UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2009 / 2010

JAN 2010 TRIMESTER

UBEZ 3013 RESEARCH METHOD

Course : Bachelor of Business Administration (Hons) Banking and

Finance

Year & Semester of Study : Year 2 Trimester 3

Tutorial Group : Tutorial 4

Lecturer’s Name : Mr. Kelvin Wye Chung Khain

Title : ASSIGNMENT 4

Student’s Details

Numbers Name Student ID Number

1 Lee Kwai Peng 0806177

2 Lim Hat Sim 0805863

3 Pravina a/p Santha Roo 0805868

4 Tan Ban Loon 0806341

5 Tan Yong Hiong 0805867

6 Wan Hui Shen 0908731

1.0 Introduction

Our research topic is “Factors that effect on GDP”. The independents variables that we focus are exchange rate volatility (Grube B.T., 2002; Fuat S., 2007), population (Kitov I.O., 2006; Schoenmaeckers R.C., and Vergeynst T, 2009), and foreign direct investment (FDI) (Hsiao, Frank S.T. and Hsiao, Mei-Chu W., 2006; Fuat S., 2007). Based on the research, we want to find out the relationship between GDP and independents variables.

2.0 Objective

The objectives that use by the authors are different although some of they are same variables. The objectives of Grube B.T. (2002) is want to found out the effects of exchange rate volatility, or the variability of the exchange rate, real exchange rate, and US economic growth on Mexican foreign trade over a period of 20 years. While Fuat S.(2007) is found out the cointegration and causality among Foreign Direct Investment in Tourism Sector, GDP, and Exchange Rate Volatility in Turkey. Besides, Kitov I.O.(2006) is want to focused on the decomposition of real economic growth (GDP) and per capita real economic growth in developed economic countries into an economic trend and fluctuations and Schoenmaeckers R.C., and Vergeynst T (2009) want to present an alternative solutions to cope the ‘population ageing’. In additional, Hsiao, Frank S.T. and Hsiao, Mei-Chu W. (2006) are examines the Granger causality relations between GDP, exports, and FDI among China, Korea, Taiwan, Hong Kong, Singapore, Malaysia, Philippines, and Thailand, the eight rapidly developing East and Southeast Asian economies.

3.0 Methodology

The methodologies that use by authors that test their data also are different. Brian T. Grube(2002) is using autoregression model, one-tailed test, OLS, multiple regression equation, and t statistics. While Fuat S. (2007) is using augmented dicky fuller (ADF) test, error correction mechanism (ECM), and granger-causality (GC) test. Besides, Kitov I.O. (2006) is using linear regression and Schoenmaeckers R.C., and Vergeynst T (2009) are using dependency ratio. In additional, Hsiao, Frank S.T. and Hsiao, Mei-Chu W. (2006) are using unit root test, cointegration tests, vector autoregression (VAR) model, and Granger causality test

4.0 Findings

The literature of the relationship between exchange rate volatility and GDP produces mixed result. Fuat (2007) identify a positive relationship between exchange rate volatility and the GDP in Turkish economy. Although there is a positive relationship, but the GDP is actually less affect by the exchange rate volatility. However, exchange rate volatility inversely affects the GDP in Mexican (Grube, 2002). The Augmented Dicky Fuller (ADF) test, Error Correction Mechanism (ECM), and Granger-Causality (GC) test is employed by Fuat (2007) while Grube (2002) resort the auto regression model, one-tailed test, OLS, multiple regression equation, and t statistics. As a conclusion, the mixed results in the previous studies might be due to the types of country under study and statistical procedure employed.

Kitov (2006) says that the GDP growth rate prediction will be as precise as the population measurement and the population estimates are obtained by the component method relied on independent measurements of the birth, mortality rates and migration dynamics. Another author says that the changes in the age structure, European countries can expect substantive declines in GDP over the next coming decades and governments could boost future GDP levels that would equal and even be greater that current level when the activity rates increase (Ronald). The linear regression is employed by Kitov (2006) and Ronald resort to Dependency ratio. As a conclusion, the result is the previous studies are difference might be due to the data under study and statistical procedure employed that used by both the authors are different.

Hsiao (2006) says that FDI causes GDP either directly or indirectly through exports and exports may be a good substitute of, if not complementary to, human capital or financial development in its relation with FDI and GDP. Hsiao (2006) has employed the unit root test, cointegration tests and the VaR model and Granger causality test. As a conclusion, although the author didn’t state out the relationship between the FDI and GDP, but the overall results have shown that there is a positive relationship between FDI and GDP.

5.0 Conclusions

As the conclusions, all the factor s that mention above (population, exchange rate and FDI) could affect the GDP. However, the effect that occurs will now be the same as always. For example, the FDI can bring positive effect to the GDP but could be negative effect as well due to the crowed-out effect. Never the less, the effects on GDP are depended on the sample and conditions of the country observed. Commonly, the FDI and exchange rate could affect GDP positively in short run while the population affects the GDP positively in long run.

6.0 References

Brian T. Grube (2002). Effects of Exchange Rate Uncertainty on the Mexican Economy 1980-2000, The College of New Jersey.

Frank S.T. Hsiao & Mei-Chu W. Hsiao (2006). FDI, exports, and GDP in East and Southeast Asia: Panel data versus time-series causality analyses, Journal of Asian Economics 17, 1082–1106.

Ivan O. Kitov (2006). GDP growth rate and population, ECINEQ WP 2006 – 42.

Ronald C. SCHOENMAECKERS & Thierry VERGEYNST (2009). Population ageing and its effect on GDP. Can increased labour productivity and/or employment compensate for the shrinking working age population?

Sekmen, Fuat (2007). Cointegration and Causality among Foreign Direct Investment in Tourism Sector, GDP, and Exchange Rate Volatility in Turkey, The Empirical Economics Letters, 6(1).