Impact of Inflation and private savings on GDP (gross domestic product)

Iqra University
(Gulshan Campus)

QTIA
Academic Year Spring 2012

Group members
Akbar shah 5767 Muhammad Muneeb Ullah 6989 Ghulam Muhammad 5699

MBA Program

Department of Business Administration

Impact of Inflation and private savings on GDP (gross domestic product) Introduction In the following research our objective is to find out impact of inflation and private savings on GDP. We take data from State bank of Pakistan. We take data on yearly basis from 1973 2009. Methodology Hypothesis: H0= GDP is depend on inflation and Private Savings H1= GDP is not depend on Inflation and Private Savings Variables Dependent Variable: GDP (it is market value of all final goods and services produced in an economy in specific period of time). We denote it by Y in our model equation. Independent Variable: Private Savings (the amount of money that is remains or not consumed by private sector of economy). We denote it by X1 in our model. Inflation (it is a general increase in market price level in certain period of time). We denote it by X2 in our model. You can also understand the relation between dependent and independent through this diagram

Impact of Inflation and private savings on GDP (gross domestic product)

Inflation

GDP
Private Savings
Research method We selected Multiple Linear Regression for analyzing the data. Sample: We take the sample of 37 years of dependent and independent variable. Data Collection: We collected all the data from the website of STATE BANK OF PAKISTAN Data Analysis: Data collected from this relationship are tested through SPSS. Research Framework: The relationship which we found that the GDP is depends on INF and PS. The inflation and private savings are independent variable while the GDP dependent variable. We analyze our data from this function:

Impact of Inflation and private savings on GDP (gross domestic product) GDP= f (PS, INF) or Y= f(X1, X2) Where: PS, X1= private savings INF, X2= Inflation Where GDP is the Gross domestic Product. PS is Private Savings and INF is Inflation. So the equation of regression model is Y= 0 + 1. X1 + 2. X2+ E Where 0 = Beta of constant 1= Beta of Private Savings 2= Beta of Inflation E= error Analysis The data run in SPSS under the technique of multiple regressions, their results and analysis are given below. ANOVA: ANOVAb Model Sum Squares 1 Regression 5.861E13 Residual Total 7.562E12 6.617E13 of df 2 34 36 Mean Square 2.930E13 2.224E11 F 131.756 Sig. .000a

Impact of Inflation and private savings on GDP (gross domestic product) a. Predictors: (Constant), Private Savings, Inflation b. Dependent Variable: Gross Domestic Product

Significant Value: The ANOVA significant value shows that the model is significant because its value is less than 0.05, so our null hypothesis is accepted; therefore our interpretation is GDP is depending on Inflation and Private Savings. F Statistics: As we see the value of F which shoes strength and strongness of model. So our value is 131.756which means that the model is strong.

Model Summary: Model Summaryb Model R 1 .941a R Square .886 Std. Error of the Adjusted R Square Estimate .879 4.71595E5

a. Predictors: (Constant), Private Savings, Inflation b. Dependent Variable: Gross Domestic Product R: The value of R is 0.941 which shows the correlation is present between the dependent and independent variable. It means if inflation and private savings are increasing or decreasing it will surely effect on GDP by 94.1%.

R Square: The value of R square is 0.886 which shows that if any changing occurs in independent variable it reflects 0.886 change in dependent variable.

Impact of Inflation and private savings on GDP (gross domestic product) Adjusted R Square: The value of adjusted R square is 0.879 which shows that the model is favorable.

Coefficientsa Model Unstandardized Coefficients B 1 (Constant) Inflation Private Savings a. Dependent Variable: Gross Domestic Product Std. Error Standardized Coefficients Beta t 2.972 .129 .919 2.216 15.772 Sig. .005 .033 .000 .990 .990 1.010 1.010 Collinearity Statistics Tolerance VIF

978582.942 329302.721 4757.165 2.765 2146.292 .175

Constant: According to our model which is multiple regressions, the value of constant indicates that its sig value is less than 0.05, which is significant in our model. Inflation Beta: According to our model which is multiple regression, the predictor inflation whos

Unstandardized Beta value is 4757.165 has a positive impact on GDP which means if inflation is increasing the GDP will also increase by this amount.

T-Statistics of Inflation and Private Savings: The t-statistics value of inflation is 2.216 and t-statistics value of Private Savings is 15.772. it shows that the Private savings has more strength in the model as compare to inflation.

Significant Value of Inflation and Private Savings: The sig value is .033 which is less than 0.05 so Inflation is considerable or accepted in the model and the sig value is 0.000 which is less than 0.05 Private Savings is considerable or accepted in the model.

Impact of Inflation and private savings on GDP (gross domestic product)

Collinearity Statistics of Inflation: The tolerance value of Inflation is 0.99 which shows that it is not correlated with other independent variable which is private savings.

Private Savings Beta: According by our model which is multiple regression, the indicator private savings whos Unstandardized Beta value is 2.765 has a positive impact on GDP which means if private savings is increasing the GDP will also increase by this amount.

Collinearity Statistics of Private Savings: The tolerance value of Private Savings is 0.99 which shows that it is not correlated with other independent variable which is Inflation.

Conclusion/Discussion:
In our above research topic we try to find out impact of inflation and private savings on GDP. We have taken data from website of State bank of Pakistan. According to our findings data of both predictors is significant for explanation of dependent variable. In our findings both inflation and private saving has positive impact on GDP. In general sense when inflation increases production and output of an economy shrinks but in our research we find that amount of GDP increases as inflation increases this is possible in Nominal GDP because we include inflation in it. On the other hand private saving has also positive impact on GDP it is because the more people have savings the more they have funds for utilizing in economy so that production increases. Therefore private savings has positive impact on GDP.

Recommendation:
1. This topic is very wide for research purpose because GDP has several factors that affect it, so by adding more predictors in this model it could be more improve. We find that we must have to increase our Factors of production especially skilled labors, natural resources, technology, so that when we are using this efficiently, the production will

Impact of Inflation and private savings on GDP (gross domestic product) increases and we have enough production to export. Due to increase in factor of production, the goods are produced within our economy so automatically the prices down. The imports will be down so the value of currency increases the value of inflation automatically down. 2. For private savings utilization economic stability in our economy is important, once these savings utilized more labor will employed which in turn increase employment through which output or production will increase, this is another point which we can use further research.

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