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Importance of Macroeconomic Determinations for Economic Growth: Case Study of the US

In general, the quest for the development of the economy has always been the focus of human civilization since several decades. Economic growth, even in our globalized world, dominates the media debate and it remains at the concentration of human concerns. Countries which seem to record high rates of growth are referred to as growth miracles. In simple words, economic growth has been considered important by humans from a very long time. Even in present time, nations strive to enhance it (Lewis, 2013).

Economic growth refers to an increment in the development of services and goods, and they are compared from one-time duration to another. It is possible to measure it in real or nominal terms. Typically, aggregate growth of the economy is evaluated with respect to GDP or gross domestic product and GNP or gross national product. Sometimes, alternative metrics are also utilized to evaluate economic growth. Economic growth, in simplest terms, refers to an increment in the economy’s aggregate production. Although it is often, it is not necessary that aggregate gains correlate with higher marginal productivity. This leads to an increment in incomes which inspires consumers to spend more. Gradually, this improves the living standard of people, and the whole country is benefitted from it. Thus, the macroeconomic determines significantly contributes to the economic growth of countries.

In economics, expansion and growth are generally modeled as an operation or function of technology, labor force, human capital, natural resources, and physical capital. With an increase in the quality or quantity of the working-age individuals, the tools they use for work, and the processes they have for combining raw materials, capital, and labor will serve to increase economic output (Acemoglu, 2012).

There are a number of ways of generating economic growth and expansion. The very first method is concerned with raising the number of capital goods prevalent in the economy. Labor productivity is normally increased by the addition of capital in the economy. Transformation of technology more equipment mean that more output can be produced by workers. For instance, a fisherman who has a fishnet will be capable of catching more fish on an hourly basis than the one who only has a pointy stick. But it is important to note that there are two things very important in this process. It is significant in the economy for someone to engage in a specific type of saving for freeing up the resources to develop new capital, and it has to be adequate, at the time right, and in the right place for different workers to utilize in a productive manner.

Development analysts and growth proponents predict that viable economic expansion and growth at an international, regional, and national level is critical in eliminating social vices such as robbery and drug addiction etc. That is the reason why different multilateral institutions such as the United Nations and the World Bank have focused increasingly on interventions related to economic growth. And technological improvement is the second technique of economic growth development. Although coal has ushered the industrial revolution as it came before oil, it can be said that gasoline fuel’s invention as prior to this source of energy, petroleum’s economic value was quite low, and it was also not considered important in the world. The utilization of gasoline became a more innovative and better technique of transporting different products in processing and distributing them in an effective manner. Workers are enabled by improved technology to develop more outputs with the same amount of capital goods, by actually combining them in sophisticated ways which are more innovative and productive. Similar to capital growth, technical growth’s rate is dependent highly on the rate of investment and savings, since these factors are very important for engaging in development and research (Rodrik, 2003).

Another method of generating economic growth is increasing the number of workers or just the labor force. It is important to note that if all else is equal, more economical services and goods are produced by more workers. Similar to how growth was increased capital, there are some significant conditions for this whole event or process. For instance, raising the labor force also serves to raise the output amount that should be consumed to offer fundamental subsistence to workers. Therefore, the new workers have to be productive sufficient enough to overcome this hurdle. In addition to it, similar to capital, it is significant for the adequate workers to flow jobs inadequate places, in different but adequate places with the right capital goods to comprehend their actual and productive potential.

The last technique is concerned with increasing human capital which means that laborers must be more skills in what they do, increasing their efficiency through more practice, trial and error, and skill training. Specialization, investments, and savings are not only consistent, but they are also easily controlled techniques. In this context, human capital can refer to institutional and social capital; in general, behavioral tendencies toward higher political innovations, reciprocity, and social trust such as enhanced protection for different rights of property are typically in human capital’s effect types which can enhance the economic productivity. Hence, labor is considered as one of the major macroeconomic determinants (Henisz, 2000).

A productive or growing economy seems to not only make more goods but also offer more services than in the past. But some services and goods are recognized as more important than other goods. For instance, a smartphone is considered to be more important than some socks. In the value of services and goods, growth has to be evaluated. A problem is concerned with the fact that the same value is placed by individuals on similar services and goods. For instance, a heater is considered more critical for an Alaskan resident while an AC is more important to Florida’s resident. Since value as a concept is subjective, evaluating it for all people is quite difficult. The current market value is the general approximation utilized for it. This is measured, in the US, with respect to US dollars (Demirgüç-Kunt & Levine, 2004).

The research about the facts which are capable of hindering or increasing economic growth has been one of the most important topics among the researchers of empirical and theoretical growth. However, there are not many studies available on this topic. Actually, within the theory of economic growth, there are significant novelties which have served spearhead the majority of available discussions on the topic of economic expansion and growth. Theories of endogenous growth and neoclassical growth are included in them. And their main focus has been on the significance of different state factors including the accumulation of both human capital and physical capital. However, to the literature about economic growth, there have been some critical contributions which concentrate either on the significance of basic economic growth sources including political, socioeconomic, geographic, demographic, and legal factors or on the effect of different efficiency factors on the growth of the economy. In the short run, the neoclassical theory of economic growth, which is also referred to as the exogenous model of growth, seems to advocate for the physical capital accumulation as a significant economic expansion driver while in the long run, technological advancements are critical in economic growth (Stiglitz, 1075-1086).

In general, it can be said that an extension of this model was human capital stock’s inclusion as an important growth determinant in the long-term for completing the accumulation of physical capital. With respect to the theorists of endogenous growth, their critical contribution is based on productivity factors’ inclusion such as useful knowledge of technology and learning-by-doing as significant economic expansion drivers. As much as there is a focus on state factors including human capital and physical capital being important, factors of productivity are also critical macroeconomic determinants of growth of an economy. There are some factors which affect the effectiveness of investment and savings, and they are just as important in affecting economic growth. These factors have important outcomes as well such as: setting the adequate mechanism of price and a necessary environment for clearing markets, macroeconomic environment stability, and institutional framework’s effectiveness of an economy associated with economic and political governance (Carkovic & Levine, 2005).

As stated above, economic growth refers to an increment in the average output produce rate per individual normally determined on an annum basic. In general, it mainly defines the change rate in national income or output during a specific time period. The economic growth of any country is also an increase of GDP or increase of capital gross domestic product or measures that are used to determine income. Mostly, it is the change rate in the actual GDP. On the other hand, negative growth can be simplified as the shrinkage of the economy. It is characterized normally with depression or recession in the economy. Macroeconomic policy refers to the governmental policy that is connected with an aggregate economy, commonly to encourage the objectives of growth, stability, and employment.

The economic growth of any country can be determined through some specific parameters. These parameters are referred to as macroeconomic determinants. These determinants seem to vary with short and long runs. The aim of this research is to shed light on different parameters of macroeconomic growth of a nation (Jorgenson, Gollop, & Fraumeni, 2016).

There have been several studies which have attempted to identify the most significant macroeconomic determinants of economic growth of the United States of America. There have been several economists who have resorted to choosing several determinants, as long as the analysis can be handled by the country and determinants can be applied to it. In addition to it, there are some factors which promote economic growth while there are some factors which decrease economic growth. These are referred to as positive and negative factors for macroeconomic growth. Moreover, with an increase in the demand for services and goods, international and national suppliers of such goods enjoy an increase in the revenues from the higher activity of consumers. In turn, stock prices might be increased by increased profits.

Even though there is significant data about macroeconomic determinants and it might offer an analytical framework for determining the economic growth determinants, numerous governments don’t recognize the important drivers of this growth specific their economies. At present, it is still not clarified as to which determinants and factors are the most important drivers of expansion and growth in an economy. Although it has been determined that in nations are developing, the key determinants of this growth include financial actors, natural resources, demographics, trade, and fiscal policy, among others. All of these are associated with economic growth.

In this paper, the focus is on comprehending the macroeconomic determinants or drivers of expansion and growth in the economy. Even though the evidence is taken from different sources and the context of different nations, the main aim is associated with the United States. By collecting data and forming hypotheses, it is analyzed which economic determinants can inform about the growth of the economy in the United States of America (Ranis, Stewart, & Ramirez, 2000).

The USA is considered a significant nation in the world and most of the studies are conducted in its context. It is also a major player in terms of economic growth. However, there haven’t been many studies to focus on the determinants which can tell about the drivers that enhance this growth for the US. Since there are not many types of research in this field, this study is focusing on the determinants of growth. This study is important because there hasn’t been a study in the field to determine the factors for enhancing the growth of the economy in the US. Using this research, other researchers will be able to understand how the growth of the economy occurs in the US. In addition to it, they will be able to use this information in their studies and built on it to conduct their studies.

As explained above, it is determined which factors are important for the growth of the economy and which are not important. In this section, an overview of different important terms, including economic growth and factors driving has been provided (Mbaku & Kimenyi, 1997).

Chapter 2: a Literature review

Developing Countries

Ciccone & Jarociński (2010) studied the sources of growth in the economy in several countries while covering a decade. Through the use of regression analysis, the results of the study indicated that the variability in the exchange rate and the distortion index of the exchange rate significantly and negatively related to the economic growth in the long-run. The rate of investment was related positively with the growth in the economy. It can be seen in the following image of their model:

Additionally, it was determined by the research with an increase in the instability degree of the exchange rate, and there would be a decrease in the diffusion degree of technology from different advanced economies. Therefore, it was concluded by the study that an important role is played by outward-orientation in the acceleration of technological development in a specific economy. In general, this is achieved through a stable regime of the exchange rate and low protection degree. The authors also studied the growth in the economy and macroeconomic stability in Latin America and Sub-Saharan Africa in the very same period. Through the use of regression analysis, it was determined by the results that budget surplus, investment, and human capital were significantly and positively related to the growth in the economy (Ciccone & Jarociński, 2010).

In addition to it, dummy variables, inflation, and initial GDP were significantly and negatively related to the growth in the economy. Therefore, it was concluded by the author that a sustainable level of stability is required for effective growth in an economy (Jõeveer, 2013).

The model of Scully (2002) was focused upon and extended through the examination of the relationship existing between public investment, human capital, investment, and trade policies on the growth of the economy in several nations (Scully, 2002). Through the use of panel regression and different developing nations, it was shown by their study that a positive and strong correlation existed between economic growth, human capital, and physical capital in these nations. It was also indicated by the results that public investment was related positively to the growth of the economy in various developing nations. In addition to it, tariffs as a method of population growth and trade openness were significantly and negatively related to growth in the economy in countries chosen by authors. It was concluded by the study that population growth, trade openness, investment by public, and human capital along with physical capital, were significant indicators of growth in the economy (Gupta, 2005).

The neo-classical models of Swan and Solow determined that population growth and technological growth were considered as the major determinants of economic growth in long-run. They believe and stated in their paper that government is capable of influencing the rate of population growth, incentive, and saving rate for investing in physical and human investment through different policies including exchange rate, income, monetary, and fiscal policies. The equilibrium factor ratio can be changed by these policies or influence the steady growth rate’s transition path. Following the model of neo-classical growth, the fiscal policy influences economic growth, but on a temporary level as in the long run, it is not permanent.

Over recent years, economic growth and macroeconomic policies have gained a lot of attention from researchers, policymakers, and government.

According to Ismaila & Imoughele (2015), as the starting level of GDP, the rate of growth is improved by the improvements in trade, higher life expectancy and schooling, lower consumption by government, lower fertility, and optimised maintenance of law are negatively associated with the GDP initial level. The political freedom of the country seems to have an effect but a weak effect on expansion and growth; however, the nonlinear relation could exist. The living standards of the country influences positively to the propensity of a country for experiencing democracy. It has been determined that inflations have an adverse influence on the economic output which is statistically significant. Also, the capability of adopting technological changes for increasing efficiency is significant. Considering the fact that several developing nations have a large sector of agriculture, negative supply shocks are determined to have an adverse influence on growth (ISMAILA & IMOUGHELE, 2015).

 The economic growth of any nation is largely described by its government expenditure, inflation, foreign aid, FDI or foreign direct investment, and physical capital. The economic growth is not significantly influenced by short-term variations in the labour force. It is important for the government to create a tax system in an efficient way along with the improvement of budget and it should provide direct foreign assistance into different programmes which are capable of producing public capital since it serves to improve mass productivity. Investment has a significant part in enhancing growth through an increase in the levels of productivity. Employment is created by foreign direct investment, and it also brings technology. It helps in adopting new production methods while productivity is enhanced by it through competition in the nation’s economy. A nation is also introduced to organizational skills by foreign direct investment, and it helps a nation in exploring hidden markets. It reduces the hindrances in the adaptation of technology and makes improvements in capital input and labor quality.

Economic indicators related to employment, particularly those who evaluate the capability of economies to create sufficient opportunities for employment for their populations, often serve to offer significant insights into the macroeconomic performance of economies. And among the commonly utilized indicators include participation rates of the labor force, ratios of employment-to-population, and unemployment rates. Employment elasticity in terms of output is another indicator of labor market which is not significantly focused upon in the literature. And the fundamental simplification of this indicator is that it is a measure of just how employment seems to change with the economic output. Although it is focused upon less frequently than other indicators of labor market, employment elasticities are capable of providing significant information about the markets of labor. In their most fundamental use, they act as a way of examining how expansion in employment and economic output evolve. In addition to it, they can offer insights into how the generation of employment changes for different subsets of population in an economy and help in analyzing and detecting structural changes occurring in employment (Chizonde, 2016).

            It has been determined that inflation, liquidity of the stock market, financial institutions, and savings represent some important determinants of stock market development. The authors assessed all the macroeconomic determinants including federal funds rate of the US, index of oil price, domestic credit, inflation change, investment, income, remittances, and institutions of stock market development in seventeen emerging markets in Central and Middle Asia through the use of fixed-impact panel regression. Through the examination of the relationship between seventeen nations, their results determine that investment, income, oil prices, and remittances do have an effect on the development of the stock market. It has also been determined that “stock market liquidity, private capital flows, development of banking sector, gross domestic investment, and income level” are considerably some significant signs that represent stock market development (Kapsos, 2006). Using the approach of VECM, the progress of the capital market and the economic growth, as well as its relationships, has been assessed and the results showed that the GDP growth rate influences negatively to the stock markets. On the other hand, the findings show that domestic credit, inflation, the formation of gross capital, market liquidity, and money supply “have significant and positive influences on the development of the stock market” (Şükrüoğlu & Nalin, 2014).

            Labor force is actually the overall labor force of active population comprising all who are fulfilling the requirements inclusions among the unemployed or employed during a specific period. Following the classical growth theorists, an increment in this force is seemingly expected to increase the per capita GDP. Generally, economic growth, in the long run, is described by “government expenditure, inflation, foreign aid, foreign direct investment, and physical capital” (Antwi, Mills, & Zhao, 2013).

The indicators and determinants of growth in the economy were studied by authors in several developing nations through the use of models concerned with time-series growth. Mixed results were revealed in the study. For instance, foreign aid was determined to be significantly and negatively related to growth in the economy in Botswana, Rwanda, and Nigeria. Meanwhile, it was significantly and positively related to growth in the economy in Senegal and Niger. In addition to it, domestic savings were determined to be significantly and positively related to growth in the economy in Kenya, Cameroon, Senegal, and Togo, while being significantly and negatively related to growth in the economy in Zambia and Mauritius.

FDI was significantly and positively related to the growth in the economy in Togo and Kenya but it significantly and negatively related to growth in the economy in Rwanda and Mauritius. Lastly, growth in the population was determined to be significantly and negatively related to the growth in the economy in Niger and Senegal (Rahman, Sidek, & Tafri, 2009).

The authors through the use of the equation of cross-sectional expansion or growth, determine the indicators of growth in the economy of Caribbean nations and Latin America during periods of five years. It was determined by the study that fiscal surplus, telephones as a measure per worker, and financial depth were significantly and positively related to the growth in the economy while different factors such as the black market and political assassinations were significantly and negatively related to the growth in the economy. All variables were identified to be significantly and negatively related to the growth in the economy and showed that Caribbean nations and Latin America seemed to experience a decrease in the growth of the economy.

In addition to it, the results of study indicated that poor and inefficient growth of Africa was related to insufficient infrastructure, high deficits in the government, distorted markets of foreign exchange, and political instability as they seemed to account for a sufficient amount of variation in the rates of growth in economy (Gokal & Hanif, 2004).

Authors through the use of least-square regression re-evaluated the model using the data which covered ten years. And the variables which were included in the study were age population for the nation, annual growth and it’s average, and variations in the physical environment. It was determined by them that variations in the growth of output were significantly and positively related to changes which occurred in physical investment. But variations in the development capital were significantly and negatively related to the growth in the economy. It was also analyzed by them that the coefficient on changes in the growth of population was not important in terms of statistics.

The factors and drivers of the growth in the economy were also studied by authors through the use of a neoclassical model of growth for several nations, and it also covered a decade. On the basis of panel regression, the results of study indicated that international openness, index of democracy, law index guidelines, schooling years, and investment shares were significantly and positively related to the growth in economy whereas inflation, rate of fertility, and consumption of government were significantly and negatively related to the growth in economy (Helpman, 2009).

The relationship between the growth in the economy, enrolment in better and higher education, investment, real GDP, and inflation by authors. Through the use of data related to the provincial panel, it was determined by the study that university enrolment and trade were significantly and positively related to GDP’s average rate. State-owned organizations and inflation, meanwhile, were significantly and negatively related to the growth in the economy. Therefore, it was concluded by their study that education, foreign trade, and a number of private organizations were significant drivers of growth in the economy in the long-run.

Authors also studied the indicators of growth in the economy in various nations which covered both the developing and developed nations during a decade. The results of the study were based on three regressions. It was revealed by the results that trade openness and democracy related positively to the growth in the economy. Meanwhile, the rate of inflation, consumption of government, rate of fertility, and GDP’s initial level were significantly and positively related to the growth of economy (Edison, Levine, Ricci, & Sløk, 2002).

Developed Nations

Significant indicators and determinants of growth in the economy are studied in the research of authors. In this section, several studies are discussed the methodological approach which was adopted in these researches was combined and included an individual-country and cross-country regressions. Annual data was utilized by the authors from several nations for investigating the connection between the growth in the economy and fiscal policies. The results obtained from the study indicated that innovative expenditure of the government had a positive and important relationship with the rate of economic growth in the long-run: meanwhile, distortionary taxes seemed to have an important and negative related with the rate of economic growth in the long-run.

It was concluded by the study that economic growth was increased by innovative expenditures while the growth in the economy was reduced by disruptive fiscal policies. The relationships between the growth of the economy and accumulation of capital were also investigated by authors in several regions of Spain through the use of a neoclassical model of growth. It was identified by the study that investment and development capital was significantly and positively related to the growth in the economy. The authors also studied the indicators of growth in the economy through the use of a neoclassical model of growth which was augmented as well. It was indicated by the results that both shares in investment and exports were significantly and positively related to the growth and expansion in GDP. In addition to it, the results of research determined that threshold effects are exhibited by the government size whereas the larger size of the government was significantly and negatively related to the growth in the economy (Lin & Liu, 2000).

Through the use of least squares and distributed lag method, the authors seemed to study the relationship between GDP and investment in countries including Taiwan, Korea, and Hong Kong. A decade was selected for the time period, and it was shown by results in the short run that shares of investment were significantly and positively related to the growth in the economy. Additionally, it was significantly and positively associated with the GDP level in the long-term. In all of these nations, consistency was indicated by the findings.

Correlation’s robustness was studied by authors between the indicators of economy and rates of growth in Turkey through the use of Analysis concerned with Extreme Bounds, which covered a decade. It was revealed by the results that different state variables which were correlated with the growth in economy included the development of capital and investment, and they were significantly and positively related to the growth of the economy. The study, with respect to monetary indicators, determined a significant and negative correlation between the growth in economy and inflation. Therefore, it was concluded by the study that inflation, development of capital, and investment were factors of growth in the economy in Turkey.

A model of neoclassical expansion and growth was also employed by authors for investigating the factors of growth occurring in the Japanese economy, which covered a decade. Through the use of the technique of Beach-Mackinnon, the results of the study indicated that the rates of growth of domestic investment and productivity were significantly and positively related to the growth in the economy. The relationship existing between the growth in the economy and government debt was studied by the authorsin various European nations through the use of an equation associated with conditional convergence, and it covered a decade. Through the use of a rate of GDP growth as an independent variable, it was revealed by results that trade openness, private savings, and government balance were associated positively with the growth in the economy (Alfaro, Chanda, Kalemli-Ozcan, & Sayek, 2004).

Meanwhile, real rates of interest and growth in the population were significantly and negatively related to the growth in the economy. Debt on the government was determined to be significantly and positively related to the growth in the economy. Therefore, if the government had debt on it from other nations, then it would negatively affect the growth of the economy. Other than just decreasing the economic growth, it would also present itself as an obstacle in the growth. In order to growth the economy, it is significant for the organization to ensure that it doesn’t have debt on it. Although government debt was negatively related to the growth in the economy, its square was also significantly and negatively associated with the growth in the economy. It seemed to confirm the effects of a threshold.

With the use of regression, Prasad, Rajan, & Subramanian (2007) studied and reexamined another model and covered the data from a decade. Different variables were included in the study, and they included modifications in the physical investment, average rate of growth, and also population that worked in different schools. The data utilised by the authors covered a decade, and it was determined by them that changes and variations in the growth were significantly and positively related to variations in the investment rates. However, the same cannot be said about the changes occurring in the development of capital since they were significantly and negatively related to the growth in the economy. It was also determined by authors that coefficient about the variation in growth of population was not that important in terms of statistics. 

The indicators and determinants of growth in the economy were investigated by authors through the use of a model of neoclassical growth for several countries including the United States and covered a decade. On the basis of panel regression, democracy index, schooling years, and trade terms growth along with investment shares were significantly and positively related to the growth in the economy. Meanwhile, inflation, rate of fertility, and consumption of government were significantly and negatively related to the growth in the economy.

In the same study, the determinants and indicators of growth in the economy were studied by authors in a panel of several nations which seemed to cover both developing and developed nations during a period of ten years. The results of the study were based on regressions which covered ten years, and it was revealed by the results that trade openness, democracy, and law rule were significantly and positively related to the growth in the economy. Meanwhile, the consumption of government, rate of fertility, and GDP initial level were significantly and negatively related to the growth in the economy. It means that these factors seemed to affect the economy in a negative way. If the degree of these factors was high, it would decrease the growth of the economy and would also become an obstacle to be overcome in order to enhance the economy  (Prasad, Rajan, & Subramanian, 2007).

Central European Nations

Denison (2011) studied the relationship between economic growth and efficiency of the banking sector in several countries which included Romania, Bulgaria, and Albania. The period during which the study was conducted covered a decade. Through the use of method concerned with panel regression, it was determined by the study that interest and inflation rate seemed to significantly and negative associated with the growth in the economy. Their presence or higher standard in the countries indicated a lower rate of growth in the economy. In a converse manner, the general balance of the government as a GDP percentage was significantly and positively related to the growth in the economy.

Meanwhile, the author also studied the effect of the stability of the exchange rate on the growth of the economy in several nations. The data which they utilized also covered ten years and through the use of a regression method, it was determined by them that the index of the exchange rate against the USD and Euro were significantly and negatively related to the growth in outputs. It was concluded by them that the rate of growth in budget deficits and the rate of growth as a GDP percentage were significantly and positively related to the growth in the economy. Both the supply and demand-side determinants of growth in the economy were investigated by the authors in several nations during the period that covered ten years. Through the use of estimation of least squares, it was determined by the study that important determinants of the growth in the economy were significantly and positively related to expansion in the economy in the chosen nations. These determinants included reforms in the infrastructure, economic freedom, shares in the GDP, information development, development of capital, and rate of investment. All of these determinants were related to economic expansion in a positive manner. Meanwhile, inflation, rates of interest, and public debt were negatively related to this growth.

The effect of trade openness on the growth of the economy was also studied by the author in ten Eastern nations of Europe during a period which covered ten years. In addition, through the use of additional regressors, it was found by the study that investments, capital formation, and development of capital were significantly and positively related to the growth and expansion in the economy. Meanwhile, the population was associated significantly and negatively with the growth of the economy when a method of panel regression was utilized.

In the literature of empirical growth, different demographic factors which are studied include the rate of fertility, the force of labor, employed labor, and growth of population. It has been determined by some studies that employed labor, population growth, and population were significantly and positively related to the growth in the economy (Denison, 2011).

Some other studies, however, have indicated a significant and negative relationship between the rate of fertility, growth and expansion in population, and population. The outcomes have also been tested using the meta-analysis between the growth in the economy and population growth where the impact seems to depend on different variables which are involved in the model. It has also been analyzed that the effect depends on the econometric methodology, which is used in the test. In the empirical literature, the exogenous factors which were studied commonly consist of FDI and aid from foreign nations. Mixed results were revealed by the empirical literature with FDI and aid from other nations either negatively or positively related to the growth in the economy.

Through the use of panel regression and different developing nations, it was shown by their study that a positive and strong correlation existed between economic growth, human capital, and physical capital in these nations. It was also indicated by the results that public investment was related positively to the growth of the economy in various developing nations. In addition to it, tariffs as a method of population growth and trade openness were significantly and negatively related to growth in the economy in countries chosen by authors.

It was concluded by the study that economic growth was increased by innovative expenditures while the growth in the economy was reduced by disruptive fiscal policies. The relationships between the growth of the economy and the accumulation of capital were investigated by authors in several regions of different nations. It was identified by the study that investment and development capital was significantly and positively related to the growth in the economy. Through the use of a method concerned with panel regression, it was determined by the study that interest and inflation rate seemed to significantly and negatively associated with the growth in the economy. Their presence or higher standard in the countries indicated a lower rate of growth in the economy. In a converse manner, the general balance of the government as a GDP percentage was significantly and positively related to the growth in the economy.

It was determined by authors that real rates of interest and growth in the population were significantly and negatively related to the growth in the economy. Debt on the government was determined to be significantly and positively related to the growth in the economy. Inflation, liquidity of the stock market, financial institutions, and savings represents some important determinants of stock market development. The authors assessed all the macroeconomic determinants, including federal funds rate of the US, index of oil price, domestic credit, inflation change, investment, income, remittances, and institutions of stock market development. The results obtained from the study indicated that innovative expenditure of the government had a positive and important relationship with the rate of economic growth in the long-run: meanwhile, distortionary taxes seemed to have an important and negative related with the rate of economic growth in the long-run (Hermes & Lensink, 2003).

Chapter 3: Methodology and Analysis

In this paper, Cobb-Douglas Production Function is utilized for developing the equation and exploring macroeconomic determinants. In order to build equal, the data is collected from the World Bank. Through the use of credible information, it is possible to accurately determine what we want. In terms of macroeconomic indicators, both of these organizations are considered reliable and credible. For analysing the effects of independent variables on the dependent ones, OLS regression and correlation are utilized. These are also accurate and valid methods of identifying the relationships between variables.

The study employed the secondary annual time series data for the year 1970-2017. The reason for this sample size is that the World Bank provided the data for this time period only. So the availability of data is a major reason for this sample size. This study used the Cobb Douglas Production Function to derive the model.

A Cobb-Douglas production function can be written in the following form.

Y= a1La2Ka3                                        (1)

Taking the log of equation (1), the equation become

LnY= a1 + a2LnL + a3LnK               (1.1)

As the macroeconomic determinants are main considerations of the study, so there is a need to add the variables of a major macroeconomic determinant.

GDPt= β1 + β2LFt + β3Capitalt+ β4Inflationt + β4Tradet + β6InterestRatet + εt

Above equation represents the model of the research. All of the data is collected from the World Development Indicators provided by the World Bank. The dependent variable in the above equation is GDP, and independent variables are labor force, capital, inflation, trade, and rate of interest and t represents the time. The above variables are explained as:

  • GDP = GDP growth (annual %)
  • LF = Labor force participation rate, total (% of total population ages 15+) (national estimate)
  • Capital = Gross capital formation (annual % growth)
  • Inflation = consumer prices (annual %)
  • Trade = Trade (% of GDP)
  • InterestRate = Real interest rate (%)

Table 1: Descriptive Statistics

Descriptive Statistics
  Mean Std. Deviation N
GDP 2.7457 2.02299 48
LF 64.5750 2.10052 48
Capital 3.6027 7.03963 48
Inflation 4.0759 2.93242 48
Trade 21.3493 5.34619 48
InterestRate 3.9446 2.44534 48

The above table represents the model summary, and it can be seen that labor force has the highest mean value, i.e. 64.57 and GDP growth has the lowest mean value.

Table 2: Correlation Analysis

Correlations
  GDP LF Capital Inflation Trade InterestRate  
GDP Pearson Correlation 1 .059 .874** -.141 -.211 .167  
Sig. (2-tailed)   .689 .000 .341 .150 .257  
N 48 48 48 48 48 48  
LF Pearson Correlation .059 1 -.047 -.379** .431** .604**  
Sig. (2-tailed) .689   .750 .008 .002 .000  
N 48 48 48 48 48 48  
Capital Pearson Correlation .874** -.047 1 -.149 -.101 .076  
Sig. (2-tailed) .000 .750   .312 .496 .606  
N 48 48 48 48 48 48  
Inflation Pearson Correlation -.141 -.379** -.149 1 -.494** .036  
Sig. (2-tailed) .341 .008 .312   .000 .809  
N 48 48 48 48 48 48  
Trade Pearson Correlation -.211 .431** -.101 -.494** 1 -.062  
Sig. (2-tailed) .150 .002 .496 .000   .676  
N 48 48 48 48 48 48  
InterestRate Pearson Correlation .167 .604** .076 .036 -.062 1  
Sig. (2-tailed) .257 .000 .606 .809 .676    
N 48 48 48 48 48 48  
**. Correlation is significant at the 0.01 level (2-tailed).

The results of Pearson’s correlation analysis are reported in the above table which shows that most of the variables are positively correlated with each other. However, inflation is negatively correlated with all variables except for trade. Also, trade has a negative correlation with GDP, capital, inflation, and interest rate. Labour force is negatively correlated with capital. Moreover, the interest rate has a positive correlation with all variables except for trade.

Table 3: Model Summary

Model Summaryb
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 .901a .812 .790 .92753 1.276
a. Predictors: (Constant), InterestRate, Inflation, Capital, Trade, LF
b. Dependent Variable: GDP

Since the value of Durbin-Watson value in the above table is close above 1 and below 3, it can be said that the auto-correlation problem does not exist in the data. Also, it is indicated by the above model that independent variables, i.e. labor force, capital, inflation, trade, and rate of interest cause approximately 81% variation in the dependent variable, i.e. GDP where the standard error of an estimate is approximately 0.93.

Table 4: ANOVA Analysis

ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 156.213 5 31.243 36.316 .000b
Residual 36.133 42 .860    
Total 192.346 47      
a. Dependent Variable: GDP
b. Predictors: (Constant), InterestRate, Inflation, Capital, Trade, LF

The ANOVA results in the above table show that the overall model is good as indicated by significance value and F statistics

Table 5: Regression Analysis

Coefficientsa
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) -8.655 6.473   -1.337 .188
LF .197 .106 .205 1.857 .070
Capital .246 .020 .854 12.184 .000
Inflation -.037 .058 -.054 -.648 .520
Trade -.092 .033 -.243 -2.789 .008
InterestRate -.029 .081 -.035 -.361 .720

The above coefficient values of independent variables, i.e. labor force, capital, inflation, trade, and rate of interest prove that labour force and capital has a positive and significant impact on the GDP of the United States. However, trade has a significantly negative impact on GDP. Also, inflation and rate of interest do not have a significant impact on the GDP because the value of significance is greater than 0.5.

Table 6: Multicollinearity Detection

Coefficientsa
Model Collinearity Statistics
Tolerance VIF
1 (Constant)    
LF .367 2.721
Capital .910 1.099
Inflation .638 1.567
Trade .591 1.691
InterestRate .470 2.130
a. Dependent Variable: GDP

Tolerance and VIF (variance inflated factors) can be used to determine either multicollinearity exists or not in the model. It can be seen in the above table that scores for VIF are below 10; the scores of tolerance are not higher than 0.2. Hence, the problem of multicollinearity does not exist in the data.

Chapter 4: Conclusion and Discussion

This study has analysed the importance of macroeconomic determinations for economic growth using the case study of the United States. The study employed the secondary annual time series data for the year 1970-2017. The reason for this sample size is that the World Bank provided the data for this time period only. This study used the Cobb Douglas Production Function to derive the model. The dependent variable in this study is GDP, and independent variables are labor force, capital, inflation, trade, and rate of interest. GDP represents GDP growth (annual %), LF represents Labor force participation rate, total (% of total population ages 15+) (national estimate), Capital represents gross capital formation (annual % growth), Inflation represents, consumer prices (annual %), Trade represents Trade as % of GDP, and InterestRate represents Real interest rate (%).

The results of regression analysis have indicated by that independent variables, i.e. labor force, capital, inflation, trade, and rate of interest cause approximately 81% variation in the dependent variable, i.e. GDP. Also, the coefficient values of independent variables, i.e. labor force, capital, inflation, trade, and rate of interest prove that labour force and capital has a positive and significant impact on GDP of the United States. However, trade has a significantly negative impact on GDP. Also, inflation and rate of interest do not have a significant impact on the GDP.

In Pearson’s correlation analysis, the finding has presented that most of the variables are prospectively correlated with one another. On the other hand, in terms of inflation, it is negatively correlated with the whole variables unless for the trade. In addition to this, the finding also mentioned that the trade has delivered a negative correlation with GDP, capital, inflation, as well as the interest rate. There is also a presence of negative correlation between the labor force and capital. Furthermore, there is also a positive correlation between the interest rate with the whole variable unless for the trade.

            As proposed in the literature review, using the regression analysis, the study has indicated that the variability in the exchange rate along with the falsification index of the exchange rate suggestively and negatively associated with the growth of economy in the long-run. On the other hand, the rate of investment was associated positively with the growth of economy. In addition to this, it was measured by the literature review that there is an increment in the uncertainty degree of the exchange rate has appeared, and there might be a decrease in the diffusion degree of technology derived from various improved economies. By using the regression analysis, the results have determined that the budget excess, investment, along with the human capital were suggestively and confidently associated with the growth that appears in the economy.

            In brief, the economic growth described as an increment within the goods and services development, in which they are compared with one another throughout the time. In fact, it has been measured that inflation, liquidity of the stock market place, financial institutions, as well as savings have represented certain essential determinants of the stock market growth. From literature review, there is a valuation for all the macroeconomic determinants which included as well the rates of federal funds in the United States, oil price index, domestic credit, investment, inflation change, income, remittances, besides the institutions of the stock market growth.

            Even though the research around the capable facts of whether increasing or hindering economic development has been viewed as the most fundamental subject among the empirical researches and theoretical development, but still, it appears that there is no sufficient availability for the studies that discuss this subject. Essentially, in the theory of economic development, there are substantial innovations that have provided driving force for the majority of available deliberations on the subject of economic development and expansion.

In a conclusion, it is fair to say that the macroeconomic policy which refers to the governmental policy that is related to a comprehensive economy, broadly exists with a purpose to encourage, inspire, and stimulate the objectives of stability, development, and employment. Furthermore, there is a fact that the economic development of any country can be measured by certain particular parameters that referred to determinants in macroeconomic, in which all of these determinants have been considered to be varied in both short and long runs. Thus, this research has rationalized on the various parameters of macroeconomic growth in the United States. 

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An 8.65-g sample of an unknown group 2a metal hydroxide is dissolved in 85.0 ml of water. an acid-base indicator is added and the resulting solution is titrated with 2.50 m hcl(aq) solution. the indicator changes color signaling that the equivalence point has been reached after 56.9 ml of the hydrochloric acid solution has been added.

Answer; The molar mass of metal hydroxide = 121.66 g/ mole The formula is Sr(OH)2 …

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