) and Energy Expenditure (ENE) have less share

of GDP. These Expenditures show linear trend.

India
14
12 AEE
10 EE
8 HE
6 GE
4
ME
2
ENE
0
TE
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
TRE
Figure: 4.3- India Selected Expenditures (% of GDP)
Source: World Banks Reports

In the case of India, Again General Government final consumption expenditure (GE) holds

highest share of GDP among other selected public expenditures and second highest percent

expenditure is Health Expenditures (HE) but along with other Expenditures like Education

expenditure (EE), Adjusted Saving: Education expenditure (AEE), Military Expenditure (ME),

Transport Expenditure (TRE), Telecom Expenditure (TE) and Energy Expenditure (ENE) have

less percent of GDP in the range of .01% to 5%. These Expenditures show constant linear trend.

India is required to prioritize the expenditures according to the need of Society.

Indonesia
12
AEE
10 EE
8 HE
6 GE
4 ME
2 ENE
0 TE
1993

2006
1990
1991
1992

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005

2007
2008
2009
2010
2011
2012
2013

TRE

Figure: 4.4-Indonesia Selected Expenditures (% of GDP)

Source: World Banks Reports
 76

In the case of Indonesia, Again General Government final consumption expenditure (GE) holds

highest share of GDP among other selected public expenditures. Other Expenditures like Health

Expenditures (HE), Education expenditure (EE), Adjusted Saving: Education expenditure

(AEE), Military Expenditure (ME), Transport Expenditure (TRE), Telecom Expenditure

(TE) and Energy Expenditure (ENE) are ranging from .01% to 4% percent of GDP. Indonesia

is Small economy comparatively to other selected countries.GE share in GDP is less in

comparison to other selected countries but that is effectively for Indonesian’s Economy.

China
16
14 AEE
12 EE
10 HE
8 GE
6 ME
4 ENE
2 TE
0
TRE
1996

2013
1990
1991
1992
1993
1994
1995

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Figure: 4.5- China Selected Expenditures (% of GDP)

Source: World Banks Reports

China is very fast developing economy of the world and everything is controlled by

government. They have certain criteria’s to allot the expenditure level and prioritize them in

keeping mind to achieve targeted economic growth and develop standard of living .In the case

of China, Again General Government final consumption expenditure (GE) holds highest share

of GDP among other selected public expenditures. Other Expenditures like Health Expenditures

(HE), Education expenditure (EE), Adjusted Saving: Education expenditure (AEE), Military

Expenditure (ME), Transport Expenditure (TRE), Telecom Expenditure (TE) and Energy

Expenditure (ENE) are ranging from .01% to 4% percent of GDP.

77

South Africa

20 AEE
EE
15
HE

10 GE
ME
5 ENE
TE
0
TRE
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Figure: 4.6- South Africa Selected Expenditures (% of GDP)
Source: World Banks Reports

In the case of South Africa, Again General Government final consumption expenditure (GE)

holds highest share of GDP among other selected public expenditures and second highest

percent expenditure is Health Expenditures (HE) but along with other Expenditures like

Education expenditure (EE), Adjusted Saving: Education expenditure (AEE), Military

Expenditure (ME), Transport Expenditure (TRE), Telecom Expenditure (TE) and Energy

Expenditure (ENE) have less percent of GDP in the range of .01% to 8 %. These Expenditures

show constant linear trend.

4.2.1 Compound Annual Growth Rate Analysis (CAGR)

Under CAGR analysis, first attempt is to find CAGR of Selected Expenditure which is in Table

1 given in Appendix II and then second step is to rank selected public expenditures in selected

countries individually on the basis of their CAGR. Details of Ranks are given in Table 4.1.

Table: 4.1- Ranking of Selected Expenditures of Selected Countries on the basis of CAGR

Ranks Brazil Russia India South Africa China Indonesia

1 ENE TRE TRE ENE ME EE
2 TRE HE TE EE HE AEE
3 TE TE EE AEE AEE TRE
4 EE GE HE GE TRE ENE
5 AEE ENE GE HE GE HE
6 HE AEE ENE TE EE TE
7 GE EE AEE ME ENE GE
8 ME ME ME TRE TE ME
 78

From table 4.1, First rank is achieved by Transport Expenditure in India and Russia, Energy

Expenditure in Brazil and South Africa, Military Expenditure in China and Education

Expenditure in Indonesia. Besides China, Military Expenditure has lowest ranking among all

other countries in comparison to selected Expenditures. In India, telecom expenditure got the 2nd

rank and then Education and Health Expenditure Respectively. In China, health expenditure got

the second rank followed by other expenditure with a last rank of Telecom Expenditure.

After Comparing selected Expenditures in selected countries individually, next step is to

compare and rank the countries according to CAGR of Selected Expenditures. Details are given

in Table 4.2.

Table: 4.2- Ranking of Countries on the basis of CAGR of Public Expenditures

Rank AEE EE ENE GE HE ME TE TRE
1 Indo Indo SA China Russia China India India
2 China China Brazil Indo China Indo Brazil Russia
3 Brazil India Indo Brazil Indo India Russia Brazil
4 India Russia India India India Brazil Indo China
5 SA Brazil China SA Brazil SA SA Indo
6 Russia SA Russia Russia SA Russia China SA

From Table 4.2, According to the CAGR, It is clearly seen that Brazil could not make First rank

in any selected Expenditures .It made its place at 2nd, 3rd, 4th and 5th position in Selected

Expenditures. Indonesia got 1st rank in Education and Adjusted Education Expenditure which

was followed by china (2nd Rank).Russia got 1st rank in Health Expenditure only and got last 6th

rank in other expenditure like Adjusted Saving: education Expenditure, Energy Expenditure,

General government final consumption Expenditure and Military Expenditures. India

maintained its 1st rank in Telecom and Transport Expenditure only and 3rd and 4th ranking in

other expenditures. Indonesia reflects good position by maintaining its position in top three

ranks in most Expenditure like Adjusted Saving: Education Expenditure, Education

Expenditure, and Energy Expenditure, General government final consumption Expenditure,

Health Expenditure and Military Expenditure. China got 1st rank in General government final

consumption Expenditure and Military Expenditure and 2nd rank in Health Expenditure too but

got last 6th rank in Telecom Expenditure. South Africa got 1st rank in Energy expenditure only

and 5th and 6th rank in all other selected Expenditure.

79

4.2.2 Panel unit root Test

As a first step, researcher performs the unit root test of all the variables .This test examine

whether the set of panel data variables are stationary or not. There are various ways to examine

the stationary problem in case of panel data namely The Fisher Augmented Dickey-Fuller

(ADF) Unit Root Test, the Fisher Phillips-Perron (PP) Unit Root Test and Im, pesaran and shin

unit root test (IPS).In this study, researcher is using all three to know the stationary of data.

Table: 4.3(a)- Panel Unit root with Intercept

Variables Level First Difference(D) Findings
IPS F-ADF F-PP IPS F-ADF F-PP
Lngdp 0.99 0.99 1.0 0.00* 0.00* 0.00* Stationary at first
difference
Lnhdi 0.00* 0.00* 0.00* 0.00* 0.00* 0.00* Stationary at level
Lngni 0.99 0.99 1.00 0.00* 0.01* 0.03* Stationary at first
difference
Lnhea 0.99 1.00 1.00 0.00* 0.00* 0.00* Stationary at first
difference
Lnedu 0.00* 0.00* 0.74 0.00* 0.00* 0.00* Stationary at level
Lnfinal 0.99 0.99 1.00 0.00* 0.00* 0.00* Stationary at first
difference
Lntrans 0.00* .00* 0.00* 0.00* 0.00* 0.00* Stationary at level
Lnmili 0.99 0.99 0.99 0.00* 0.00* 0.00* Stationary at first
difference
Lntele 0.00* 0.00* 0.00* 0.00* 0.00* 0.00* Stationary at level
Lnener 0.00* 0.00* 0.00* 0.00* 0.00* 0.00* Stationary at level
Lnad 1.00 1.00 1.00 0.00* 0.00* 0.00* Stationary at first
difference
Note:* indicates significance at 5%

Table: 4.3(b)- Panel Unit root with Intercept and Trend

Variables Level First Difference(D) Findings

IPS F-ADF F-PP IPS F-ADF F-PP
Lngdp .66 .76 .86 .00 .00 .00 Stationary at first
difference
Lnhdi .00 .00 .00 .00 .00 .00 Stationary at level
Lngni .65 .73 .97 .07 .16 .43 Not Stationary at
first difference
Lnhea .63 .61 .55 .00 .00 .00 Stationary at first
difference
Lnedu .12 .00 .38 .00 .00 .00 Stationary at first
difference
 80

Variables Level First Difference(D) Findings

IPS F-ADF F-PP IPS F-ADF F-PP
Lnfinal .67 .81 .82 .00 .00 .00 Stationary at first
difference
Lntrans .00 .00 .00 .00 .00 .00 Stationary at level
Lnmili .45 .36 .11 .00 .00 .00 Stationary at first
difference
Lntele .05 .00 .00 .00 .00 .00 Stationary at level
Lnener .00 .01 .00 .00 .00 .00 Stationary at level
Lnad .36 .51 .30 .00 .00 .00 Stationary at first
difference
Note:* indicates significance at 5%

All the variables are tested in level and in first difference form with intercept in the equation and

as well as with intercept and trend. Table 4.3(a) and Table 4.3(b) shows the p-value of all the

variables at level with intercept and at first difference with intercept. It can be concluded from

the table 4.3 that all the series are stationary but while checking with Intercept and trend Lngni

is not coming stationary even at first difference but when it is differenced at second level then it

become stationary. All the series are stationary and for further examination of relationship

between variable. Panel Co-integration test is appropriate for keeping results on safe side due to

I(2) nature of Lngni.(ARDL method is applicable only with I(0) and I(I) variables) and Panel

cointegration does not keep such assumptions.

4.2.3 Panel Co-integration Test

After the findings from unit root test, researcher can proceed toward second step to perform

the panel co-integration test as series are stationary. This test examines the long run relationship

between the variables. Researcher is using Kao panel Co-integration test. This is a residual

based panel co-integration test. Researcher tested co-integration between selected expenditures

– GDP, Selected Expenditures-HDI and Selected Expenditures-GNI, separately.

81

Table: 4.4- Kao Panel Co-integration Test

t-stat P-value Critical Value Significance Findings

Status
GDP
ADF -4.46 0.0000* 0.001671 Significant Long-run
RESID(-1) -4.53 0.0000* -3.421130 Significant Co-
integrated
HDI
ADF -2.48 0.0065* 0.005594 Significant Long-run
RESID(-1) -6.68 0.0000* -2.815649 Significant Co-
integrated
GNI
ADF -5.13 0.0000* 0.008211 Significant Long-run
RESID(-1) -5.65 0.0000* -1.886524 Significant Co-
integrated
Note:* indicates significance at 5%.

Table 4.4 show p values of ADF and RESID (-1) and all the p values of ADF as well as of

RESID(-1) are less than .05 hence relationship is significant and can be concluded that GDP,

HDI and GNI are co-integrated with Selected Expenditures in long run during specified period

in selected countries. John Loizides and George Vamvoukas (2004), (V.Shivaranjani (2010),

Devarajan, Swaroop, Zou (1996), Anuradha De and Tanuka Endow (2008) found the same

result. This implies the regression based on panel series is true and hence the validity of

Keynesian hypothesis could be assessed.

4.3 Data Analysis

After finding out long run relationship between variables researcher is moving towards third

step which is to analyze the elasticity of impact of expenditure on GDP and their significance.

There are various approaches to formulate a panel data model. Under this study, the elasticity of

economic growth with respect to public expenditure is estimated by bias corrected least square

dummy variable model (LSDVC-bias corrected) which was developed by Bruno (2005) for

small or micro unbalanced panel data. The regression analysis is based on the relatively new

LSDVC technique which allows for third order bias corrections and is initialized by the AH and

AB estimators. AH and AB method works on the one lag of dependent variable. Researchers

find AH model more useful and versatile (for detail refer to chapter 2). Bootstrapped Standard

error coefficient is produced, with third order of biasness obtained from 10 iterations, in this
 82

model which support unbalanced panel data. The LSDVC model equation for GDP, HDI and NI

is expressed as:

For GDP

𝑮𝑫𝑷𝒊𝒕 = 𝜷𝟎 + 𝝆𝑮𝑫𝑷𝒊𝒕−𝟏 + 𝜷𝟏 𝑯𝑬𝒊𝒕 + 𝜷𝟐 𝑮𝑬𝒊𝒕 + 𝜷𝟑 𝑬𝑬𝒊𝒕 + 𝜷𝟒 𝑴𝑬𝒊𝒕 + 𝜷𝟓 𝑻𝑹𝑬𝒊𝒕 + 𝜷𝟔 𝑻𝑬𝒊𝒕 +

𝜷𝟕 𝑬𝑵𝑬𝒊𝒕 + 𝜷𝟖 𝑨𝑬𝑬𝒊𝒕 + 𝒖𝒊𝒕 …………………………………..…equation (4.1)

For HDI:

𝑯𝑫𝑰𝒊𝒕 = 𝜷𝟎 + 𝝆𝑯𝑫𝑰𝒊𝒕−𝟏 + 𝜷𝟏 𝑯𝑬𝒊𝒕 + 𝜷𝟐 𝑮𝑬𝒊𝒕 + 𝜷𝟑 𝑬𝑬𝒊𝒕 + 𝜷𝟒 𝑴𝑬𝒊𝒕 + 𝜷𝟓 𝑻𝑹𝑬𝒊𝒕 + 𝜷𝟔 𝑻𝑬𝒊𝒕 +

𝜷𝟕 𝑬𝑵𝑬𝒊𝒕 + 𝜷𝟖 𝑨𝑬𝑬𝒊𝒕 + 𝒖𝒊𝒕 …………………………………..…equation (4.2)

For NI:

𝑵𝑰𝒊𝒕 = 𝜷𝟎 + 𝝆𝑵𝑰𝒊𝒕−𝟏 + 𝜷𝟏 𝑯𝑬𝒊𝒕 + 𝜷𝟐 𝑮𝑬𝒊𝒕 + 𝜷𝟑 𝑬𝑬𝒊𝒕 + 𝜷𝟒 𝑴𝑬𝒊𝒕 + 𝜷𝟓 𝑻𝑹𝑬𝒊𝒕 + 𝜷𝟔 𝑻𝑬𝒊𝒕 +

𝜷𝟕 𝑬𝑵𝑬𝒊𝒕 + 𝜷𝟖 𝑨𝑬𝑬𝒊𝒕 + 𝒖𝒊𝒕 …………………………………..…equation (4.3)

Table 4.5 (a, b, c) shows a brief picture of p-value and coefficients. P-value shows the

significance level and coefficient shows a unit percentage impact of independent variable on

dependent variable. They both work together to give the picture of elasticity in dependent

variable due to independent variable. The direction of relationship can be interpreted by

identifying the sign (+ or -) on the result of coefficient of independent variable in the regression

model. The sign (+) means that it has positive relationship while the sign (-) means it has

negative relationship. On top of the significance level, a strength and direction of relationship

should also be considered.

Table: 4.5a- LSDVC Dynamic Regression (Bootstrapped SE)-GDP

Variables AB AH Findings
Coefficient P-value Coefficient P-value
GDP.L1 .159 0.001* .188 .028** Positively significant
Lnhea .182 .062*** .181 .299 Positively significant
Lnfinal .720 .00* .709 .00* Positively significant
Lnedu .002 .864 .002 .921 Insignificant
Lnmili .044 .563 -.051 .712 Insignificant
Lntrans .010 .065*** .010 .330 Positively significant
Lntele .001 .907 .001 .924 Insignificant
Lnener .005 .179 .005 .475 Insignificant
Lnad -.141 .002* -.144 .079*** Negatively
significant
Note:*, **, ***indicates significance at 1%, 5% and 10% respectively; Root MSE=.05542.
83

After generating the model, it is very important to know the significance of a model as whole. In

LSDVC model with AH method, the significance is judged by RMSE value .RMSE Value for

GDP model is .05542 which is very less, as required for good model.

Table 4.5a show the estimations related to GDP and Selected Expenditures. Health expenditure,

general government final consumption expenditure, lagged GDP and transport expenditure have

positive and significant relationship with GDP in selected countries under the period of

investigation(Anthony Glass,2008)(,Minh Quang Dao,2012),(Arpaia and Turrini,2008)

and(Gupta, Honjo &Verhoeven,1997). Regression results implies that a positive change of 1

percent in Health expenditure will result in .181 percent increase of GDP ,in general

government final consumption expenditure will result in .709 percent increase of GDP, lagged

GDP has an impact of .188 percent on GDP and in transport expenditure will result in .010

percent in GDP.

Education expenditure , telecom expenditure, Military expenditure and Energy expenditure have

no significant impact on GDP in selected countries under the period of investigation that can be

due to As government revenues increase, developing countries tend to reduce their shares on

defense while Adjusted saving: education Expenditure possess a negative and significant

relationship with GDP in selected countries under the period of investigation((Shatti,2015),

(Abu-Bader & Abu-Qarn,2003), (Chukwunonso Gerald Iheoma,2012)and (Rodrigo

Suecun,2007)). Regression result implies that 1 percent increase in military expenditure will

result in .051 percent decrease in GDP and 1 percent increase in Adjusted saving: education

Expenditure will result in .144 percent decrease in GDP. It can be concluded that in case of

GDP null hypothesis of independence is rejected in case of Health expenditure, general

government final consumption expenditure and transport expenditure only.

Government expenditure on economic growth is believed to raise the efficiency of market

production. Expenditure on social development assists improvement in human capital, which

will ultimately contribute to higher productivity. Finally, expenditure on general development

mainly focuses on providing a pleasant economic and social environment by enhancing growth

indirectly.
 84

Table: 4.5b- LSDVC Dynamic Regression (Bootstrapped SE)-HDI

Variables AB AH Findings
Coefficient P-value Coefficient P-value
HDI.L1 .552 .000* 2.61 .000* Positively significant
Lnhea .026 .757 1.05 .000* Positively significant
Lnfinal .119 .256 -.239 .215 Insignificant
Lnedu -.011 .546 .033 .131 Insignificant
Lnmili .093 .296 .204 .166 Insignificant
Lntrans -.005 .448 .028 .008* Positively significant
Lntele .018 .094*** .1700 .000* Positively significant
Lnener -.001 .671 .012 .068** Positively significant
Lnad .006 .889 -.974 .000* Negatively significant
Note:*, **, ***indicates significance at 1%,5% and 10% respectively; Root MSE=.14356 .

RMSE Value for HDI model is .14356 which is very less, as required for good model. Table

4.5b will show the estimations related to HDI and Selected Expenditures. Health expenditure,

Telecom expenditure, Energy Expenditure, lagged HDI and transport expenditure have positive

and significant relationship with HDI in selected countries under the period of investigation

((Mohammad Javad Razmi,2012), (Prasetyo & zuhdi,2013)and (Oluwatobi &

Ogunrinola,2011)). Regression results implies that a positive change of 1 percent in Health

expenditure will result in .026 percent increase of HDI, in Telecom expenditure will result in

.17 percent increase of HDI, in Energy expenditure will result in .012 percent increase of HDI,

lagged HDI have an impact of .159 percent on HDI and in transport expenditure will result in

.028 percent in HDI.

Military expenditure, Education Expenditure and General government final consumption

expenditure have no significant impact on HDI in selected countries under the period of

investigation while Adjusted saving: education Expenditure possess a negative and significant

relationship with HDI in selected countries under the period of investigation ((Chukwunonso

Gerald Iheoma,2012), (Muhammad Azeem Qureshi,2009), (Rodrigo Suecun,2007)and

(Rajkumar & Swaroop ,2008)). Regression result implies that 1 percent increase in Adjusted

saving: education Expenditure will result in .974 percent decrease in HDI. It can be concluded

that in case of HDI null hypothesis of independence is rejected in case of Health expenditure,

Telecom expenditure, Energy Expenditure and transport expenditure only.

85

Table: 4.5c LSDVC Dynamic Regression (Bootstrapped SE)-GNI

Variables AB AH Findings
Coefficient P-value Coefficient P-value
GNI.L1 .540 .000* .553 .000* Positively
significant
Lnhea .052 .535 .049 .612 Insignificant
Lnfinal .385 .000* .381 .000* Positively
significant
Lnedu -.003 .748 -.003 .789 Insignificant
Lnmili .098 .142 .096 .216 Insignificant
Lntrans .006 .223 .006 .302 Insignificant
Lntele .000 .951 .000 .947 Insignificant
Lnener -.002 .416 .002 .492 Insignificant
Lnad -.083 .033** -.835 .066*** Negatively
significant
Note:*, **, ***indicates significance at 1%,5% and 10% respectively.

RMSE Value for GNI model is .05309 which is very less, as required for good model. Table

4.5c show the estimations related to GNI and Selected Expenditures. General government final

consumption expenditure and lagged GNI have positive and significant relationship with GNI in

selected countries under the period of investigation ((Ebaidalla, 2013), (Loizides & Vamvoukas,

2005) and (Santiago Grullon, 2012)). Regression results imply that a positive change of 1

percent in general government final consumption expenditure will result in .381 percent

increase of GNI, lagged GNI have an impact of .553 percent on GNI while Adjusted saving:

education Expenditure possess a negative and significant relationship (Tang & lau, 2011) that 1

percent increase in Adjusted saving: education Expenditure will result in .144 percent decrease

in GNI. Education, Health, Military, Telecom, Transport expenditure and Energy expenditure

have no significant impact on GNI in selected countries under the period of investigation(Tang

& lau,2011), (Elena Sharipova,2001). It can be concluded that in case of GNI null hypothesis of

independence is rejected in case of General government final consumption expenditure only.

All this insignificance can be due to quality of government. In recent years, there has been no

shortage of examples of governments abusing their powers to favor the ruling elite, their

supporters, and a variety of special interests, with detrimental effects on regulation, public

investment, the delivery of services, and growth. It is critically important that public services,

public investment, and public policy are well managed. Countries that attract and motivate

skilled public managers outperform their peers.

 86

Corruption and poor governance hinders the economic health of countries. Muuro studied

67 countries and concluded that annual economic growth increased 1.3 percentage points

where corruption was reduced by one standard deviation ( Murro ,1995) .Poor countries that

have people of different back grounds , cultures, languages and customs are more

vulnerable to corruption. Empirical models can test these claims and see if they are true

for both developing and developed economies.

After Developing and checking significance of model, researcher is moving towards prediction

of dependent variables with their respective LSDVC models. Predicted Values of GDP, HDI,

GNI along with their actual values, fitted values and confidence interval are shown in Figure

4.7,Figure 4.8 and Figure 4.9 respectively. It can be concluded from the charts that predicted

values of dependent are very close to the actual values of dependent variable of selected

developing countries during the period of investigation. This can be verified with the help of T-

test between actual and predicted values. Table 4.6 shows the result of t-stat and p-value. T-test

result for all three variables with their predicted values gives the same result that null hypothesis

is accepted and they are not significant to each other. Table 4.7 show comparisons between

Actual value and Predicted Values of Dependent Variables through their Mean and Standard

Error .Means are very close to each other and Standard error of Predicted Values are very low

that helps in making our LDSVC model strong.

Figure: 4.7- Actual/Fitted/Predicted/CI of lngdp

Actual/Fitted/Predicted/CI of HDI
1 2 3
2
0
-2
-4

4 5 6
2
0
-2
-4

1995 2000 2005 2010 1995 2000 2005 2010 1995 2000 2005 2010
yr
95% CI Fitted values
predicted_hdi lnhdi
Graphs by unit
87

Figure: 4.8- Actual/Fitted/Predicted/CI of lnhdi

Actual/Fitted/Predicted/CI of GDP
1 2 3
10
6 7 8 9

4 5 6
10
6 7 8 9

1995 2000 2005 2010 1995 2000 2005 2010 1995 2000 2005 2010
yr
95% CI Fitted values
predicted_gdp lngdp
Graphs by unit

Figure:4.9-Actual/Fitted/Predicted/CI of lngni

Actual/Fitted/Predicted/CI of GNI
1 2 3
9
8
7
6

4 5 6
9
8
7
6

1995 2000 2005 2010 1995 2000 2005 2010 1995 2000 2005 2010
yr
95% CI Fitted values
predicted_gni lngni
Graphs by unit
 88

Table: 4.6- T Test Results

Variables Tstat Critical value P-value Findings
lnhdi and -0.128 1.652 0.448 P value greater than .05 as well as t
predicted_hdi stat is less than critical value so
accepting Null hypothesis. Hence
Variables are Not significant to each
other.
lngni and -0.347 1.652 0.364 P value greater than .05 as well as t
predicted_gni stat is less than critical value so
accepting Null hypothesis. Hence
Variables are Not significant to each
other.
lngdp And 0.528 1.652 0.298 P value greater than .05 as well as t
predicted_gdp stat is less than critical value so
accepting Null hypothesis. Hence
Variables are Not significant to each
other.
Source: Eviews

Table: 4.7- Standard Error Results

Variable Obs Mean Std. Err. [95% Conf. Interval]
predicted_gni 78 7.660 .105 6.034 9.364
lngni 144 7.612 .083 5.799 9.536
predicted_gdp 78 7.730 .108 6.057 9.42
lngdp 144 7.765 .0851 5.731 9.589
predicted_hdi 78 -.430 0.0138 -0.706 -0.232
lnhdi 144 -0.433 0.0150 -1.214 -0.135
Source: Eviews

4.4 Testing of Hypotheses

In order to proceed with the interpretation of regression analysis, a significance level should be

first considered. The significance level can be set at three different levels which are 1%, 5% and

10%. This paper will look at 5% and 10% significance levels. At each significance level, if the p

value of variables indicates less than the significance level, it means that H0 is rejected and H1

is accepted.
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Therefore, the independent variable has significant relationship with dependent variable at that

significance level. For example, at 5% significance level p value of variables indicates less than

0.05, then null hypothesis is rejected and alternate hypothesis will be accepted.

Table:4.8-Hypothesis Testing Results

Selected Ho1: Selected Public Ho2: Selected Ho3: Selected

Expenditures Expenditure and Public Expenditure Public Expenditure
Gross Domestic and Human and Real Income per
Product per capita Development Index capita are
are independent of are independent of independent of each
each other. each other other.
HE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(a)) Rejected (Ho2(a)) Rejected (Ho3(a)) Accepted
GE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(b)) Rejected (Ho2(b)) Accepted (Ho3(b)) Rejected
EE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(c)) Accepted (Ho2(c)) Accepted (Ho3(c)) Accepted
TRE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(d)) Rejected (Ho2(d)) Rejected (Ho3(d)) Accepted
TE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(e)) Accepted (Ho2(e)) Rejected (Ho3(e)) Accepted
ME Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(f)) Accepted (Ho2(f)) Accepted (Ho3(f)) Accepted
AEE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(g)) Accepted (Ho2(g)) Accepted (Ho3(g)) Accepted
ENE Null Hypothesis Null Hypothesis Null Hypothesis
(Ho1(h)) Accepted (Ho2(h)) Rejected (Ho3(h)) Accepted

4.5 Findings

1. When it comes to compare the expenditure in terms of their CAGR in selected countries

separately, Military Expenditure is having lowest CAGR.

2. Transport Expenditure maintained high rate of CAGR in majority of countries where as

Energy Expenditure got mixed results in all countries and same with the CAGR of Health

Expenditure.

3. Adjusted Education: Saving Expenditure and Education Expenditure have Highest Rate of

CAGR in Indonesia, Energy Expenditure in South Africa, General government final

consumption expenditure and Military in China, Health Expenditure in Russia and

Transport and Telecom Expenditure in India.

 90

4. Brazil could not make First rank in any selected Expenditures .It made its place at 2 nd, 3rd,

4th and 5th position in Selected Expenditures in comparison to other countries.

5. Russia got 1st rank in Health Expenditure only and got last 6th rank in other expenditure like

Adjusted Saving: education Expenditure, Energy Expenditure, General government final

consumption Expenditure and Military Expenditures.

6. India maintained its 1st rank in Telecom and Transport Expenditure only and 3rd and 4th

ranking in other expenditures.

7. Indonesia reflects good position by maintaining its position in top three ranks in most

Expenditure like Adjusted Saving: Education Expenditure, Education Expenditure, Energy

Expenditure, General government final consumption Expenditure, Health Expenditure and

Military Expenditure.

8. China got 1st rank in General government final consumption Expenditure and Military

Expenditure and 2nd rank in Health Expenditure too but got last 6th rank in Telecom

Expenditure.

9. South Africa got 1st rank in Energy expenditure only and 5th and 6th rank in all other

selected Expenditure.

10. Brazil, Russia and India maintained place in middle ranks.

11. Indonesia and China secured high rate in Selected Expenditures whereas South Africa has

lowest rates of CAGR of selected expenditures.

12. All variables are stationary at 5% significance level either at level with intercept or first

difference with intercept.

13. Kao panel co-integration test suggests co-integration in long run between

o Selected expenditures – GDP

o Selected expenditures – HDI

o Selected expenditures – GNI

14. With the help of bias-corrected lsdvc model, It is found that lagged GDP, Health

Expenditure ,General government final consumption Expenditure ,Transport Expenditure

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have positive impact on GDP while Adjusted saving: Education Expenditure has negative

impact.

15. With the help of bias-corrected lsdvc model ,It is found that lagged HDI, Health

Expenditure , ,Transport Expenditure, Telecom Expenditure and Energy Expenditure have

positive impact on HDI while Adjusted saving: Education Expenditure has negative

impact.

16. With the help of bias-corrected lsdvc model, it is found that lagged GNI and General

Government Final Consumption Expenditure have positive impact on GNI while adjusted

saving: Education Expenditure has negative impact.

17. Education Expenditure found insignificant for all the dependent variables. For Education it

can be an outcome of not proper utilization and management of resources, corruption, no

up gradation of Education Sources.

18. Military Expenditure also found insignificant for all the dependent variables as It comes in

category of non-productive expenditure and It does not intervene directly to GDP like other

productive Expenditures.

19. Predicted Values from the model are very much closer to the actual values of dependent

variables.

20. Means are very close to each other and standard error of predicted values is very low that

supports the developed model.

21. RMSE test statistics is found to be minimum.

22. T-test result found that predicted values and actual values are not significant to each other.