INTERNATIONAL JOURNAL OF INDUSTRIAL MANAGEMENT

(IJIM)
ISSN:2289-9286 e-ISSN:0127-564X
VOL.06, ISSUE01, 8 – 17
DOI:https://doi.org/10.15282/
ijim.6.6.2020.5330

ORIGINALRATICLE

FORECASTING MALAYSIA GROSS DOMESTIC PRODUCT BY

USING LEAST SQUARE METHOD
Nur Dini Huda binti Rosgi , Nur Hanani Sofiya Binti Mohamad Arif , and Faris Bin Nor Azmi •
1Faculty
of Computer and Mathematical Sciences, Universiti Teknologi MARA (UiTM) Kampus Seremban 3,70300
Seremban, Negeri Sembilan

ABSTRACT – Malaysia's Gross Domestic Product (GDP) utilizing a static and

ARTICLE HISTORY
discrete mathematical model. The goal of this research is to figure out which Received: 30-01-2020
model is best for forecasting GDP in the future. The issue we wish to investigate Accepted: 05-03-2020
is which mathematical model, whether static or discrete, is the best for forecasting
GDP in the future.Hence, the problem we investigated is that GDP is a critical KEYWORDS
component in determining a country's economic status. GDP is significant Product Mix;
because it provides information on the size and performance of an economy. The Linear Programming;
pace of increase in real GDP is frequently used as a gauge of the economy's Small Medium Enterprise;
overall health. An increase in real GDP is viewed as an indication that the Drinking Water
economy is performing well in general.Furthermore, we aim to investigate how
important a mathematical model is and where errors in its use are most common.
This is what leads to inaccuracies in GDP forecasting in the future. To compare
errors, we need to find the RMSD for each model. A model for GDP forecast that
has a smaller RMSD value is more suited. As a result, we will compare the RMSD
value and choose the best representative model to offer as GDP prediction using
mathematical models such as static and discrete models.

INTRODUCTION

According to the International Monetary Fund, Malaysia's economy is the fourth largest in Southeast Asia and the
38th largest in the world. Due to a high density of knowledge-based sectors and adoption of cutting-edge technologies for
manufacturing and the digital economy, labour productivity in Malaysia is much higher than in neighbouring Thailand,
Indonesia, the Philippines, or Vietnam. According to the Global Competitiveness Report 2019, Malaysia's economy is the
world's 27th most competitive, and it is one of the top ten countries to embrace a digital legal framework.
Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced
within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a
comprehensive scorecard of a given country’s economic health.
A mathematical model is a representation of a system that uses mathematical concepts and language to describe it. It's
a model that includes a set of system-related questions and a set of mathematical statements that can be used to answer
them.
Figureutilization, to provide uninterrupted production process for diverse customer demand in relation to quality and
timely delivery and to help the company to deliver a good products to customers on continuous basis at competitive rates
(Biswas & Chakraborty, 2016). One of the keys in production planning is the determination of the optimal product mix
as it can impact the company’s profitability. Product mix problem involves the selection of optimal product combinations
that maximize profit in demand constraints and production resources (Gunasekaran, Zainali, & Aghapour, 2015). By
achieving an optimal product mix, the company is able to increase profits and minimize production costs. As stated by
Ginting,

*CORRESPONDIN AUTHOR | J.K Cheng |  jackkie@ump.edu.my 1

8© UMP Press
 International Journal of Industrial Management (IJIM)

Figure 1 : Classification of Mathematical Mode

Referring to above diagram, it shows that mathematical model is separated by two which are Static Model (Least
Square method) and Discrete Dynamical System. Static model is a model that does not provide time dependency. We
applied the Least Square method in the Static model. The Least Square model is a mathematical regression analysis
technique for determining the optimal line for a set of data. It may also use a visual representation to highlight the link
between data points. Each data point represents the relationship between a known independent variable and an unknown
dependent variable. There are three equations in the Least Square method: a straight-line equation, a polynomial equation,
and an exponential equation. The straight-line equation is the common relationship between the x- and ycoordinates of
any point on a line. Under the static model, there are also polynomial equation and single exponential equation. A
polynomial equation is an equation with numerous terms made up of integers and variables. An exponential equation is a
single-exponent equation with a variable as the exponent.

Discrete model is a system which a quantity change value over discrete time interval. A nonlinear system in which the
country evolves in discrete time steps over state space following to a fixed rule is known as a discrete dynamical system.
One of the most prominent types of models in Discrete Dynamical Equations that also we have been used in this project
is the Discrete Malthusian Growth model. The Malthusian Growth Model is named after Thomas Malthus, a British
philosopher who lived in 1766. This model is also known as the simple exponential growth model. This model is a model
with only one variable and one parameter

LITERATURE REVIEW

Gross Domestic Product

(Fernando, 2021) stated that the total monetary or market worth of all finished goods and services produced inside a
country's borders in a certain time period is known as GDP. It serves as a comprehensive scorecard of a country's economic
health because it is a wide measure of entire domestic production. GDP is normally estimated on an annual basis, although
it is also calculated on a quarterly basis. The government of the United States, for example, publishes an annualized GDP
estimate for each fiscal quarter as well as the calendar year. Because the data in this report is presented in actual terms, it
has been corrected for price fluctuations and is thus inflation-adjusted.
(Collins & Nguyen, 2021) extend the micro to macro literature, according to D. Collins, by dissecting earnings into
R&D and pre-R&D components. They find that both components may forecast future real GDP growth with varied lead-
lag structures using Almon's finite distributed lag model (1965). Importantly, this breakdown considerably improves the
predictive model's explanatory ability when accounting data is used. Through the GDP channels of personal consumption,
business investment, and net export, aggregate accounting R&D can predict real GDP. Their research builds on previous
work on the forecasting utility of accounting data at the aggregate level, and it has practical implications for macro
forecasting and public policy decisions involving publicly traded companies' creative activities. (Akgül et al.,
2022)investigates four fractional derivatives in the gross domestic product model. They also use the Sumudu transform
to obtain fractional model solutions and demonstrate the efficiency of the Sumudu transform through the use of theoretic
findings and applications.

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Mohd Azmi et al.
(Ge & Tang, 2020)explores the extent to which commodity prices can forecast GDP growth rates of various countries
using indices of 27 regularly traded commodity futures in another study linked to GDP prediction. Commodity returns
have a high prediction value for the next quarter's GDP growth, while the basis has a moderate predictive capacity. Overall,
commodity prices can be seen of as a leading indication of future economic growth; rising commodity prices and basis
values signal a stronger economy in the future. The futures market can now give worldwide pricing information and has
become an important indicator of economic circumstances thanks to the creation of contemporary financial derivatives.
Commodities play an essential role in the economy as both raw materials for industrial production and important consumer
goods for everyday life. In the research of (Kouziokas, 2017), a machine learning methodology for time series forecasting
of GDP is proposed. To build forecasting models for projecting the Gross Domestic Product, Artificial Neural Networks
are used. Several network topologies were tested using different transfer functions and varied numbers ofneurons in the
hidden layers in order to produce the best forecasting model. The findings revealed that the levels of Gross Domestic
Product may be predicted with a high degree of precision.
(Zainon, 2019) built this study model using GDP data of Melaka and Negeri Sembilan for the years 2005-2016. Discrete
Dynamical System model is used to construct a mathematical model using state GDP data. The states' future GDP was
also predicted using the appropriate parameter value. In the long run, data that is not monitored and examined will have
an impact on economic growth. Any large shift in GDP, whether positive or negative, can have a considerable impact on
investor mood. If data is not monitored and examined, it is obvious that economic activity and growth will suffer. To
address this problem, a mathematical model will be used to track and analyze data in an analytical and logical manner.

Static Model

Static and dynamic prediction models demonstrated excellent discriminations for incident Type 2 diabetes (T2DM)
in the (Asgari et al., 2021) study, with only minor variations between them. Our findings are consistent with a study
(Parastet al, 2019) that found that the dynamic land- mark model for predicting incident T2DM had the same area under
the curve (AUC) as the static model within three years among people who were not taking metformin (dynamic = 0.682
vs. static = 0.678). (Russell et al., 2021) examines the cost-effectiveness outcomes of two models of maternal
immunization to prevent pertussis in infants in Brazil, one static and the other dynamic, to see when static models are
sufficient for public health choices and when dynamic models are worth the extra work. The static model was also used
to forecast the costeffectiveness of maternal immunization under average conditions for the period 1999–2016, which is
similar to the dynamic model's projections(Russell et al., 2021).

Discrete Malthusian Model

According to previous studies, Malthusian forces played a significant effect in demographic, socioeconomic, and
political transformation. The Malthusian model is put to the test in this study by (Russell et al., 2021), who uses data on
storage capacity and population size from a single long-lived house in the Bridge River town. The data in (Russell et al.,
2021) research back up the claim that Malthusian processes have major demographic, economic, and social consequences
at the household level. (Jumarie, 2006) propose a new solution for the stochastic differential equation of the Malthusian
growth model with fractional random growth rate, and apply it to the stability analysis of some nonlinear systems,
following a review of fractional calculus and a new derivation of Taylor's series of fractional order (the logistic law of
growth, for instance).Most of the researchers also have formulated a linear programming model with the objective
function to maximize profit under the capacity constraint, demand constraint and raw materials availability (Wang & Li,
2017). In product mix problem, demand, cost and resource capacity are the most used constraints in the studies. In term
of resource capacity, raw material availability and machine capacity are usually being considered in previous studies
(Haider et al., 2016). From the previous research, it has helped the decision makers in the company in making decision
for their production planning where they focusing more on high-sales products for their production (Maurya, Misra,
Anderson, & Shukla, 2015).

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 International Journal of Industrial Management (IJIM)
RESEARCH METHODOLOGY

Figure 3.1 Research Procedure

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