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Econometrics Project Report: Topic: Factors Affecting GDP of Vietnam From 1995 To 2019
Econometrics Project Report: Topic: Factors Affecting GDP of Vietnam From 1995 To 2019
TABLE OF CONTENTS
I. NATURE AND BACKGROUND OF THE STUDY........................................................5
1. Introduction....................................................................................................................5
5. Research questions.........................................................................................................7
III. METHODOLOGY...........................................................................................................9
1. Definition of population.................................................................................................9
5. Statistical tests..............................................................................................................10
1. Descriptive Statistics....................................................................................................10
2. Interpretations:.............................................................................................................13
2.2. Coefficient of determination.................................................................................14
3. Hypothesis Testing:......................................................................................................14
1. Multicollinearity...........................................................................................................17
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1.1. The nature..............................................................................................................17
1.2. Consequences........................................................................................................18
1.3. Detection...............................................................................................................18
2. Heteroscedasticity........................................................................................................19
2.2. Consequences........................................................................................................20
2.3. Detection...............................................................................................................20
2.4. Remedial................................................................................................................22
3. Autocorrelation.............................................................................................................23
3.2. Consequences........................................................................................................23
3.3. Detection...............................................................................................................23
3.4. Remedial................................................................................................................25
2. Recommendation..........................................................................................................27
APPENDIX..........................................................................................................................28
REFERENCES LIST...........................................................................................................29
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TABLE OF FIGURE
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ACKNOWLEDGEMENTS
The research would not be done completely without any assistance. Thus, we appreciate
every support and motivation during the time doing this research.
Thanks to the knowledge that we learned from the Econometrics textbook we absorbed the
basics which would help us build up the idea of this research. Moreover, we want to give
acknowledgment to the author of the prior research which gave us detailed information in
our study.
Finally, we deeply thank two dedicated teachers, Ms. Dao Binh, Mr Pham Hung and Ms. Hoang
Anh.
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I. NATURE AND BACKGROUND OF THE STUDY
1. Introduction
The global economy is undergoing significant changes, the countries around the world are
tending to integrate globally, helping to grow the economy through the exchange and trading of
goods not only in the region but also in other continents. Economic development affects the
prosperity as well as political factors of nations, Vietnam is no exception.
After more than 20 years of revolution, first of all, is "economic thinking", shifting from a
centrally planned economy to a socialist-oriented market economy, promoting industrialization,
modernizing, proactively and actively integrating into the world, Vietnam has made many
remarkable achievements in the domestic economy. From an agricultural, backward, small-scale
economy, with a GDP of only 14 billion USD and GDP per capita of only about 250 USD in the
early years of Doi Moi, Vietnam has come out of poverty, moved to implement and step up
industrialization and modernization of the country. By 2019, Vietnam had official relations with
189/193 countries of the United Nations (compared with 11 countries in 1954); having
economic, trade, and investment relations with over 224 countries and territories worldwide; has
16 strategic partners, 11 comprehensive strategic partners; join more than 500 bilateral and
multilateral agreements in many fields (including 16 FTAs); 71 countries have recognized
Vietnam as a market economy, etc. Vietnam has opened its doors, became a member of ASEAN,
APEC, the WTO, and many other international organizations participating in many free trade
institutions, proactively and actively contribute to building and shaping multilateral institutions,
becoming a reliable partner and a responsible member of the international community,
integrating more deeply and broadly into the global economy, gradually expanding integration
into all fields of politics, defense, security, and culture – society, etc. This is a very important
step and opens up a promising economy.
Economic growth takes place, it is reflected in the increasing and stable GDP growth rate for a
long time, the economy will have many great achievements. Thus, the more stable the income
and living standard of the people, the more developed the country is. Therefore, economic
growth is considered an attractive issue in economic research, it is the focal point to reflect the
changing face of the national economy.
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2. Statement of the problem
We can easily see that economic development has a great influence on life, culture, and political
activities in countries around the world in general and Vietnam in particular. Economic
development when looking at a country's GDP, the components of GDP generally are the main
factors in the economy.
To evaluate a country's economy, economists evaluate the gross domestic product GDP.
First of all, GDP is an economic term that stands for the English phrase Gross Domestic Product.
This term means the gross domestic product (also known as gross domestic product). This is an
index given to assess the overall and generalized growth rate of each country's economy and
assess the development level of that country.
GDP is the value calculated according to the quantity of all goods and all services formed in a
territory in a given period of time. The time to calculate the value of GDP in each type of goods
or service is usually from 3 months, 6 months, 9 months or 1 year depending on each specific
sector. GDP is the index to calculate the value of all products and services in the domestic
economy, including foreign companies based in Vietnam.
• Population (P):
The population is a collection of people living in a certain geographical area or space that is a
valuable source of labor for socio-economic development, often measured by census and
expression by population chart.
Population is both the production force and the consumer force. The size of the population
affects the workforce, which will give the country the ability to comprehensively develop
economic sectors, while at the same time having profound labor expertise, creating conditions
for productivity improvement. labor, thereby promoting economic and social development.
• Investment (I):
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The total personal investment includes the business's expenditure on equipment and factories or
the construction and purchase of a new home by the household. In addition, inventories, when
being put into stock, and not yet sold, are also included in GDP. In macroeconomics, it is only
necessary to increase capital to strengthen future production capacity.
Private gross domestic investment can have a major effect on accelerating economic growth by
creating new businesses that attract more workers, thereby solving economic difficulties,
society's unemployment. More than women, private investment also facilitates increased budget
revenue in the form of taxes.
• Exports (X): Domestically produced goods that are sold abroad (the proceeds from the sale of
goods and services abroad - which increases GDP).
• Imports (M): goods that are produced abroad, but purchased for domestic demand (the amount
paid abroad by the purchase of goods and services - reduces GDP).
When we export, it will reduce the net worth bringing to the economy and it will increase the net
worth in the economy if we do an import.
GDP accurately reflects the economy of a country, it clearly shows the change and the level of
equilibrium that keep the main factors that make up GDP and its index of change as well as the
efforts of the government to do it. factors that make up GDP over the years.
It is essential to determine the factors influencing GDP and the correlation among these factors.
Building the model based on these factors, we can know our strengths and weaknesses in the
economy; That has the potential to carry out more appropriate economic adjustment strategies,
helping to increase GDP over the years and develop the economy.
5. Research questions
The relative growth rate of GDP can be affected by a number of factors, some of which show an
inverse relationship while other factors show a direct relationship.
This assignment is devoted to analyzing the extent to which those factors affect GDP growth in
Vietnam. The research space of the topic is within the entire economy of Vietnam, because of the
limitation in data sources, the research period is in the period 1995 - 2019.
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In this study, we will present the procedures in collecting data and the process of making our
conclusion about:
- What is the relationship between GDP and four sub-indices? How do these determinants affect
the economy?
Before taking the projects, we looked for other research to see how the GDP was studied through
previous research:
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1965 to case of affecting
2010 Tanzania GDP
It is clearly seen that GDP in Vietnam is a crucial index for both domestic and foreign
economists. The economists and organizations desire to know which element is the most
important factor affecting the Vietnamese economy.
Overall, the three reports have limitations in that they do not contain specific 4 indicators
affecting the GDP and taking the examination within 25 years.
III. METHODOLOGY
1. Definition of population
The scope of the research is the GDP which includes population, investment, exports and
imports.
To be more precise, we evaluated the GDP by collecting the statistics of 25 years in Vietnam.
Thus, the sample size is 25. Therefore, to demonstrate the data and organize them properly, we
used Microsoft Excel.
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3. How the data was collected
The data table is provided in the Appendix of the report. All statistics were obtained from
secondary sources, which is the website of GDP Vietnam. On this website, we could find the
relevant and reliable data of Vietnamese GDP from 1995 to 2019 to support our project.
In order to determine the change of GDP depended on the four variables that are mentioned
above, we use an econometrics model of the linear regression with the four variables:
5. Statistical tests
With an aim to find out the best-fitted model, we run OLS on Eviews program of the four main
functional forms such as Lin-Lin Model, Log-Log Model, Lin-Log Model, and Log-Lin Model.
Then, after having a result, we compare and evaluate the models which have the highest R2 and
the lowest coefficient of variation (CV). In the case of conflict between R2 and CV, we will
choose the model with the lowest CV. In order to test the overall significance of all coefficients,
we used F-test with the conclusion to determine whether the estimators equal zero or not.
The t-test is used to test the significance of each coefficient, particularly 10 coefficients. This is
to show whether each independent variable has any effect on the dependent variable.
Moreover, to check the error terms in the model, we applied three tests. The first one is
multicollinearity with the variance inflation factor (VIF). The second one is heteroscedasticity
with White’s general heteroscedasticity test (with cross term).
Finally, to check for autocorrelation, the Durbin-Watson and Breusch-Godfrey tests are
conducted.
1. Descriptive Statistics
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Figure 1: Statistics Description
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Figure 3: Covariance matrix
The following graphs show the relationship between GDP and others factors which are
Population, Investment, Export and Import respectively:
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2. Interpretations:
In stochastic form:
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2.1. Interpret coefficient
β̂1 = -3053843: Regardless of other variables, the GDP is expected to decrease 3,053,843 billion
VND per year.
β̂2 = 0.040863: There was a positive relationship between GDP and Population. If Population
increases by 1 million people and other variables unchanged, GDP is expected to increase by
0.040863 billion VND.
β̂3 = 1.473427: There was a positive relationship between GDP and Investment. If Investment
increases by 1 billion VND and other variables unchanged, GDP is expected to increase by
1.473427 billion VND.
β̂4 = 0.763855: There was a positive relationship between GDP and Export. If Export increases
by 1 billion VND and other variables unchanged, GDP is expected to increase by 0.763855
billion VND.
β̂5 = -0.401301: There was a negative relationship between GDP and Import. If Import increases
by 1 billion VND and other variables unchanged, GDP is expected to decrease by 0.401301
billion VND.
2.2. Coefficient of determination
3. Hypothesis Testing:
According to the test of functional form, the OLS for the model gets the following
representation:
GDP = β̂1 + β̂2 * Population + β̂3 * Investment + β̂4 * Export + β̂5 * Import
We use the F-test to test the overall significant test to check the effect of all independent
variables.
In hypothesis testing, we use a significance level of 5% and a number of observations n = 24.
Hypothesis testing:
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Ho: All variables have no effect on GDP (β2 = β3 = β4 = β5 = 0)
H1: At least one variable has effect on GDP (β2≠0, β3≠0, β4≠0 or/and β5≠0)
F-statistic
Decision: Reject Ho
Through the previous part, we were concerned with the significance of all estimators. And
now we use a t-test to test a hypothesis about any partial regression coefficient. These tests
= -1.9863
Conclusion: | t* | < t c
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Population Hypothesis Critical value: There is enough statistical evidence to
: c conclude that Population has an effect
tα = t c0.025,6 = 2.447
,n−k
2 on GDP with 95% of confidence level.
H0: β2 = 0
Test statistic:
H1: β2 ≠ 0
^
β 2−0 0.040863
t* = ^ =
Se ( β 2) 0.020142
= 2.0286
Conclusion: | t* | > t c
= 1.6699
Conclusion: | t* | < t c
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t cα level.
,n−k = t c0.025,6 = 2.447
2
β4 = 0
Test statistic:
β4 ≠ 0
^
β 4−0 0.763855
t* = ^ =
Se ( β 4) 0.183876
= 4.1542
Conclusion: | t* | > t c
= -1.2265
Conclusion: | t* | < t c
1. Multicollinearity
One of ten assumptions of the classical linear regression model (CLRM) is that there is no
multicollinearity among regressors (Assumption 10). This might be because the existence of
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multicollinearity leads to less accuracy results of the regression coefficients and reduces the
Multicollinearity exists when there are perfect linear relationships among independent
variables of the regression model. This exact relationship happens if the following condition
is satisfied:
Test for multicollinearity must be done to identify whether there are some functional
relationships among explanatory variables so that improve the precision and accuracy for
the model.
1.2. Consequences
Large variances and covariances which make the estimation less accurate.
The estimation confidence intervals tend to be much wider, increasing the chance to
The OLS estimators and their standard errors can be sensitive to small changes in
the data.
1.3. Detection
In order to find out how much the variance (the square of the estimate's standard deviation)
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1
which uses the variance inflation factor: VIF = 2
1−Ri
As it can be seen from the table, all the VIF are greater than 10, our variables are
To sum up, our model incurs a significant issue related to multicollinearity (except BIAS).
problem and sometimes we have no choice over the data we have available for empirical
analysis”. Therefore, doing nothing occasionally is the best we can do given the set of data.
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2. Heteroscedasticity
Heteroskedasticity (unequal conditional variance of error terms), is the most popular error
as constructing models with cross sectional data. This contrasts Assumption 3 about
serious problem.
Heteroscedasticity exists if variances of error terms in any model are not constant
This indicates that the disturbance for each of the n-units is drawn from a probability
There are in fact both formal and informal methods to test for the existence of
heteroscedasticity.
2.2. Consequences
Var( ^
β 1)s are not minimum
σ i2 σ2
Var( ^
β 2) = instead of Var( ^
β 2 ) =
∑ x2 ∑ x2
2.3. Detection
We use White’s heteroscedasticity test (without cross term, with cross term case would eat up a
lot of degree of freedom) to find out whether there exists heteroscedasticity in our OLD model or
not).
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Figure 7: White’s Heteroscedasticity test
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Conclusion: There is not enough evidence to infer that heteroscedasticity exists from this model
at 5% level of significance.
2.4. Remedial
With hypotheses testing above, our model does not violate the Assumption 3 of CLRM but after
reducing the effect of Heteroscedasticity by transforming the model to a log-log model and using
“White Heteroskedasticity-consistent standard errors & covariance” method which is a robust
method. This action helps us have a better model with the result from Eviews below:
In this new model, we have the W-statistic (n R2) = 6.339463 < X 20.05,4= 9.49 which shows that the
model still be a Homoskedasticity.
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3. Autocorrelation
The purpose of autocorrelation test is to check whether the linear relationship between errors
exists or not, which breaks the Assumption 5 of CLM (cov( ui , u j | x i, x j ) = 0). Certainly, the
importance of the autocorrelation can be considered the same as heteroskedasticity test. The
primary reason is that the standard error of coefficient becomes larger and not the minimum
value of variances when autocorrelation occurs.
When assumption cov(ui , u j) = 0, i≠j is violated, then comes the sao-called autocorrelation which
can be performed by cov(ui , u j) ≠ 0, i≠j, which means there is serial correlation among the
disturbances entering into the population regression function.
3.2. Consequences
Var( ^
β 1) is no longer the smallest. Therefore, its standard error also becomes large
^ ∑ ui 2
2
The residual variance σ = is likely to underestimate the true σ 2
n−2
3.3. Detection
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Do not reject Ho if 4 - d L< DW stat < 4 ord U < DW stat < 4 - d U
Step 5: Conclusion: Since 0 < DW stat (0.561738) <d L ( 0.832), we reject Ho that there is
positive autocorrelation in the residual.
b. Breusch-Godfrey Test: p = 2
LM= (n - p) × R2
LM = (n - 2) × R2 = 12.20301
Step 5: Conclusion: LM > X 20.05 ,df (5.991), we reject Ho. There is enough evidence to conclude
that there is high-order autocorrelation existing in order.
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Figure 9: Breusch-Godfrey serial correlation LM test for AR (2).
3.4. Remedial
After testing autocorrelation, we defined that there was high-order autocorrelation existing in our
model, then we decided to adjust the standard errors of regression coefficients by using the
Newey-West method. In this case, our Newey-West method handles autocorrelation with lags up
to 2, and it is assumed that lags larger than 2 can be ignored.
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Figure 10: Newey-West HAC standard errors & covariance.
As we can see in figure 10, the OLS standard errors are not significantly different from figure 5
above. This suggests that although there is evidence of correlation based on some tests, the
problem is that the autocorrelation does not seem too severe. This probably due to the fact that
the correlation detected in the term of interference, between 0.32 and 0.35, may not be too high.
After checking three errors that may have in our model we can conclude that there are
multicollinearity and autocorrelation error. To detect the multicollinearity, we have to use 2
methods: the first method compares the R-square between auxiliary and original regression error
haven’t detected but with the VIF method the problem has come out. However, as we discuss
with three reasons above we decide not to fix the multicollinearity. To detect autocorrelation, we
use Newey-West to adjust the standards errors of regression coefficients and the result is not too
severe then we decide to keep the old model.
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VI. SUMMARY, CONCLUSION AND RECOMMENDATIONS
GDP can be considered as a criterion to evaluate a country's economy, it allows investors, large
companies, corporations to seek opportunities and plan to invest, participate in the economic
activity of that country. In order to understand in details the factors affecting the change of GDP
in general and GDP in Vietnam in particular from 1995 to 2019, we have conducted this research
paper, including regression function and performed essential tests.
Based on our model, there are 4 variables influencing Vietnam’s GDP: Population, Investment,
Imports, Exports. After using t-test to check the significant off each variable, we discover that
Investment (I) and Import (M) are insignificant with only a 5% level of significance.
In terms of the multicollinearity test, we used variance factor VIF and received the result that all
VIF’s are higher than 10. Then, our group decided to take the heteroscedasticity test and
concluded that there is not enough proof to confirm that heteroscedasticity exists. The result of
Durbin-Watson Test and Breusch-Godfrey Test for autocorrelation signifies that there is
existence of autocorrelation in two orders. Therefore, we used Newey-West and the result is not
too severe for autocorrelation.
2. Recommendation
First, we need to be aware of the importance of GDP as well as how its values affect the
economy of Vietnam in general and countries in the world that speak.
Moreover, we need to statistically and clearly analyze data of factors affecting the change in
GDP over the years (can be monthly or quarterly if necessary).
We aim to increase GDP in Vietnam over the years, so we need to pay more attention to
investment. Our country's economy needs to expand and improve policies to create favorable
conditions for foreign corporations and companies to invest in the country's economy.
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On the other hand, we need to care about import and export. Increasing domestic goods
circulation, actively exporting commodities to foreign markets, and reducing imports are factors
that help GDP grow over the years.
APPENDIX
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REFERENCES LIST
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