Title :	Effect of macroeconomic variables on economic growth of Nepal
Material Type:	printed text
Authors:	Richa Poudel, Author
Publication Date:	2017
Pagination:	98p.
Size:	GRP/Thesis
Accompanying material:	9/B
Languages :	English
Descriptors:	Macroeconomics
Class number:	332.632
Abstract:	Economic growth is considered as the most powerful instrument for reducing poverty and improving the quality of life in developing countries. For centuries, economists have tried to recognize why some countries reflect strong economic growth, while others stand still at low levels of output. This effort led to a numerous of possible determinants of economic growth including financial development (Yassen, 2012).The importance of the relationship between macroeconomic variables and economic growth has been well recognized and emphasized in the field of development economics. Thus, studies of this nature are very important for policy makers in deciding which sector to put emphasis on. Once it is determined that there is causality from macroeconomic variables to economic growth. There should be urgency in making relevant policy recommendations, to facilitate and foster sound growth of the economy. This study is conducted to analyze relationship between macroeconomic variables and economic growth. More specifically, this study has been conducted to test long run cointegrating relationship between macroeconomic variables and economic growth along with analysis of direction of causality between macroeconomic variables and growth in both long run and short run in the case of Nepal for the period of 1990 to 2015. Inflation, foreign direct investment to GDP, government expenditure to GDP, unemployment rate and remittance inflow to GDP is used as the macroeconomic variables. The economic growth has been measured by GDP growth and GDP per capita growth. For integration and cointegration technique, this study employed Augmented Dickey Fuller (ADF) unit root and ARDL approach to cointegration by Pesaran et al. (1997) in order to test the of stationarity and the long run relationship, respectively. The ARDL approach has been, further, used to analyze the long run dynamics of the macroeconomic variables and economic growth relationship. The error correction model has been developed from ARDL approach to analyze the short run relationship between macroeconomic variables and economic growth. The same model has also been used to analyze the direction of causality in short run. The regression diagnostic tests have also been performed to check the validity of proposed model. The Jarque – Bera (JB) test, Ramsey test, and Lagrange Multiplier (LM) tests are used to test the normality, functional form and serial correlation respectively. The ARDL bound testing approach to cointegration by Pesaran et al (1997) estimates show that there is fairly a long run cointegrating relationship between growth and macroeconomic variables. Therefore, it is clear indication that long run causality is one way from macroeconomic variables to economic growth. The long run estimates of the estimated (p, q, r, s, m, n) models indicate that remittance, the major indicator of the economic growth, has economically and statistically significant impact on economic growth in long run. Similarly, FDI, government expenditure and remittance are found to be positively correlated with economic growth. The diagnostic statistics (normality, autocorrelation, and functional form misspecification) show that the used ARDL model seems to be data congruent and free from specification error. Thus, the strong link between macroeconomic variables and growth does not appear to be spurious one. The estimates of short run ARDL error correction model depicted that error correction term (ECM) lagged one period is negative and highly significant in all estimated models indicating macroeconomic and growth variables are cointegrated. Reasonably, large coefficients of ECM term indicate that speed of adjustment to the equilibrium after a shock of previous period is very high. The short run estimates of the model shows that remittance has significant positive impact on economic growth. The short run coefficient for inflation and unemployment rate showsnegative relationship with economic growth. This finding suggests that even if high level of remittance is positively related to growth in short run, it will severely cause to decline in growth of the economy in long run.

Effect of macroeconomic variables on economic growth of Nepal [printed text] / Richa Poudel, Author . - 2017 . - 98p. ; GRP/Thesis + 9/B.
Languages : English

Descriptors:	Macroeconomics
Class number:	332.632
Abstract:	Economic growth is considered as the most powerful instrument for reducing poverty and improving the quality of life in developing countries. For centuries, economists have tried to recognize why some countries reflect strong economic growth, while others stand still at low levels of output. This effort led to a numerous of possible determinants of economic growth including financial development (Yassen, 2012).The importance of the relationship between macroeconomic variables and economic growth has been well recognized and emphasized in the field of development economics. Thus, studies of this nature are very important for policy makers in deciding which sector to put emphasis on. Once it is determined that there is causality from macroeconomic variables to economic growth. There should be urgency in making relevant policy recommendations, to facilitate and foster sound growth of the economy. This study is conducted to analyze relationship between macroeconomic variables and economic growth. More specifically, this study has been conducted to test long run cointegrating relationship between macroeconomic variables and economic growth along with analysis of direction of causality between macroeconomic variables and growth in both long run and short run in the case of Nepal for the period of 1990 to 2015. Inflation, foreign direct investment to GDP, government expenditure to GDP, unemployment rate and remittance inflow to GDP is used as the macroeconomic variables. The economic growth has been measured by GDP growth and GDP per capita growth. For integration and cointegration technique, this study employed Augmented Dickey Fuller (ADF) unit root and ARDL approach to cointegration by Pesaran et al. (1997) in order to test the of stationarity and the long run relationship, respectively. The ARDL approach has been, further, used to analyze the long run dynamics of the macroeconomic variables and economic growth relationship. The error correction model has been developed from ARDL approach to analyze the short run relationship between macroeconomic variables and economic growth. The same model has also been used to analyze the direction of causality in short run. The regression diagnostic tests have also been performed to check the validity of proposed model. The Jarque – Bera (JB) test, Ramsey test, and Lagrange Multiplier (LM) tests are used to test the normality, functional form and serial correlation respectively. The ARDL bound testing approach to cointegration by Pesaran et al (1997) estimates show that there is fairly a long run cointegrating relationship between growth and macroeconomic variables. Therefore, it is clear indication that long run causality is one way from macroeconomic variables to economic growth. The long run estimates of the estimated (p, q, r, s, m, n) models indicate that remittance, the major indicator of the economic growth, has economically and statistically significant impact on economic growth in long run. Similarly, FDI, government expenditure and remittance are found to be positively correlated with economic growth. The diagnostic statistics (normality, autocorrelation, and functional form misspecification) show that the used ARDL model seems to be data congruent and free from specification error. Thus, the strong link between macroeconomic variables and growth does not appear to be spurious one. The estimates of short run ARDL error correction model depicted that error correction term (ECM) lagged one period is negative and highly significant in all estimated models indicating macroeconomic and growth variables are cointegrated. Reasonably, large coefficients of ECM term indicate that speed of adjustment to the equilibrium after a shock of previous period is very high. The short run estimates of the model shows that remittance has significant positive impact on economic growth. The short run coefficient for inflation and unemployment rate showsnegative relationship with economic growth. This finding suggests that even if high level of remittance is positively related to growth in short run, it will severely cause to decline in growth of the economy in long run.