PAMANTASAN NG LUNGSOD NG MAYNILA

(University of the City of Manila)

` INTRAMUROS, MANILA
College of Accountancy and Economics

THE EFFECTS OF INFLATION AND

EMPLOYMENT TO GDP GROWTH RATE OF
THE PHILIPPINES

In Partial Fulfilment of the

Requirements of the Degree
Bachelor of Science in Business Economics

Submitted by:
ANGAT, JONAS IAN J.
ASEJO, ARJAY A.
CASTILLO, FREDERICK KIM R.
DUMAGAN, JOMARI S.
FRANCISCO, LOUIEMAR C.
LABAJOY, CHRISTIAN PATRICK

Acknowledgement
We would like to take this opportunity to dedicate our gratitude to each and
everyone that helped made this thesis possible.
First of all, we would like to thank God Almighty for giving us the motivation
and perseverance to conduct and accomplish this study. We would like to thank Him
for his guidance throughout the entire working process and Him being one of our
great inspirations.
We would like to thank our adviser, Dean Eloisa M. Macalinao, for her usual
support, encouragement, and contributions, especially her suggestions and
recommendations for the betterment of our study.
We would like to thank the Labajoy and Abogado family for accommodating
us and providing us food and shelter for the nights that we're doing this paper. We
are grateful and overwhelmed for your kind gestures.
We would like to express our deepest gratitude towards our families: The
Angat Family, The Asejo Family, The Castillo Family, The Dumagan Family, The
Francisco Family, and The Labajoy Family for their entire support and guidance
throughout the entire working process and for serving as our inspirations for this
study. We are here, giving back all the love and hardship that they gave us. The
product of this thesis will not be possible without them.
And to all of our loved ones, friends, classmates, batchmates,
schoolmates, and all the people that helped us and supported us and became part
of our study.

TABLE OF CONTENTS
Title Page

Acknowledgement

ii

Table of Contents

iii

List of Tables

List of Figures

CHAPTER 1 PROBLEM AND ITS BACKGROUND

Introduction

Statement of the Problem

Objectives

Hypothesis

Significance of the Study

Scope and Limitation

Theoretical Framework

CHAPTER 2 REVIEW OF RELATED LITERATURE

11

CHAPTER 3 METHODOLOGY

19

Model specification

19

Statistical treatment of Data

21

CHAPTERE 4 PRESENTATION, ANALYSIS AND INTERPRETATION

OF DATA

23
List of Tables

23

List of Figures

28

Analysis of Data

32

CHAPTER 5 SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS

34

Summary of Findings

34

Conclusions

34

Recommendations

35

Webliography and Bibliography

36
2

List of Tables
Table 1: T - test Critical Values

23

Table 2: F-test Critical Values

24

Table 3: Durbin Watson Table

25

Table 4: Rates of GDP per Capita, Employment and Inflation

26

List of Figures

Figure 1: Regression Equation using the OLS Estimator

27

Figure 2: Normality Test

28

Figure 3: Heteroskedasticity Test: ARCH

29

Figure 4: Ramsey Reset Test

30

Chapter 1 Problem and its Background

Introduction

Philippines, in the economic viewpoint, have been experiencing a consistent

growth for the past few years . GDP rate has increased from 1.1% in 2000 to 7.3% in
2010. Its because some factors that makes up the GDP had a sudden increase .
One factor that mainly caused the drastic acceleration of the economic growth of the
Philippines was the booming of BPO industry that made a huge impact on the
investment factor on the GDP and gave a large contribution on the increase in job
opportunities that has lead the employment rate to grow . But despite the fact that the
nation is growing economically, the rate of cost of living is somewhat still in the high
rate where many Filipinos still consider themselves in the "poor" class of the society
even though the Philippines has been experiencing a satisfactory economic growth .
In fact, in the 3rd quarter of 2013, the Philippines harvested a 7 .9% GDP growth
rate. It was the highest rate that the Philippines achieved and made the country top
some other developed south-east Asian countries based on GDP growth ranking .
And despite of this positive reports, some Filipinos still cant feel the thing that every
country want and needs to sustain, the thing called DEVELOPMENT .(no more

caps)
Many countries in the world has been experiencing a hard time to sustain their
economic development because of some economic factors that hinder their positive
economic growth run, And one of these negative factors is the INFLATION .(No

More Caps) Inflation is defined as the sustained increase in the price level of
goods and commodities in the economy and the main causes of it are either excess
aggregate demand(economic growth increase too fast) or cost push factors (Supply
side factors). In other words, inflation is not good for any countrys economy .(Not at

all) But as we go deep about this inflation, we(researchers) found out that this
negative factor can be somewhat(Use other words aside from somewhat) a positive
economic contributor to the GDP of a country . We(researchers) have searched and
found that some countries that(remove that) were economically developed despite
4

the fact that their inflation rate was high, meaning that high level of prices of their
countrys product and commodities are good for their economy .(It does not mean

that if a country is economically developed And this is what this research

paper is about to find out, if INFLATION could be a POSITIVE factor to the
Philippines GDP growth rate or not . In this research paper, we will do a series of
economic test to find out the effect of inflation, alongside with employment rate, to
the GDP growth rate quantitatively and qualitatively .
Statement of the Problem
The researcher conducts this research in order to examine the correlation that
exists between inflation rate and employment with GDP so that we can help the
country to mitigate the problem occurs by supporting the governments policies to
increase the countrys GDP. In addition, this research is also useful since the results
of the studies can be used in policys decision for resource allocation in order to
accelerate economic growth .
Objectives
The Objectives of the study are

1) Analyze the relationship between inflation rate and Gross Domestic Product
per Capita Rate in terms of magnitude and direction .

2) Analyze the relationship between employment rate and Gross Domestic

Product per Capita Rate in terms of magnitude and direction .

Hypothesis
In classical test of significant, two kind of hypothesis are used . They are Null
Hypothesis and Alternate Hypothesis . Hypothesis is a conjectural statement that
describes the relationship among variable even negative or positive . Null hypothesis
which is represent by H0 symbol to show that the relationship between independent
and dependent variable is not exist . However alternate hypothesis is representing by
H1 symbol to show that the relationship is existing between both dependent and
independent variable
Therefore the hypothesis can be tested as follows:
Ho: Employment and Inflation rate have no significant effect on Gross Domestic
Product per Capita growth rate.
H1: Employment Rate and Inflation rate have significant effect on Gross Domestic
Product per Capita growth rate.

Significance of the Study

The significances of this study are as follow:
Researchers
This study will help the researchers to complete their course requirement and will be
a guideline for their field of work in the future . The researchers can gain many
experiences in order to complete this research . There are lot of weaknesses may be
obtained and this will encourage the researchers to provide the better research in the
future. Future researchers will know and will have more understanding about gross
domestic product when conducting about this research . It will give the knowledge to
the researchers to identify the correlation exist between inflation rate and
employment and it always make the researcher briefing to know deeply and applied
the study.
Organization
This study might help the organization in analyzing the countrys economic condition
in order to prevent and reduce the risk during the inflation and know the effects of the
crisis occurs to them. This study also may give some guidance to them to protect
their company and industry itself.
Public
This study can inform and gives some knowledge to the public the relationship
between economic growth, inflation rate and employment . They also can make
preparation to face the increasing in inflation rate and able to survive in that
situation.

Scope and limitation

The researchers choose to conduct the research about the GDP in the Philippines
from 1980 until 2012. In this study, the researchers want to determine the correlation
exist between inflation rate and employment with GDP in the Philippines . It is
important because as economic planners and forecasters used the GDP per capita
in monitoring economic growth trend for time series . The collection of data of GDP,
inflation rate and total employment were collected from www.worldbank.org.
Theoretical Framework
Using the employment rate as one of our independent variables, we can also relate
this study to Classical Theory of Employment by Karl Marx and it has two (2) broad
features, The assumption of full employment and The flexibility of prices and wages .
The first assumption says that the economy is always at full employment status . It
cannot be undergo general over-production and general unemployment . If for an
instance it experience unemployment, it is assumed as temporary or abnormal and it
will only persist for a short period of time and the tendency is it will go back to full
employment status again.
The second assumption is The flexibility of prices and wages where it says
that if there is general over-production resulting in depression and unemployment,
prices would fall as a result of which demand would increase, prices would rise and
productive activity will be stimulated and unemployment would tend to disappear.
Similarly, the unemployment could be cured by cutting down wages which would
increase the demand for labour and would stimulate activity . Thus, if the prices and
wages are allowed to move freely, unemployment would disappear and full
employment level would be restored.
This theories tells us of having a nearly perfect economy in terms of
employment but logically, analysing the two theories are impossible to happen

because of some misinterpretations of factors thats why many economists disproved

this theories and leads to Keynesian theory of employment .
As for the Keynesian theory of employment, it says that in the short run, it is
assumed that the capital equipment, population, technical knowledge, and labour
efficiency remains constant that is why the volume of employment depends on the
level of national income and output meaning an increase in national income would
also an increase in the level of employment and vice versa . This theory simply tells
us that the greater the factors that affect national income, the more the employment
it will produce.
This research explicates about the relationship of inflation and employment to
the growth rate of the GDP of the Republic of the Philippines . The focal objective of
this research is to scrutinize and emphasize correlation amongst Inflation and
Employment with the Gross Domestic Product of the Philippines
Inflation and Employment here in the Philippines are constantly changing in
the past years, whether it is increasing or decreasing, it is evidently and colossally
affecting ones economic progress and development .
Inflation is the sustained increase of price level of goods and services in an
economy, here in the Philippines Inflation is always felt by individuals because of
some factors, whilst the employment rate is supervised by the government in order
for it to constantly increase to help eradicate poverty and to continue the economic
development.
According to the economic theory of cost push inflation, the higher the costs
of production factors decreases in aggregate supply in the economy, because there
are fewer goods being produced and demand for these goods remains consistent,
the prices of finished goods increase . In the present time, the Philippines is facing a
material push inflation because of the continues increase of raw materials to produce
products, by then the producers pass the burden of this happening to consumers
that leads to inflation, thus inflation marks a great impact in the GDP because
consumption lowers down.

We are all aware that oil is an essential material needed for people in order to
use machineries and equipment, In the Philippines, oil is almost monopolized, and oil
companies are only handful thats why there are chances of cartel and according to
Profit-Push Inflation, inflation sometimes occur because of the business monopoly
power, hence people tend to lessen the purchase of oil and use alternatives and
such.
For Filipino households, rice is the cynosure of their tables, some Filipino say
that they cannot live without rice, thereupon the demand for rice in the Philippines is
high, and in some point in it, it occurs inflation . Because according to the demandpull theory, many individuals purchase the same good, it causes its price to increase,
therefore it affects the GDP of a country because of the inevitable consumption of
consumers.
In the Short run, higher level of employment can be acquired by applying
macro-economic measures which will lead to increase of aggregate demand for
goods and services. Keynesian General Theory of employment implies full
employment is not a normal feature in the economy, whilst unemployment
equilibrium is normal, employment in the Philippines is given emphasis by the
government in order to boost the development of the economy as well as to
eradicate poverty. The Philippines employment rate for the last ten years is
constantly increasing, it gives an effect to the GDP for people, if employed, gains
salaries for consumption.

10

Chapter 2
Review of Related Literature and Studies
This study about The Effect of Employment Rate and Inflation Rate to
GDP Per Capita., completed by the researcher with the help of some related
literature.
Presented in this chapter is review of some related studies that discuss
significant variables for the research that are worth mentioning.
Bengana Patrick (2014) made a research that investigates the effect of
inflation on economic growth in Uganda during the period of 2005 2014. He carried
out the reserch on the long-run and short-run effects of inflation on economic growth.
The author performed correlation analysis and the result revealed that there is a
weak correlation between the two, but using Johansen- cointegration test, the
researcher found out that the long-run relation between inflation and economic
growth exist.
Fakhri Hasanov (2011) investigated the effect of inflation on economic growth
in Azerbaijaini from 2001 to 2009. In his study, the inflation has a positive effect
on GDP at first, but if the inflation rate rises up to 13% the effect would be
negative which leads GDP to decline by 3%.
Osama Sweiden (2004) made a study about the effect of inflation on
economic growth in Jordan during the period of 1970-2000. Osama used Auto
Regressive Conditional Heteroskedastisity (ARCH) model to estimate a proxy to the
inflation variability and multiple regression stylized facts about determinant of
11

economic growth. The study provides an evidence that there is a negative

relationship between inflation and economic growth. However, the author also
found out that the effect of inflation to economic growth is postive below
inflation rate equal to 2%.
Mahmoud Al-Habees and Mohammed Abu Rumman (2012) conducted a
study that identifies the relationship between unemployment and economic growth
and it highlights the relationship in between. The study reveals reality of
unemployemnet in Arab countries. The researchers found out that the high rates of
economic growth and the decline in the unemployement rate do not confirm the
existence of strong relationship between growth and unemployment. Despite the rate
growth is positive, its not possible at present to reduce unemployment rate
significantly in some Arab countries such as Algeria due to restructuring Algerian
economy which relies heavily on growth in the hydrocarbon sector which despite its
importance does not create jobs in large numbersFor Jordan, the finding of this study
does not apply across years. It is recommended to separate policies of support
growth and policies of reduction unemployment rates. That is because the first
policies are dependent on government spending, while the second ones on
encouraging investment to create job opportunities.
Maria Amezaga conducted a study about the impact of economic growth on
unemployment rate in Peru. The scope of the study ranges from 2001-2012 in order
to obtain a more precise estimate. The techniques applied in the study clearly
say that there is a negative association between real GDP and unemployment
rate. This conclusion is supported by the Okuns Law, series of descriptive analysis
and other spatial explorations.

12

Mohammad, Shamsudin et.al. (2011) made a study that examined the

correlation between inflation rate and total employment with gross domestic product.
It uses time series data ranging from 1982 to 2006 and the scope is in Malaysia. In
the study, the researchers found out that inflation rate and employment rate influence
the GDP in the short run. On the other hand, the GDP is unable to affect the inflation
rate and employment rate. In addition, there is no relation between inflation and
economic growth in the long-run. At the same time, there is a negative
relationship between employment and GDP in the long-run.
Fadli Fizari Abu Hassan Asari, Zuraida Mohamad, Teh Sofia Alias, Norazidah
Shamsudin, Nurul Syuhada Baharuddin, and Kamaruzaman Jusoff published a study
entitled: Multivariate Time Series Analysis on Correlation Between Inflation
Rate and Employment Rate with Gross Domestic Product that examined the
correlation between inflation rate, and total employment with gross domestic product.
The study uses time series data ranging from 1982 to 2006 and the scope is in
Malaysia. The study showed that inflation rate and employment rate influence the
GDP in the short run. On the other hand, the GDP is unable to affect the inflation rate
and employment rate. Therefore, the result is called unidirectional since only one
variable can influence the other variable in the short run. In addition, there is no
relationship between inflation rate and the GDP in the long run. At the same time,
there is a negative relationship between employment and GDP in the long run. They
recommended that future researchers should improve the reliability and validity of
the results by replacing the other independent variables such as level of income,
population, and others.

13

Muhammad Umair and Raza Ullah conducted a study entitled: Impact of

GDP and Inflation on Unemployment Rate: A Study of Pakistan Economy in
2000-2010 that examined the impact of inflation on GDP and unemployment rate in
Pakistan. It was a longitudinal study for the period in 2000-2010. The data has been
taken from secondary sources. The study concludes that inflation insignificantly
influences GDP and unemployment and the correlation is negative. The correlation
between unemployment and inflation is positive i.e. 0.477 and is insignificant at 10%
level of significance. The correlation between GDP and unemployment rate has also
been found insignificant with a value of 0.196. It is, therefore, concluded that inflation
has a role which influential but for GDP and unemployment with insignificant levels in
the macroeconomics factors of Pakistani economy. The conclusive outcome of the
research study is that inflation is found as insignificantly influential for GDP and
unemployment with negative correlation. The value of F-test found as very low and
below the standards values of rule of thumb value of 4.00 while the value of R
square is found with very limited variation that is 0.70 and 22.8 percent from the
inflation to GDP and unemployment. It is, therefore, concluded that inflation
possess a role which is influential but for GDP and unemployment with
insignificance levels in macro-economic factors of the Pakistan.

Evans Agalega and Samuel Antwi published a study entitled: The Impact of
Macroeconomic Variables on Gross Domestic Product: Empirical Evidence
from Ghana The main objective of the study was to investigate the effect that
changes in the inflation and interest rates have on the Gross Domestic Product
14

(GDP) in Ghana over a period of thirty one (31) years from 1980-2010. Data were
collected from Bank of Ghana publications and bulletins, Ghana Statistical Service,
the Institute of Statistical, Social and Economic Research (ISSER). The paper
employed multiple linear regressions to establish that there exists a fairly strong
positive correlation between GDP, Interest rate and Inflation, but Inflation and
Interest rate could only explain movement in GDP by only 44 percent. The paper
further established that, there existed positive relationship between inflation and
GDP and interest rate is negative. It is recommended among others that the
Government together with the Bank of Ghana should develop and pursue prudent
monetary policies that would aim at reducing and stabilizing both the micro and
macroeconomic indicators such as inflation targeting, interest rate, so as to boast the
growth of the economy.
The study showed that there exist a strong positive correlation (relationship)
of 0.66 between GDP, interest rate and inflation rates over the period under study.
This therefore also implies that the behavioral patterns of interest and inflation rates
have had some influence on GDP. Furthermore, the study revealed an R2 value of
0.435 (44%); this implies that an approximately 44% of the proportion of variations in
GDP are explained by both inflation and interest rates. It can simply be put as
inflation and interest rates accounted for or explained only 44% of the changes in the
GDP of Ghana with regard to the data for the period 1980 to 2010. Therefore there
are about 56% of the changes in the GDP of the Ghanaian economy that could not
be explained by inflation and interest rates that need to be investigated. It can also
be concluded from the findings that indeed there exist some relationship between
GDP, inflation and interest rates as already established and this is given by the linear
multiple regression model: Y = 14.988 + 0.055X1 - 0.305X2, where Y is the GDP; X1
15

is the inflation rate; and X2 is the interest rates over the period 1980 through to 2010.
Furthermore, it was revealed that there is a positive relationship between GDP and
inflation rate given the data for the period under consideration and it therefore means
that both GDP and inflation rate behaved or moved in the same direction. As inflation
rate increased GDP also increased and vice versa. However, it indicated a negative
or inverse relationship between GDP and interest rate. This means that interest rate
and GDP move in opposite direction. That is as interest rate increases, GDP
decreases and vice versa. Also, the test of hypothesis with the analysis of variance
table have revealed that overall multiple regression model developed for GDP,
interest rate and inflation rate was significant with the individual parameter estimates
also being significant. Therefore given any projected interest and inflation rates for a
given period, the projected corresponding GDP can be estimated but with a precision
of only 40% or 44%. Finally, it can be concluded based on the individual examination
of the relationship between GDP, inflation and policy rate that there exists some
relationship between GDP and inflation rate as well as GDP and policy rate. It is
recommended that the Government together with the Bank of Ghana should develop
and pursue prudent monetary policies that would aim at reducing and stabilizing both
the micro and macroeconomic indicators such as inflation targeting, interest rate, so
as to boast the growth of the economy.
Kirandeep Kaur published a study entitled: An Empirical Study of Inflation,
Unemployment, Exchange Rate and Growth in India that analyzed the
relationship between unemployment, exchange rate, Growth rate and inflation rate
from period 1990-2013 with the use of simple linear regression analysis. The study
found that there is negative and significant impact of inflation rate and
exchange rate on unemployment whereas the GDP growth rate effect
16

negatively to unemployment but it is not significant. The study found that there
is trade-off between unemployment and inflation but more research work is needed
for further analysis of these variables.
Oliver Ike Inyiama published a study entitled: Does Inflation Weaken
Economic Growth? Evidence from Nigeria evaluated the link between
inflationary rate and economic growth in Nigeria. It also examined the nature and
form of association between inflationary rate and exchange rate as well as interest
rates from 1979 to 2010. Ordinary least squares approach in the form of multiple
regression was adopted in examining the relationship among the variables while the
causalities were evaluated using Granger Causality model. The study believes that it
is pertinent to check whether the short run relationships would be sustained in the
long run. To achieve this, Johansen and Juselius cointegration technique was
adopted while the variables were adjusted for stationarity using the Augmented
Dickey- Fuller (ADF) tests for unit root. It was found that inflationary rate is negatively
related with real gross domestic product while exchange rates and interest rates are
positively related with inflationary rate though not to a very significant extent. This is
sustainable even in the long run and the implication is that when inflationary rate is
rising, it affects the economy negatively as growth is dampened. On causality, at
both lag 2 and lag 4, the study reveals that there is no causality between inflationary
rate and real gross domestic product. However, at lag 2, there is an unidirectional
causality running from inflationary rate to interest rate and also an unidirectional
causality running from interest rate to real gross domestic product. At lag 4, there is
an unidirectional causality running from interest rate to inflationary rate and from
interest rate to exchange rate and also an unidirectional causality running from
exchange rate to real gross domestic product. Consequently, efforts should be
17

geared towards keeping inflationary rate at a single digit level to enhance the growth
and development of Nigeria economy and to ensure that macroeconomic activities
are kept alive. The causal relationships among the variables indicate no causal
relationship. Findings of this study reveal that the short run relationships can also
be sustained at the very long run. Hence, monetary and fiscal policy setters
should take a clue from this to fashion out strategies for the efficient regulation
of these macroeconomic indices in order to grow the economy more rapidly.

18

Chapter 3
Methodology

Model Specification
This study is to analyze and examine the relationships that exist between inflation
rate and total employment with gross domestic product . It uses secondary data
which is based on time series data . The collection of time series data from 1980 to
2012 and the scope is in Philippines . The researcher applied Eviews7 software to
process the data and create a regression model in this study .
Multiple Linear regression analysis is an analysis of the relationship between one
variable (dependent variable) and set of variable (independent variables) . It is used
by the researcher to test the hypothesis .
As in all hypothesis tests, the goal is to reject the null hypothesis and accept the
alternative hypothesis. This technique will identify how much of the variance in the
dependent variables can be explained by independent variables . This analysis is
used primarily for the purpose of prediction . The regression model can be used to
predict the value of the proposed model in the study is:

GDP = f (Employment, Inflation)

GDP = + 1 Inflation + 2 Employment +

19

Where
GDP = GDP per Capita Rate
= Constant
1 = Inflation Rate
2 = Employment Rate
= Error Terms

Dependent Variables
A dependent variable is what you measure in the experiment and what
is affected during the experiment. The dependent variable responds to the
independent variable. It is called dependent because it depends . In the study, the
dependent variable is the GDP per capita growth rate .
Independent Variables
An independent variable is a variable that stands alone and isnt
changed by the other variables the researchers are trying to measure . They are
used to get the dependent variable . In the study, the independent variables are
Employment rate and Inflation Rate.

20

Statistical Treatment of Data

In this research, the researcher has applied unit Eviews7 in order to determine time
series data is stationary or non stationary about the correlation between inflation rate
and employment with gross domestic product . The researchers . (Different tests
used in the study and its purpose) including solution when solved manually

Durbin Watson test

o This is a test that the residuals from a linear regression or multiple
regressions are independent. Because most regression problems
involving time series data exhibit positive autocorrelation, the
hypotheses usually considered in this test are

If d < dl reject Ho: p = 0

If d > du do not reject ho: p = 0

If dl < d <du test is inconclusive

Jarque Bera Normality test

o This is a test of the normality of the error terms . If the terms are not
normal, the least squares estimators are not normally distributed in
small samples: hence, the confidence intervals and tests of
significance are not valid. And the normality of the residuals may be
tested using the Jarque-Bera test.

Heteroskedasticity
o A collection of random variables is heteroscedastic if there is subpopulation that has different variabilities from others . The presence
of heteroscedasticity can invalidate statistical tests of significance
that assume that modelling errors are uncorrelated and normally
21

distributed and that their variances do not vary with the effects
being modelled.
o Heteroscedasticity test is an assessment if the variance of the
regression is constant or not constant over time . Autoregressive
Conditional Heteroscedasticity (ARCH) test was used because the
data involve time series with time varying volatility .

Ramsey Reset Test

o Specification of error means that the model must be correctly
specified and this could be detected using the Ramsey Reset Test .
More specifically, it tests whether non-linear combinations of the
fitted values explain the response variable . The intuition behind the
test is that that if non linear combinations of the explanatory
variables have many power in explaining the response variable, the
model is mis-specified.

T-test
o A t test is any statistical hypothesis test in which the test statistic
follows a students t distribution if the null hypothesis is supported . It
can be used to determine if two sets of data are significantly
different from each other, and is most commonly applied when the
test statistic would follow a normal distribution if the value of a
scalling term in the test statistic were known .

R^2
o R squared is a statistical measure of how close the date are to be
fitted regression line. It is also known as the coefficient of
determination, or the coefficient of multiple determinations for
multiple regressions. 0 % indicates that the model explains non of
the variability of the response data around its mean .
22

Chapter 4
Presentation, Analysis and Interpretation of Data
List of Tables
Table 1: T - test Critical Values

23

Table 2: F-test Critical Values

24

Table 3: Durbin Watson Table

Table 4: Rates of GDP per Capita, Employment and Inflation

25

Year

Employment

Inflation Rate GDP per capita growth

rate (X1)

(X2)

rate(Y)

1980 92.1

17.6

2.3

1981 91.2

10.8

0.6

1982 90.6

10.4

0.8

1983 89.6

9.5

-0.9

1984 89.6

50

-9.8

1985 87.4

22.6

-9.8

1986 88.2

0.7

1987 88.8

1.5

1988 90.4

14.1

1989 90.8

12

3.5

1990 91.6

12.3

0.5

1991 89.4

19.4

-3

1992 90.1

8.6

-2

1993 90.7

6.7

-0.2

1994 90.5

10.5

1995 90.5

6.7

2.30

1996 91.4

7.5

3.50

1997 91.2

5.6

2.90

1998 89.7

9.3

-2.7

1999 90.2

5.9

0.90

2000 88.8

2.2

2001 88.9

6.8

0.8

2002 88.6

1.5

2003 88.6

3.5

2.9

2004 88.2

4.6

2005 91.325

7.6

2.8
26

2006 92

6.2

3.4

2007 92.7

2.8

4.8

2008 92.6

9.3

2.4

2009 92.5

3.2

-0.5

2010 92.7

3.8

5.8

2011 93

4.4

1.9

2012 93.02

3.2

List of Figures

Figure 1: Regression Equation using the OLS Estimator

27

Figure 2: Normality Test

28

Figure 3: Heteroskedasticity Test: ARCH

29

Figure

4:

Ramsey

Reset

Test

30

ANALYSIS OF DATA

Durbin Watson test (fig 1)

o According to the rule, Du < Dw < 4 DL, where Du is the upper
limit, Dw is the Durbin Watson stat value and the DL is the
31

Lower limit. Du and DL can be known in the Durbin Watson

table.
o Based on the Durbin-Watson statistic table (table 3), the value of Du
for 33 observations and 2 independent variables is 1 .358 and the
lower limit is 1.114.
o 1.114 < 1.68 < 2.642
o No first order auto regressive correlation

Jarque Bera Normality test (fig 2)

o According to the rule, if the skewness is near to zero and the
kurtosis is near to three then it shows normality on the
distribution.
o Skewness is equal to -0 .38 which is near to zero and kurtosis is
3.52 which is near to three therefore passing the jarque-bera
normality test.

Heteroskedasticity (fig 3)
o According to the rule, if Obs*R-squared is greater than the
chosen level of significance, then it shows that there is no
heteroskedasticity present in the data.
o Obs*R-squared must be > 0.05
o Obs*R- squared of the test is = 0.65
o 0.65 > 0.65
o There is no heterocedasticity present in the data .

Ramsey Reset Test (fig 4)

32

o According to the rule, there is no specification error if the computed

f-value is lower than the f-critical value and the p-value is greater
than the level of significance. (Fc<Ft), (P > 0.05)

o The value of F-statistic is 0.75 which is less than the F-tabulated of 3.29
and the p value is .39 which is greater than the chosen level significance
of 0.05. Therefore passing the test and proving that there is no error in
the specification of the model.

T-test (fig 1)
o According to the rule, absolute value of t computed must be
greater than the t tabulated otherwise the variables are not
significant.
o Employment ( t computed > t tabulated ) (3.06 > 2.035)
o Inflation (t computed > t tabulated) ( 5.96 > 2.035 )
o The t tabulated of both independent variables is greater than the t
tabulated.

R^2 (fig 1)
o 63.73% of the variances of dependent variables can be
explained by both independent variables .

Chapter 5
Summary of Findings, Conclusions and Recommendations
A. Summary
33

The result of the tests showed that there is a positive relationship between the
Employment and the GDP per Capita rate while an inverse relationship is shown
between the inflation rate and the GDP per Capita rate . There is also no first auto
regressive correlation. Figure 2 displayed that the least squares estimators are not
normally distributed in small samples . Based on the t-test, there is enough evidence
to conclude that Inflation and employment rate have a significant effect on GDP per
Capita growth rate.
B. Conclusions
The result only proves that we are still a Labor inclined Economy . That majority of
our Gross Domestic Product is affected by the labor force . The study help the
politicians on their taglines Pag maraming trabaho, lahat aasenso . Using the
coefficient of employment of the equation, for every .76 increase in the employment
rate, there is a 1 increase in the GDP per Capita rate .
The study also shows the relationship of inflation rate to the GDP per Capita Rate of
the country. Using the coefficient of inflation rate of the equation, for every decrease
in inflation rate of 0.26, there is a 1 increase in the GDP per Capita . The result is
unexpected because generally, inflation is expected to have bad effects in the GDP .
The misconception of some people is that it has bad effects in the economy but
inflation is also a result of the movement of demand and supply of money in the
economy. The Government and the Bangko Central ng Pilipinas are the two
institutions assigned on controlling the money supply using monetary and fiscal
policies. These policies especially the expansionary policies have corresponding
effects in our economy and one of that is increasing the inflation rate of the
Philippines. The public must understand that inflation is a way of life of every
economy and needed to stabilize the economy.
C. Recommendations
To the future researchers

The econometric table satisfy all the assumptions of a multiple linear

regression except for 1 thing, which is the R Squared. Almost 63 percent
34

of the dependent variable can be explained by the independent variables.

The researchers recommend if there is someone that will use the said
topic to add another variable that will increase the R squared without
sacrificing the other assumptions of multiple linear regressions. The
Variables that can be used are Population growth rate, age dependency
rate or any variable that can be use depending on the topic.
To the Households

The study proves that being an employed citizen of the state will not only
help the family but the whole economy. The government is doing all of its
efforts to offer the citizens jobs. Job Mismatch is the main problem of our
economy in relation to the employment. One of the best examples of this is
the Nursing Service Industry. It is a fact that there is an abundant number
of nurses in the Philippines that is why nursing graduates are advised by
the government to apply outside to country. In relation to that, the country
lacks teachers because of the increasing population of enrolees every
year. It could be possible that these nurses could apply as science
teachers. There are a lot of alternatives for our professionals to work for.
They just need to look and discover for them.

To the Government

Get more job opportunities to satisfy the needs of the people and the
economy. The study proves that an increase in the employment rate will
increase also the GDP per Capita Rate.

Strengthen the information dissemination about the effects of inflation in

our Economy. The government must do all of its efforts to remove the
misconception of some people that our economy is not based on the
increase of price of basic commodities.

35

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Bibliography
Danao, Rolando. University of the Philippines Press. Manila: 2002
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