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Example Econometrics
Example Econometrics
Faculty of Economics
ECONOMETRICS ASSIGNMENT
GROUP 05 - FEA
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Econometrics Assignment | Financial Economics
TABLE OF CONTENTS
1. Introduction ............................................................................................................................... 4
1.1 Problem ................................................................................................................................ 4
1.2 Purpose of research ............................................................................................................. 4
2. Research questions .................................................................................................................... 4
4. Methodology .............................................................................................................................. 5
4.1 Qualitative methodology ..................................................................................................... 5
4.2. Quantitative methodlogy ................................................................................................... 5
5. Explanation of variables ........................................................................................................... 5
6. Time Trend ................................................................................................................................ 6
7. Modelling.................................................................................................................................... 6
8. Estimated Regression ................................................................................................................ 7
10. Statistical .................................................................................................................................. 9
10.1 F-test for overall significant ............................................................................................. 9
10.2 T-test of coefficients .......................................................................................................... 9
10.3 Coefficient of determination ........................................................................................... 10
10.4 Confidence interval ......................................................................................................... 10
10.5 Other test .......................................................................................................................... 11
11. Comment ................................................................................................................................ 12
12. Conclusion .............................................................................................................................. 13
13. Limitation............................................................................................................................... 13
References .................................................................................................................................... 14
Appendix 1. Time Series Data for Singapore, 1989 to 2020 ........ Error! Bookmark not defined.
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1. Introduction
1.1 Problem
Singapore is a high-income economy. The country provides one of the world’s most business-
friendly regulatory environment for local entrepreneurs and is ranked among the world’s most
competitive economies.
To sustain economic growth countries need high growth in demand for capital and consumer
goods as well as raw materials to support this expansion. Therefore, economic growth requires
the provision of additional resources to production. However, the provision of these additional
resources cannot be supported by domestic supply alone, which implies that imports of external
resources are needed to bridge the gap between the increasing domestic overall demand and the
limited supply. Consequently, imports are regarded as an essential component of international
trade and economic development.
Specifically, this study aimed to identify and analyse the determinants of imports in Singapore
over the period 1989 to 2020.
2. Research questions
Question 1: What determinants of imports in Singapore?
Question 2: How do the determinants affect imports in Singapore?
3. Literature review
Before presenting the empirical framework of our study, we first briefly present its theoretical
framework for determinants of imports.
Jalil, M. M. (2008) have analyzed relationship between imports and exports based on data in
Bangladesh , from 1976 to 2006, using econometric model. The results show that a positive
relationship between imports and exports.
Tom Gorman (2003) in "The Complete Idiot’s Guide to Economics", attempts to establish a
positive relationship between GDP and inflation.
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total 144 sample periods of January, 2000 to December, 2011; using econometric model. They
conclude that a positive relationship between imports and inflation.
Mohammadi T., Taghavi M., Bandidarian A. (2011) investigated the effect of exchange rate
uncertainty on import. This study used TARCH approach, in Iran. Results show significant and
negative impact of real exchange rate on imports.
Metin A., Orhan G. and Kemal E. (2006) studied effective economic factors on the import. Data
used in the time series analysis covered a period of 18 years from 1985 to 2002, in Turkey.
Double-log linear function was used to analyze the import model. They conclude that the import
value of the previous year could positively affect on the current year.
4. Methodology
4.1 Qualitative methodology
With regard to available secondary data (sourced from the website of World Bank), this research
applies the process of analyzing data followed by comparison method, combined the deductive
method to explain, demonstrate and evaluate the problem.
4.2. Quantitative methodlogy
This study is also associated with the use of quantitative analysis in statistic depend on the linear
regression models to test the impact of variables include exports, GDP, exchange rate, inflation
rate.
This study will gather data from the website of World Bank. Besides, the annual data of the
linear regression model (from 1989 to 2020), the OLS and the results of the model will be
estimated and analyzed by using the software Eview10. Particularly, this dissertation will uses
some variables involve exports, GDP, exchange rate, inflation rate. In order to test the
hypothesis, it is necessary to find out the relationship between the dependent and independent
variables.
5. Explanation of variables
Dependent variable: Imports (IM): billion USD
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Lagged The import value of the billion (+) Link source Metin A., Orhan
import previous year USD (World G. and Kemal E.
value Bank) (2006)
(IM(-1))
6. Modelling
Metin A., Orhan G. and Kemal E. (2006) studied effective economic factors on the import. Data
used in the time series analysis covered a period of 18 years from 1985 to 2002, in Turkey.
Double-log linear function was used to analyze the import model. They conclude that the import
value of the previous year could positively affect on the current year. Therefore, it is reasonable
to add lagging import value to the model and to complete the model. Moreover, in general, in the
previous models with all the independent variables already selected, the model after adding the
lag variable, basically, the tests did not appear to have problems compared to the previous
models. Thus, the model with added lag variable is reasonable.
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8. Estimated Regression
EX*ER .2903***
EX2 .001***
ER2 -24.23***
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In their work, they use model number (7). It contains all independent variables. There is no
problem with the model. Meanwhile contract, there is a functional problem in the model number
(2), (3), (4). There is a Heteroscedasticity problem in the model number (1), (3). Hence, model
number (7) is the best model.
9. Economic Meanings
Model
IMt = β0 + β1 EXt + β2 GDPt + β3 IR t − β4 ER t + β5 IMt−1 + ut
Dependent Variable: IM
Method: Least Squares
Date: 11/17/21 Time: 21:57
Sample (adjusted): 1990 2020
Included observations: 31 after adjustments
Estimated result
IMt = 61.9 + 0.734EXt + 0.041GDPt + 4.463IR t - 30.069ER t + 0.069IMt−1 + 𝑢𝑢�𝑡𝑡
Meaning of coefficient:
In this sample
β1 = 0.734 , when exports increase 1 billions USD, on average , imports increase 0.734 billions
USD, cet.par.
β2 = 0.042, when GDP increase 1 billions USD, on average , imports increase 0.042 billions
USD, cet.par.
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β3 = 4.463, when inflation rate increase 1%, on average, imports increase 4.463 billions USD,
cet.par.
β4 = -30.069 when exchange rate increase 1%, on average, imports decrease 30.069 billions
USD, cet.par
β5 = 0.069 when last year import increase 1 billions USD, on average, import increase 0.069
billions USD, cet.par.
Economic meanings:
The coefficient of EX was found to be significant and positive, implying that exports has postive
effect on imports. The sign matched our expected sign.
The coefficient of GDP was found to be insignificant, when it comes to the determinants of
imports in Singapore.
The coefficient of IR was found to be significant and positive, implying that inflation rate has
postive effect on imports. The sign matched our expected sign.
The coefficient of ER was found to be significant and positive, implying that exchange rate has
postive effect on imports. The sign matched our expected sign.
The coefficient of IM(-1) was found to be significant and positive, implying that the import
value of the previous year has postive effect on that the import value of the current year. The
sign matched our expected sign.
Correlation matrix:
EX GDP IR ER IM1
EX 1
GDP 0.949 1
IR 0.049 -0.122 1
ER -0.818 -0.81 -0.193 1
IM1 0.997 0.946 0.094 -0.843 1
Exchange rate and lagged imports value are the pair with the strongest correlation (0.997), so
when they appear in the same model, it will cause insignificant.
Exchange rate and interest rate are the pair with the weakest correlation (0.049).
10. Statistical
10.1 F-test for overall significant
T-test of β1:
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H0 : β1is insignificant
H1 : β1is significant
P-value of t-test is 0.000 < 5% → reject H0
At 5%, EX is significant
T-test of β2 :
H0 : β2 is insignificant
H1 : β2 is significant
P-value of t-test is 0.313 > 5% → not reject H0
At 5%, GDP is insignificant
T-test of β3 :
H0 : β3 is insignificant
H1 : β3 is significant
P-value of t-test is 0.000 < 5% → reject H0
At 5%, IR is significant
T-test of β4 :
H0 : β4 is insignificant
H1 : β4 is significant
P-value of t-test is 0.021 < 5% → reject H0
At 5%, ER is significant
T-test of β5 :
H0 : β5 is insignificant
H1 : β5 is significant
P-value of t-test is 0.021 < 5% → reject H0
At 5%, IM(-1) is insignificant
10.3 Coefficient of determination
R-sq = 0.9978: In this sample, 99.78% of total variation in log Imports is explained by the model
(by variation in Exports, GDP, Exchage Rate, Inflation Rate and Lagged import value)
n = 31, k = 5, t = 2.131
CI for β1:
�1 ± Se(β
β �1)t (n−k−1)α/2 = (0.6527; 0.815)
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At α = 0.05, confidence interval at 95% , when inflaton rate increases by 1 billion USD, imports
increase at least 1.64 billion USD , maximum 5.286 billion USD
CI for β2 :
�2 ± Se(β
β �2)t (n−k−1)α/2 = (−0.044 ; 0.125)
At α = 0.05, confidence interval at 95% , when GDP increases by 1 billion USD, imports
decrease by at least 0.044 billion USD and decrease by maximum by 0 billion USD, increase by
minimum by 0 billion USD and increase by maximum 0.125 billion USD
CI for β3 :
�3 ± Se(β
β �3)t (n−k−1)α/2 = (1.64; 5.286)
At α = 0.05 confidence interval at 95% , when IR increases by 1%, imports increase at least 1.64
billion USD , maximum 5.286 billion USD
CI for β4 :
�4 ± Se(β
β �4)t (n−k−1)α/2 = (−56.177; −3.963)
At α = 0.05confidence interval at 95%, when exchange rate increases 1%, imports decrease by a
minimum of 3,963 billion USD and by a maximum of 0 billion USD; minimum increase of USD
0 billion and maximum increase of USD 56,177 billion
CI for β5 :
�5 ± Se(β
β �5)t (n−k−1)α/2 = (−0.014; 0.151)
At α = 0.05 confidence interval at 95%, when IR increases 1%, imports decrease by a minimum
of 0.151 billion USD and by a maximum of 0 billion USD; minimum increase of 0 billion USD
and maximum increase of 0.014 billion USD.
Heteroscedasticity test
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Value Probability
F- statistic 1.037928 0.498
On White test
H0 : Homoskedasticity
H1 : Heteroskedasticity
P-value of F-test = 0.498→ Not reject Ho
→ Homoscedasticity
Value Probability
F- Statistic 1.491479 0.234
Normality test
7
Series: Residuals
6 Sample 1990 2020
Observations 31
5
Mean -9.57e-15
4 Median 1.078628
Maximum 8.697254
3 Minimum -12.08548
Std. Dev. 5.352840
2 Skewness -0.223823
Kurtosis 2.312229
1
Jarque-Bera 0.869830
0 Probability 0.647320
-12.5 -10.0 -7.5 -5.0 -2.5 0.0 2.5 5.0 7.5 10.0
11. Comment
While the countries are importing products to meet the domestic demand, they could also export
the same products to benefit from the foreign price advantages. The partial regression coefficient
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of export value of forest industry products (EXt) is 0.734. This variable is meaningful at 0.000
level. The positive mark of this variable explains exports increases 1 billion USD, imports
increases 0.734 billion USD of the current year. The exports affect strongly imports.
The partial regression coefficient of real gross domestic product (GDPt ) is 0.041. This variable is
meaningful at 0.312. GDP increase 1 billion USD, imports increase 0.041 billion USD. GDP
does not have much impact on imports.
The partial regression coefficient of inflation rate (IR t ) is 3.463. This variable is meaningful at
0.0004. When inflation rate increase 1%, imports increase 3.463 billion USD. The inflation rate
affect strongly imports.
External value of a currency could directly affect imports. Countries could fulfill more imports in
the time of currency appreciation and more exports in time of currency depreciation. The partial
regression coefficient of exchange rate (ERt) is –30.069. This variable is meaningful at 0.021
level. The negative mark of this variable explains that 1% increase in exchange rate or when the
currency depreciation is 1%, the imports will decrease 30.07 billion USD.
The partial regression coefficient of lagged import value (IMt-1) is 0.069. This variable is
meaningful at 0.087 level. When import value of previous year increases 1 billion USD, imports
increases 0.069 billion USD of the current year. The import value of the previous year has only a
little effect on the current year.
12. Conclusion
By investigating several determinants of imports in Singapore for the period 1989-2020 and
using an econometric regression model and tests, our group has answered the question posed at
the beginning of the paper. This study found that exports, inflation rate, exchange rate, lagged
import value are the major determinants of import in Singapore. Coefficients that are consistent
with the theory found within the group's data. We can see that real gross domestic product is not
an element in determining the level of imports in this country. The result shows that gross
domestic product does not impact imports in Singapore. In another model, GDP can still affect
imports but the selected model does not.
In addition, we can see that lagged import value and the exchange rate do not have much impact
on imports. Inflation and exports are the two most influential factors on exports. This is a
disability model. It's the best of the models but it's not perfect when some variables in one model
are insignificant but in another it's significant.
13. Limitation
There are certain limitations of this study. Firstly, the sample size taken in this study was very
small that is only 32 observations (from 1989 to 2020). If this study is being carried out again
with a large sample size the result might be improved than the existing study. Secondly, the
group's essay also contains many unsettled arguments. The team members do not have enough
technical knowledge to be able to analyze the economic significance of the model accurately.
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References
Jalil, M. M. (2008), "Are Exports And Imports Of Bangladesh Cointegrated?", SSRN Electronic
Journal, access in 13 Nov 2021, Http://Ssrn.Com/Abstract=1313763.
D Muktadir-Al-Mukit, AZM Shafiullah, R Ahmed (2013), “Inflation Led Import or Import Led
Inflation: Evidence from Bangladesh”, Asian Business Review, access in 13 Nov 2021,
https://doi.org/10.18034/abr.v2i2.104.
Mohammadi T.,Taghavi M., Bandidarian A. (2011), “The Effect of Exchange Rate Uncertainty
on Import: TARCH Aproach”, Vol. 1, International Journal of Management and Business
Research, pp. 211-220.
Metin Akay, Orhan Gunduz and Kemal Esengun (2006), “A Regression Analysis of the
Economic Factors Effecting the Import of Forest Industry Products in Turkey”, Journal of
Applied Sciences, 6: 357-361, acess in 14 Nov 2021, doi: 10.3923/jas.2006.357.361
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