Factors Affecting Gross Domestic Product

Department of Management Information Systems (MIS), University of Dhaka

Group- 09A
Members-
1. Shakil- 029-13251
2. Afnanul Hoque- 029-13125
3. Golam Mehbub Sifat- 029-13063
4. Mir Yamin Uddin Zidan- 029-13039
 Factors Affecting Gross Domestic Product
Shakil1, Afnanul Hoque2, Golam Mehbub Sifat3, Mir Yamin Uddin Zidan4
Department of Management Information Systems (MIS), University of Dhaka, Nilkhet Rd,
Dhaka-1000, Bangladesh

Abstract: Gross Domestic Product (GDP) is one of the determinants of country’s economic
growth. This study intends to analyse the factors that affect the GDP of Countries. The result
of the test is that the data are normally distributed and the variance of error term is
homoscedastic. The result of this study is that the GDP of developing countries are growing
up or else falling down. Gross savings are labour force total are statistically significant
factors of GDP. Good governance and political stability play an important role to increase
the economy of a country. Some occurrences of unconditional decline are afterwards plagued
by further growth. Developing country’s GDP is confused and unbalanced, with regular and
deep unconditional GDP falls and booms.
Key words: Gross Domestic Product, Total reserves, Total Expense, Imports & Exports of
goods and services, Gross savings, Regression.
Date of Submission: 31-10-2020 Date of Acceptance:15-09-2020

I. Introduction
There are some economic facts of life that emphasise all macroeconomic explanations of
growth. Possibly the most significant factor is the accumulate the capital goods, the consumer
good will have to be foregone at present to generate more units of consumer goods in the
future. An increase in the amount of capital has to be greater than the amount of depreciation,
the quantity by which machines wear out or become outdated during the year. Economic
growth indicates the growth in economy output over the period which is people and property
of given country, for the period of one year.
Kitov (2005) suggested the the evaluation process also involves the sum of value added at
every stage of production (the intermediate stages) of all final commodities (goods and
services) produced within a country in a given period of time monetarily Real Economic
growth (GDP) can be studied using concept of two-components, economic growth — a
deviation or business cycle and an economic trend component. The trend component or
economic growth is accountable for the long-term expansion and describes economic
efficiency. The deviation component of economic has to have a zero-mean value in the long
run.
Prescott and Hodrick (2003) researched and proposed exogenous shocks as the force driving
fluctuations of the real GDP growth rate. Their research during the last 25 years has revealed
numerous features of the principal variables involved in the description of the economic
development though still many problems still exist in dealing with the theory of economic
growth.
Kitov (2005), proposed a GDP growth model that dependent only on the change in a specific
age cohort in the population and the attained level of real GDP per capita. The model stated
that, real GDP per capita has a constant growth increment and the observed fluctuations can

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be explained by the population component variance. The model has unveiled that in
developed countries the real GDP per capita with time, usually grows along with a straight
line if no significant change in the specific age population observed in the defined period.
The most influencing indicators used for assessing economic growth are Gross Domestic
Product (GDP), Gross National Product (GNP) and Balance of payment (BOP). In this study
we’ve tried to identify the “Factors Affecting Gross Domestic Products of a country.”

II. Literature Review

Developing Countries:
There are several definitions of a development country, but in this study some few concepts
that have to define the concept. A developing Country is defined as a nation with
undeveloped industrial base, low standard of living and minimum Human Development
Index (HDI) relative to other countries (Sullivan & Sheffrin, 2003; UN Statistics Division,
2008). Conversely, countries with more advanced economies than other developing nations
but which have not yet fully demonstrated the signs of a developed country are categorised
under the term newly industrialised countries. The International Monetary Fund (IMF)
defines developing country by using a flexible.
Classification system to differentiate from a developed country whereby 3 criteria are used:
One, per captia income level; Two, export diversification whereby oil exporters that have
high per capita GDP would not make the advanced classification because around 70% of its
export are oil; and Three, degree of integration into the global financial system directly or
indirectly (IMF, 2009)
The World Bank classifies countries into four income groups yearly (on July 1) whereby
country economies’ are divided according to 2008 Gross National Income (GNI) (Note 3) per
capita using the following ranges of income ; First, Low income countries had GNI per capita
US$ 1,000 or less; Second, Lower middle income countries had GNI per capita between
US$1,000 and US$4,000; Third, upper middle class had GNI per capita between US$ 4,000
and US$ 12,000. Fourth, High income countries had GNI per capita above US$ 12,300
(World Bank, 2009). The World Bank classifies all low-income countries and middle-
income countries as developing but the use of the term is convenient was not intended to
imply that all economies in the group are experiencing similar development or that other
economies have reached a preferred or final stage of development, the classification by
income does not necessarily reflect development status (World Bank, 2010).
The development of a country is measured with statistical indexes such as income per capita
(per person) (GDP), life expectancy, the rate of literacy, health services, etc. The UN (Note 4)
has developed the HDL, a compound indicator of the countries’ development statistics, to
evaluate the level of human development in countries where data are available. Business
dictionary defines developing country as a term used to describe count. Jain (2006) pointed
that among the “fast” emerging or growing economies of some developing countries are
China and India (also members of BRIC). China and India are among growing suppliers of
manufactured goods and services worldwide. Growth in industrialisation and trade are among
the factors which stimulate their growth.
Developed Countries:
Developed countries have generally more advanced post-industrial economies,
meaning the service sector provides more more wealth than the industrial sector.
They are contrasted with developing countries, which are in the process of

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industrialisation or are pre-industrial and almost entirely agrarian, some of which
might fall into the category of least developed countries. As of 2015, advanced
economies comprised 60.8% of global GDP based on nominal values and 42.9% of
global GDP based on purchasing-power parity (PPP) according to the International
Monetary Fund.
III. Material and Methods
Data used in this study were records of GDP and its different factors (i.e. Population density,
Total reserves, Expense, Mobile subscriptions, Researchers, Imports of goods and services,
Life expectancy, Exports of goods and services) for the period from 1990 to 2019 from
World Bank. The line diagram used to show the scenario of GDP in world. Multiple
regression model have used for the study and to estimate the model of GDP. We have used
GDP as a dependent variable and Total reserves (TR), Expense (E), Imports of goods and
services (IGS), Exports of goods and services (EGS) as independent variables.
The model of GDP is specified as
𝐺𝐷𝑃𝑡=𝛽0+𝛽1TRt+𝛽2E𝑡+𝛽3IGSt+𝛽4EGSt
Where 𝛽0 is the constant term, 𝛽1, 𝛽2, 𝛽3 𝑎𝑛𝑑 𝛽4 represents the coefficient of selected
independent variables and e𝑡 represents the random error term.
After model specification we have find the most influencing factors of GDP. Our main
hypothesis are stated as follows:
H1: Total reserves affect the GDP
H2: Expense affect the GDP
H3: Imports of goods and services affect the GDP
H4: Exports of goods and services affect the GDP
IV. Results and Discussion
Regression Analysis
The main purpose of this analysis is to know to what extent is the GDP influenced by the four
independent variables and what are those measures that should be taken based on the results
obtained with
using SPSS - Statistical Package for Social Sciences. The table below provides us the
data needed to perform the multiple regression analysis.
Table 1.
(Example Main Data table)

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Using the SPSS program kit in the case of multiple regression we have come to the following
results:
Table 2. Estimation of standard deviation - Model Summary

Adjusted R
Model R R Square Square Std. Error of the Estimate
1

.985a .970 .969 $426.039

a. Predictors: (Constant), Expense, Imports_of_goods_and_services, Total_reserves,

Exports_of_goods_and_servicesper

The next box displays information about how the variables relate to one another. In this case,
the term ‘model’ is used because we are trying to build a model of the relationship between
our variables. The model consists of the predictor variables we are using to try to predict the
outcome variable (GDP). In this case, we have Four predictor variables in the model:
Expense, Imports_of_goods_and_services, Total_reserves,
Exports_of_goods_and_servicesper.
The key sections of the table are:
• R The value in the R column is a very similar statistic to r, and can be interpreted
like any regular correlation coefficient. But instead of telling you the relationship between
four variables, it tells you the strength of the relationship between the outcome variable
(GDP) and all of the predictor variables combined.

In this case R = 0.985, which is a strong relationship. This suggests our model is a relatively
good predictor of the outcome.

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 • R Square The R Square column contains the value we are most interested in.
Usually written as R2, this value indicates the proportion of variation in the outcome variable
(GDP) that can be explained by the model (i.e. by Expense, Imports_of_goods_and_services,
Total_reserves, Exports_of_goods_and_services b).

You can either report this as R2 = . 970, or you can multiply it by 100 to give a proportion. In
this case we could say that 97% of the variance in the data can be explained by the predictor
variables.
Table 3. Variation analysis – ANOVAb

Sum of
Model Squares df Mean Square F Sig.
1 Regression 559335345.5 139833836.3
4 770.394 .000b
89 97
Residual 17243402.72
95 181509.502
0
Total

576578748.3
99
09

a. Dependent Variable: GDP _billion_$

b. Predictors: (Constant), Expense, Imports_of_goods_and_services, Total_reserves,
Exports_of_goods_and_services

The result is that most part of the total variance is generated by the regression equation.
In order to test the validity of multiple regression model a global test must be used, which
researches
whether all the independent variables have regression coefficients equal with zero, or in other
words if the
explained variance is not due to a random. The regression coefficients of the sample have as
correspondents the
following regression coefficients. The alternative and null hypotheses are
formulated as follows:
H0= 𝛽1=𝛽2=𝛽3=𝛽4=0
H1= not all 𝛽 coefficient are equal to 0
In order to test the null hypothesis, we turn to F test that requires an analysis of the variance
identified in the
ANOVA table above. From the data in the previous table (Table 3) it can be ascertained that
the value of the
calculated F is 770.394 for the variance generated by the regression. The critical value of F,
at the significance

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level of 0.05 with 4 degrees of freedom at numerator and 95 at denominator. By comparing
the values of
F it results that it is compulsory to accept the alternative hypothesis, meaning that not all
regression coefficients
are equal to zero. This means that a significant influence of multiple regression model occurs
over the
dependent variables. The issue that arises now is to know which regression coefficients may
be zero and which
may not. It is imposed therefore to achieve an individual evaluation of the regression
coefficients.
The results indicated that the model was a significant predictor of exam performance,
F (4,95) = 770.394, p = .000.
Table 4. Regression coefficients

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -29.763 112.447 -.265 .792
Imports_of_goods_and
18.212 .665 3.268 27.378 .000
_services
Exports_of_goods_and
-14.745 .737 -2.414 -20.013 .000
_services
Total_reserves 2.835 .257 .213 11.015 .000
Expense
-3.281 3.832 -.015 -.856 .394

a. Dependent Variable: GDP _billion_$

.
While the ANOVA table tells us whether the overall model is a significant predictor of the
outcome variable, this table tells us the extent to which the individual predictor variables
contribute to the model.
There are two sections of the table that we need to look at to interpret our multiple regression.
The first part of the table that we need to look at is the Sig column. This tells us whether the
predictors significantly contributed to the model or not.
The next column we need to look at contains the unstandardized beta coefficients for the
model (the B values). These values tell us about the relationships between the outcome and
both predictor variables. As all values are not positive, so are the relationships., these B
values give us an idea of the influence each predictor has on the outcome if the effects of the
other variables are held constant.
• Imports_of_goods_and_services (𝛽11 = 18.212): as Imports_of_goods_and_services
by one unit, GDP increase by 18.212 units.

• Exports_of_goods_and_services (𝛽2 = -14.745): as Exports_of_goods_and_services

increased positively by one-unit GDP fall up by 14.745 units.
• Total_reserves(𝛽3=2.835): as Total_reserves by one unit, GDP increase by 2.835
units.

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 In regression, we can produce a statistical model that allows us to predict values of our
outcome variable based on our predictor variable. This table also gives us all of the
information we need to do that.

Based on the nonstandard coefficients we obtain the regression equation:

GDP= -29.762851+ 2.835329*(TR)+18.212199*(IGS)-14.745316*(EGS)

V. Conclusion and Limitations

This paper has presented an analysis for determining the factor affecting Gross Domestic
Product (GDP). For this study secondary data are collected from World Bank. In this study it
can be concluded that Imports of goods and service, Exports of goods along with Total
reserves are to be statistically significant factors in the explanation of GDP. While the
variable such as Expenses is the insignificant factor. It does not mean the factor Expense is
not necessary. It might be because of limited access to the availability to the data and missing
data on the certain variables. However, GDP has some important limitations as we can say so
far including:
 The exclusion of non-market transactions
 The failure to account for or represent the degree of income inequality in society
 The failure to indicate whether the nation’s rate of growth is sustainable or not
 The failure to account for the costs imposed on human health and the environment of
negative externalities arising from the production or consumption of the nation’s output
 Treating the replacement of depreciated capital the same as the creation of new capital

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