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1. GDP: Our Dependent Variable is the GDP (Gross Domestic Product) of India for the
years 1991-2019.
Below is a graph showing the GDP growth of India over the years :
4. Population : For this project, we have also taken into consideration India’s population
through the sample time frame as the gross domestic product is a function of
economic activity done by the citizens. As visualized in the graph below, the
population has grown over the years :
Correlation between independent variables and GDP of India
GDP is highly positively correlated with both CPI and Population, whereas it is negatively
correlated with inflation. This negative correlation is not very strong either, because of the
two-pronged effect of inflation on GDP. While inflation makes products more expensive,
hence adding to the gross value, there is a decline in the purchasing power of money, which
reduces consumption and therefore GDP decreases. High inflation can make investments less
desirable, since it creates uncertainty for the future and it can also affect the balance of
payments because exports become more expensive.
Hypothesis Testing
Hypothesis 1.
Null Hypothesis : There is no significant relationship between the population of India and its
GDP.
Alternate Hypothesis: There is a significant relationship between the population of India and
its GDP.
Hypothesis 2
Null Hypothesis : There is no significant relationship between the Consumer Price Index and
India’s GDP
Alternate Hypothesis: There is a significant relationship between the Consumer Price Index
and India’s GDP
Hypothesis 3
Null Hypothesis : There is no significant relationship between the Inflation Rate and India’s
GDP
Alternate Hypothesis : There is a significant relationship between the Inflation Rate and
India’s GDP
Testing
The null hypothesis will be rejected when the p-value in
the summary is less than 0.05, while it will be accepted if the
p-value is greater than 0.05.
As seen in the P-value table, it is less than 0.05 for all the independent variables, hence we
reject the null hypothesis for all of them.
Therefore, our independent variables have a significant relationship with GDP and the
statistical probability of getting a relevant result upon using this regression model is high.
It is seen that both CPI and Population are strongly correlated with GDP but Inflation has a
slight correlation of 0.225339 because of the two pronged effect of inflation on GDP. To get a
clearer picture of the relationship between inflation rate and GDP, more independent
variables have to be considered, such as unemployment rate, wholesale price index, FDI,
other investment indicators because all of these are in turn affected by inflation rate.
Below is the regression summary obtained :
For this project, the data collected for GDP of India and the independent variables was used
in the following way :
For regression analysis : 1991 to 2019
For regression validation : 2020
Using the summary data, we were able to construct the regression equation :