(Tiểu luận FTU) THE IMPACTS OF SOME ECONOMIC FACTORS ON THE GDP GROWTH IN CHINA DURING 1994 2018

FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS _ ECONOMETRICS REPORT THE IMPACTS OF SOME ECONOMIC FACTORS ON THE GDP GROWTH IN CHINA DURING 1994-2018 Group 3: Trinh Thuy Mai Nguyen Hoai Anh Class: ID: 1814450054 ID: 1814450013 Le Bao Ngoc ID: 1814450058 Le Phuong Thao ID: 1814450078 Le Minh Hang ID: 1814450035 KTEE218(1-1920).1_LT Instructors: Dr Nguyen Thuy Quynh Dr Vu Thi Phuong Mai Hanoi, September 2019 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS ABSTRACT INTRODUCTION SECTION I OVERVIEW OF THE TOPIC Definition and related economic theories 1.1 Definitions explanation 1.2 Related economic theories 1.2.1 Mercantilism 1.2.2 Neoclassical Theory 1.2.3 Harrod – Domar Theory 1.2.4 Supply and Demand Theory Literature Review 2.1 Related public researches 2.2 Research gaps 2.3 Research hypothesis SECTION II MODEL SPECIFICATIONS Methodology 7 8 9 1.1 10 10 12 12 Method used to collect and analyze data 12 1.2 Method used to derive the model Theoretical model specification 2.1 Model specifications 2.2 Variables description Data description 3.1 Data resources 3.2 Statistics description 3.3 Correlation matrix between variables SECTION III ESTIMATED MODEL, HYPOTHESIS TESTING AND RECOMMENDATIONS 13 13 13 14 15 15 15 16 Estimated model Hypothesis testing 18 18 19 2.1 Test the significance of individual regression coefficients 2.2 Test the significance of sample regression model Recommendations CONCLUSION REFERENCES 19 21 22 23 24 APPENDIX 25 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The dataset of GDP Indicators of China over the course of 25 years from 1994 to 2018 25 The Stata estimation outputs 26 INDIVIDUAL ASSESSMENT .28 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Gross Domestic Product (GDP) is one of the determinants of country’s economic growth This report intends to investigate the factors that affect the increase or decrease of GDP of Newly industrialized countries whereby China is selected as a representative By constructing and running model, we can further analyze and clarify how the economic factors, in particular, Foreign Direct Investment, Total Reserves and Trading Rate, Unemployment Rate, Inflation Rate affect GDP growth of China over the course of 25 years between 1994-2018 and what the relationship between them is From there, we have made recommendations to increase the positive factors and limit the negative factors with appropriate policies LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INTRODUCTION Prior to the initiating market reforms and trade liberalization nearly 40 years ago, China maintained policies that kept the economy under poverty, stagnant, centrally controlled and vastly inefficient Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has become one of the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018 (according to World Bank) Among numerous factors that affect China’s economic growth, foreign direct investment such as ODA plays a vital role in the economics growth of China By utilizing these investments reasonably, China’s economy growths faster every day However, China is also dominated by others like inflation and unemployment Within the scope of this report, we will discuss about how foreign direct investment, inflation, unemployment, total reverse and trade rate affect the whole economy of China When it comes to study about the economy, GDP (Gross Domestic Product) is the mosttalked-about word in the economy Its main function is to track the health of a nation’s economy When compared with prior periods, GDP could tell us whether the economy is expanding by producing more goods and services, or contracting due to less output Researching on factors affecting GDP is a necessary and practical topic, especially while the globalization is happening in an open economy Besides, in recent years, China has embraced one of the fastest economic growth, making it an upper middle-income country For that reason, our group finally decided to choose the topic “Factors affecting the GDP growth of China over the course of 25 years from 1994 to 2018” Based on previous research topics of authors from all over the world such as: World Bank, the International Monetary Fund,… with the purpose of understanding elements affect growth rate of a country, having an overview on GDP and proposing solutions to promote economic growth Our group’s purpose when doing this paper is to seek whether the relationship between the GDP growth representing of economic growth and the following explanatory variables: Unemployment Rate, Inflation Rate, Foreign Direct Investment, Total Reserve (gold included) and the Trading Rate truly exists Since, a regression model is built up so as to test and prove our initial hypothesis To sum up, our objectives of this paper are following: To construct an econometric model that will be relevant to the GDP growth towards China and analyze the results from regression model To determine whether Unemployment Rate, Inflation Rate, Foreign Direct Investment, Total Reserve and Trading Rate are significant indicators for Gross Domestic Product in the China by using econometric theories and principles To give an insight on what China should in order to increase the GDP as well as the economic growth rate LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The main source of the data used for this paper is from World Bank whose data set is available until 1960 up to present, however, our group scope of the topic spans over 25 - year period from 1994 to 2018 The data specifically have the setting on China Annual data was obtained for each variable that is going to be used for the study During the process of making this report, we tried to get the best result but definitely inevitably made mistakes, looking forward to your comments so that our team could be better than this report We are sincerely thankful After conducting the research, our group hope to prove the hypothesis that GDP has a significant relationship with the given factors comprising unemployment rate, inflation rate, foreign direct investment, total reserves (gold included) and the trading rate Our implementation results are detailed in three major sections that are: Section 1: Overview of the topic Section 2: Model specification Section 3: Estimated model, hypothesis testing and recommendations LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com SECTION I: OVERVIEW OF THE TOPIC Definitions and related economic theories 1.1 Definitions explanation GDP is an economic term short for Gross Domestic Product which is one of the most common indicators used to track the health of a nation’s economy GDP is a monetary measure representing the total market value of all final goods and services produced within a nation’s territory scope in a specific time period, often annually GDP can be calculated in three ways, using expenditures, production, and incomes It can be adjusted for inflation and population to provide deeper insight The common formula of GDP is: Y=C+I+G+NX=C+I+G+(X-M) In which: C is the household final consumption expenditure I is the general investment of business enterprises (without exchanges of existing assets and purchasing financial products) G is the sum of government expenditures on final goods and services X represents gross exports M represents gross imports GDP growth rate measures how fast the economy is growing It usually does this by comparing either one quarter of the country’s GDP to the previous quarter or one year to the previous year Due to its components GDP growth rate has a largely impact on the economic development of a nation 1.2 Related economic theories 1.2.1 Mercantilism Mercantilism is an economic theory and practice common in Europe from the 16th to the 18th century that promoted governmental regulation of a nation’s economy for the purpose of augmenting state power at the expense of rival national powers Mercantilism contained several interlocking principles Precious metals, such as gold or silver, were deemed to indispensable to a nation’s wealth If a nation did not possess mines or have access to them, precious metals should be obtained by trading Therefore, it was believed that trading balances meaning exports excessing imports relatively affect the economic growth Basically, this theory argued that a country could be made better off by seeking to accumulate gold, increasing exports combining with minimizing imports 1.2.2 Neoclassical Theory GDP growth or economic growth supply-side factors such as labor productivity, size of the workforce and factor inputs The neoclassical theory suggested that the increasing capital or labour leads to diminishing returns Therefore, increasing capital or labour LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com force has only a temporary and limited impact on increasing the economic growth As capital increase, the economy maintains its steady - state rate of economic growth According to the Solow/Swan model, to increase the rate of economic growth, we need: An increase in proportion of GDP that is invested, however, this is limited due to the fact that higher proportion of investment leads to the diminishing returns and the convergence on the steady - state of growth Technological progress that increases the productivity of capital and labour It suggests that poor countries investing more should see their economic growth converge with richer countries However, this theory still has some limitations that were indicated: It does not explain why countries have different levels of investment as proportion of GDP Some developing countries not attract higher levels of investment because of structural problems such as corruption or lack of infrastructure It does not explain how to improve rate of technological progress 1.2.3 Harrod - Domar Theory “The most necessary condition for the growth of an economy is that the demand created due to newly generated income should be sufficient enough, so that the output produced by the new investment should be fully absorbed”, said by Harrod - Domar Theory Harrod - Domar theory is considered as the extension of Keynes’s short-term analysis of full employment and income theory The Harrod - Domar growth model provides a long - term theory of output According to this theory, capital accumulation constitutes a major factor for the growth of an economy, meaning that the capital accumulation not only generates the income but increases production capacity of the economy as well As results, the newly generated income from capital accumulation produces demand for goods and services Then if the output produced by the new investment is fully absorbed, there would be excess or idle of production capacity This condition should be satisfied consecutively to maintain full employment level and achieve steady economic growth in the long term 1.2.4 Supply and Demand Theory Last but not least, the seemly simply theory and graph of supply and demand of Alfred Marshall (in Mankiw, 2006) is truly supportive our study As we already knew, this theory illustrated the relationship between either supply or demand and the price in the market of goods and services, which has a relatively much correlation with the GDP growth Specifically, supply theory indicates the positive relationship between quantity supplied and the price of goods and services, which means the higher the price is, the more goods and services produced and vice versa Meanwhile, demand theory suggests the inverse relationship between quantity demanded and the price of goods and services, meaning that the higher the price is, the less people want to buy goods and services and LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com vice versa Due to our chosen factors that are relatively correlative with the supply and demand while they have impact on the GDP, we believe this theory could be well applied in our explanatory variables and research results Literature review 2.1 Related public researches Many previous studies have been issued to point out the factors affecting GDP: Studies about the relationship between inflation and GDP: After the research of Sidrauski (in 1967) suggested that there is no relationship between inflation and economic growth, Fischer’s research in 1983, which is a part of the NBER’s research program in Economic Fluctuations, using the model introduced by Sidrauski, stated that the relationship between these two variables is negative He argues that higher the inflation rate, lower investments and productivity which related to lower outputs produced, lower economic growth (GDP) The same result of negative impacts of inflation rate on the growth of the economic was drawn in a study of Barro in 1995 after examining the data of almost 100 countries for the period between 1960 and 1990 He also showed that even if inflation has a small impact on growth, this appears to be significant in the long run Bruno and Easterly found in their research in 1996 that the mentioned relationship exists only if inflation rates are high Such conclusion was also drawn by Mubarik in 2005 The two researches estimated a threshold level of inflation The inflation above this level will cause the negative relationship, but only temporally, and the inflation below this level will lead to economic growth The relationship between inflation and GDP was once again studied by Ghosh and Phillips in 1998, for a large set of IMF countries for the period from 1960 to 1996 The relationship appeared to be negative for very low inflation rates (around two to three per cent) A negative correlation was also found for higher values but the relationship was convex Mallik and Chowdhury’s study in 2001 found a positive relationship between inflation and economic growth, while Umaru i Zubariu, in his research in 2011, claimed that GDP (economic growth) is the cause of inflation In 2012, Mamo showed that the relationship between the two phenomenon may be positive, negative and neutral and stated that the question is not whether there is a positive or negative relationship but is at which level will the effect of inflation to the economic growth be positive or negative Studies about other factors that affect the GDP: Recent economic researches revealed that the economic growth is affected by various internal factors of the economic system Study of Mervar in 1999, performing regression evaluation for a large number of countries, claimed that growth was linked with the following economic preconditions: high level of savings and investment, well9 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com educated labour force and other arrangements that allowed abridgement of existing technology gaps In 2005, Kitov proposed a model of GDP growth which stated that the growth of GDP depends only on the change in a specific age group in the population and the attained level of real GDP per capita The real GDP per capita with time, in developed countries, usually increase with a straight line if there is no significant change in the specific age population observed in a certain period 2.2 Research gaps Having looked for the previous published researches, we could make some temporarily conclusions about the limitations or the gaps that they have not made it clearly Firstly, according to Fischer’s research in 1983, there was a negative relationship between inflation rate and the GDP growth, which is true but actually not sufficient to conclude in some cases For example, in the short term, if inflation occurs, people tend to temporarily reduce their consumption leading to the lower GDP rate In contrary, when inflation could be seen in the long term, the consumers tend to spend more, which make the GDP rate higher Not any cases in which inflation puts a negative impact on the GDP growth This is the reason why previous researches did not give enough evidences to their studies In our paper, we established a study with a time - series of 25 years long enough to exemplify the effect of inflation rate especially in China - the country have a relatively impressive growth rate of GDP Moreover, in fact, inflation actually affects the supply and demand of goods and services markets, meaning that the change in inflation rate leads to the quantity supplied and demanded respectively Meanwhile, GDP is strongly correlative with the supply and demand of goods and services Therefore, it is undeniable that inflation has impact on the GDP growth to some extent Besides, we also putted the inflation rate in observation together with other four indicators, which make us easier to illustrate the relationship between them 2.3 Research hypothesis After studying theories and referring to previous studies related to the topic, we have searched and synthesized hypotheses to study the factors affecting GDP of China: Unemployment Rate: It’s been noticed that the amount of outputs produced in the economy is closely depends on the amount of labor used in the production process, so there is positive relationship between output and employment Since the total employment equals the labor force minus the unemployed, then there is conspicuously a negative relationship between output and unemployment => the hypothesis is: Unemployment rate has a negative relationship with GDP Higher the rate of unemployment, lower the GDP Inflation Rate: Considering the contradictions of previous studies on the relationship between two phenomena of the economy, inflation and GDP, a study 10 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The sample regression model ̂ SRM: ̂ ̂ ̂ ̂ ̂ + + + + +̂ = + In which: ̂ : is the estimator of : is the estimator of : is ̂ the estimator of : is ̂ the estimator of : is ̂ the estimator of : is the estimator of ̂ ̂ : is the estimator of u – the residuals term 2.2 Variables description Two kinds of variables will be used: the dependent or endogenous variable and the independent variable or exogenous variable Endogenous variables are variables which can be affected by the exogenous variables in a model No Variable GDPgrowth UEM IFT FDI Full name GDPgrowth unemployment inflation foreign direct investment Meaning Dependent variable Quantitative measurements of GDP annually for the country of China for 15 years of 1994 - 2018 Independent variable The percentage of unemployed workers in the total labor force consisting of all employed and unemployed people of China within 25 years Independent variable an overall increase in the Consumer Price Index (CPI), which is a weighted average of prices for different goods Independent variable an investment made by a firm or individual in other countries into business interests located in China in 1994 - 2018 14 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TR Independent variable are the assets that a bank has immediately available to cover its liabilities total reserve trade trade Independent variable special price offered to retailers by wholesalers, manufacturers, or distributors or by a seller to individuals or organizations in a related industry These variables are to be tested to see if there is a relationship between GDP growth as the dependent variable and unemployment, inflation, FDI, TR and trade as the independent variables for the model Data description 3.1 Data sources The dataset used for our study was collected from officially public website of the World Bank including 25 observations from the year 1994 to year 2018 of China through six indicators as explained in previous part 3.2 Statistics description Run the command sum GDPgrowth UEM IFT FDI TR trade to interpret the dataset, the results obtained including the number of observations (Obs), the average value (Mean), the standard deviation (Std Dev.), the minimum (Min) and the maximum (Max) value of each variable as the table below: Variable Gdpgrowth Obs 25 Mean 9.288 Std Dev 2.053314 Min 6.6 Max 14.2 uem 25 4.092 0.6330613 2.9 4.7 ift 25 4.236 4.893523 -1.3 20.6 fdi 25 3.528 1.134872 1.4 tr 25 1.63e+12 1.47e+12 5.80e+10 3.90e+12 trade 25 44.804 10.06485 32.4 64.5 15 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 3.3 Correlation matrix between variables Run the command corr GDPgrowth UEM IFT FDI TR trade to analyze the correlation between the variables, the result is the table of correlation matrix showed below: gdpgrowth gdpgrowth 1.0000 uem -0.1642 ift 0.6516 fdi 0.7903 tr -0.4391 trade 0.5380 uem -0.1642 1.0000 -0.3218 -0.6011 0.7310 0.6414 ift 0.6516 -0.3218 1.0000 0.5920 -0.2141 0.0983 fdi 0.7903 -0.6011 0.5920 1.0000 -0.7005 0.1213 tr -0.4391 0.7310 -0.2141 -0.7005 1.0000 0.1595 trade 0.5380 0.6414 0.0983 0.1213 0.1595 1.0000 According to the Correlation matrix between variables, we can temporarily conclude: The correlation coefficient between UEM and GDPgrowth is -0.1642, which is negative and not so high Therefore, UEM has a negative effect on GDPgrowth, any change in the unemployment rate will lead to a slightly inverse change in the GDP growth rate The correlation coefficient between IFT and GDPgrowth is 0.6516, which is positive and relatively moderate Therefore, IFT has a positive effect on GDPgrowth, any change in the inflation rate will lead to a similar change in the GDP growth rate The correlation coefficient between FDI and GDPgrowth is 0.7903, which is positive and relatively high Therefore, IFT has a largely positive effect on GDPgrowth, any change in the foreign direct investment will lead to a largely similar change in the GDP growth rate The correlation coefficient between TR and GDPgrowth is -0.4391, which is negative and a little high Therefore, TR has a negative effect on GDPgrowth, any change in the total reserve will lead to a largely inverse change in the GDP growth rate The correlation coefficient between IFT and GDPgrowth is 0.6516, which is positive and relatively moderate Therefore, IFT has a positive effect on 16 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com GDPgrowth, any change in the inflation rate will lead to a covarieted change in the GDP growth rate The correlation coefficient between trade and GDPgrowth is 0.5380, which is positive and relatively high Therefore, trade has a much positive effect on GDPgrowth, any change in the inflation rate will lead to a covarieted change in the GDP growth rate 17 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com SECTION III: ESTIMATED MODEL, HYPOTHESIS TESTING AND RECOMMENDATIONS Estimated model Estimation result After running all the data collected, the results are sum up in this table below: GDPgrowth Unemployment (UEM) Inflation (IFT) Foreign Direct Investment (FDI) Total reserves (TR) Trade The constant Coefficient 0.0439762 0.1261853 0.0868942 P-value 0.963 0.014 0.024 t 0.05 2.72 2.46 Confident interval [-1.925167;2.013119] [0.028978;0.2233926] [0.1285604;1.609324] -1.68e-13 0.0939753 1.570347 0.465 0.038 0.600 -0.75 2.23 0.53 [-6.41e-13;3.04e-13] [0.0055848;0.1823658] [-4.590428;7.731123] Number of observations: 25 R-squared: 0.8738 Adjusted R-squared: 0.8406 Population Regression Function: Yi= β˳+ β1 X1 + β2 X2 + β3 X3 + β4 X4 + β5 X5 + u Yi: GDPgrowth β1: Unemployment (UEM) coefficient β2: Inflation (IFT) coefficient β3: Foreign direct investment (FDI) coefficient β4: Total reverse (TR) coefficient β5: Trade coefficient Sample Regression Function: GDPgrowth = 1.570347 + 0.0439762*UEM + 0.1261853*IFT + 0.0868942*FDI – (1.68e-13)*TR + 0.0939753*Trade + ̂ 18 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The coefficient of determination (R-squared): R = 0.8738 Meaning: The estimated model explains 87.38% of the total variations in the value of GDP growth in this sample Besides, the adjusted R-squared: R̅2 = 0.8410 The meanings of estimated coefficients: Estimated coefficient Meaning ̂ ̂ ̂ ̂ ̂ ̂ = 0.0439762 Holding other factors fixed, when Unemployment increases unit of measurement, the expected GDP growth increases by 0.0439762 unit of measurement = 0.1261853 Holding other factors fixed, when Inflation increases unit of measurement, the expected GDP growth increases by 0.1261853 unit of measurement = -1.68e-13 Holding other factors fixed, when Foreign Direct Investment (FDI) increases unit of measurement, the expected GDP growth decreases by -1.68e-13 unit of measurement = 0.0939753 Holding other factors fixed, when Total Reverse increases unit of measurement, the expected GDP growth increases by 0.0939753 unit of measurement = 0.0939753 Holding other factors fixed, when Trade increases unit of measurement, the expected GDP growth increases by 1.570347 unit of measurement = 1.570347 When every variables mentioned above equal to 0, the expected GDP growth increases by 0.0939753 unit of measurement Hypothesis testing 2.1 Test the significance of individual regression coefficients Hypothesis: { =0 0: : (βj = β1, β2, β3, β4) ≠0 We use P-value to test individual regression coefficients with α = 5% Compare P-value to α: is + If P-value < α , then + If P-value > α , then accepted is rejected, is suitable for our model) rejected is (If 19 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com To verify the suitability of individual regression coefficients, we use STATA and achieve the results as below: P-value of unemployment variable is 0.963, so PUEM > α (α = 5%) 0Therefore, we can conclude that at 5% level of significance, we not have evidence to reject the hypothesis 0: = and accept 1: ≠ Which means β1 is not significant P-value of inflation variable is 0.014, so PIFT < α (α = 5%) Therefore, we can conclude that at 5% level of significance, we have enough evidence to reject the hypothesis 0: = and accept 1: ≠ Which means β2 is significant P-value of FDI variable is 0.024, so PFDI < α (α = 5%) Therefore, we can conclude that at 5% level of significance, we have enough evidence to reject the hypothesis 0: = and accept 1: ≠ Which means β3 is significant P-value of Total reverse (TR) variable is 0.465, so PTR>α(α=5%) Therefore, we can conclude that at 5% level of significance, we not have evidence to reject the hypothesis 0: = and accept 1: ≠ Which means β4 is not significant P-value of trade variable is 0.038, so PTrade < α (α = 5%) Therefore, we can conclude that at 5% level of significance, we have enough evidence to reject the hypothesis 0: = and accept 1: ≠ Which means β5 is significant To sum up, three out of five variables are statistically significant consist of inflation, foreign direct investment (FDI) and trade rate 20 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com = 2.2 Test the significance of sample regression model Hypothesis: { : = = = : + + 1 =0 ++>0 (If H0 is rejected, the model is suitable) Testing formula: = ( − )×( − ) ~ F (k – 1, n – k) In which, n: the number of observations k: the number of variables ×( − ) As the result from STATA, F is calculated: = 0.8741×(25−6) ≈ 26.38 (1− 0.8741)×(6−1) We have F > F(5,19), so that, there is enough evidence to conclude that H0 is rejected at 5% level of significant In conclusion, the model is statistically fitted at 5% level of significant In summary, after testing the hypothesis, it can be concluded that: When the unemployment rate increases, the GDP growth rate is expected to decrease, and vice versa, holding other variables fixed However, in this sample regression model, the unemployment variable is not statistically significant When the inflation rate increases, the GDP growth rate is expected to increase, and vice versa, holding other variables fixed When the Foreign Direct Investment increases, the GDP growth rate is expected to increase, and vice versa, holding other variables fixed When the Total Reverse (TR) increases, the GDP growth rate is expected to increase, and vice versa, holding other variables fixed When the Trade increases, the GDP growth rate is expected to decrease, and vice versa, holding other variables fixed However, in this sample regression model, the trade variable is not statistically significant Overall, the model is statistically fitted 21 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Recommendations It is irrefutable that GDP is one of the key elements contributing to the development of a country in the aspect of economy The research on the factors affecting on the GDP has become increasingly important and vital, especially in such a big country like China From the research findings, there are factors influencing on the GDP of China in 1994-2018, while others have inconsiderable effects Therefore, our team have made several recommendations for those features: Firstly, in terms of controlling inflation, there are some following measures: Monetary Measures: Monetary measures aim at reducing money incomes One of the important monetary measures is monetary policy The central bank of the country adopts a number of methods to control the quantity and quality of credit For this purpose, it raises the bank rates, sells securities in the open market, raises the reserve ratio, and adopts a number of selective credit control measures, such as raising margin requirements and regulating consumer credit Monetary policy may not be effective in controlling inflation, if inflation is due to cost-push factors Monetary policy can only be helpful in controlling inflation due to demand-pull factors Fiscal Measures: Monetary policy alone is incapable of controlling inflation It should, therefore, be supplemented by fiscal measures Fiscal measures are highly effective for controlling government expenditure, personal consumption expenditure, and private and public investment The government should combine the principal fiscal measures (reduction in unnecessary expenditure, increase in taxes, increase in savings, surplus budgets, public debt) reasonably and appropriately for the situation of the country Other Measures: The other types of measures are those which aim at increasing aggregate supply and reducing aggregate demand directly, such as production increase, rational wage policy, price control and rationing Secondly, when it comes to the promotion of trade and foreign direct investment, which has been recognized as one of the most efficient tools to stimulate sustainable economic development in most countries, some suggestions are recommended: Expand near-term market access for U.S exporters and investors, ensure fair and equal opportunity to compete and strengthen intellectual property protection Curb overcapacity, eliminate subsidies, and remove other policies that undermine fair competition Remove restrictions on digital trade, including allowing the free flow of data and eliminating “secure and controllable” requirements 22 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CONCLUSION After conducting the research, including constructing theoretical framework, collecting data, constructing and running the model on STATA, our report has solved these following matters: Firstly, we have pointed out several factors influencing on the GDP of China during the period 1994-2018 Simultaneously, our team have demonstrated the correlation among those factors by economic model, specifically, the positive impacts of foreign direct investment and trade on the GDP of China over this period Inflation in this model has beneficial effects too, but in fact, it should be controlled within secured interval Secondly, we have made some recommendations as to improve those elements affecting China’s GDP, thus formed the appropriate basis to develop policies for this country In summary, although our model is statistical with the independent variables related to economic, social and political aspects, those variables may not be the most crucial ones affecting the GDP of China There are multiple other variables with certain impacts such as capital resources, technological innovations, expectations, et cetera Despite some ambiguous correlations among our variables and those which were researched previously, it cannot be exact totally since there are other errors in our models Therefore, we hope that this report will play a role as an assessment as well as analysis of some factors influencing on the GDP of China in order for people to refer, make remarks and also add more features to perfect the model 23 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com REFERENCES Okun's Law: Economic Growth And Unemployment: https://www.investopedia.com/articles/economics/12/okuns-law.asp Foluso A Akinsola and Nicholas M.Odhiambo, 2017, “Inflation and Economic Growth: a Review of The International Literature”: https://content.sciendo.com/view/journals/cer/20/3/article-p41.xml?tab_body=pdf Mario Švigir, Josipa Miloš, “RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH; COMPARATIVE EXPERIENCE OF ITALY AND AUSTRIA” “The relationship between inflation and economic growth (GDP): an empirical analysis”: https://www.ivoryresearch.com/writers/melanie-smith/ https://databank.worldbank.org/home.aspx https://www.google.com/publicdata/directory https://www.investopedia.com/terms/f/fdi.asp http://www.yourarticlelibrary.com/macro-economics/inflation-macro- economics/ controlling-inflation-3-important-measures-to-control-inflation/31093 24 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com APPENDIX The dataset of GDP Indicators of China over the course of 25 years from 1994 to 2018: GDP Indicators of China over the course of 25 years from 1994 to 2018 year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 gdpgrowth 13.1 10.9 9.9 9.2 7.8 7.7 8.5 8.3 9.1 10 10.1 11.4 12.7 14.2 9.7 9.4 10.6 9.6 7.9 7.8 7.3 6.9 6.7 6.8 6.6 unemployment 2.9 3.1 3.2 3.2 3.3 3.3 3.8 4.2 4.6 4.5 4.5 4.4 4.3 4.6 4.7 4.5 4.5 4.6 4.6 4.6 4.6 4.5 4.4 4.4 inflation 20.6 13.7 6.5 1.6 -0.9 -1.3 2.1 0.6 2.6 3.9 3.9 7.7 7.8 -0.2 6.9 8.1 2.3 2.2 0.8 0.1 1.1 3.9 2.9 foreigndirectinvest 4.9 4.7 4.6 4.3 3.5 3.5 3.5 3.6 3.5 3.5 4.6 4.5 4.4 3.7 2.6 3.7 2.8 2.6 2.2 1.6 1.4 1.5 totalreserve 5.80E+10 8.00E+10 1.10E+11 1.50E+11 1.50E+11 1.60E+11 1.70E+11 2.20E+11 3.00E+11 4.20E+11 6.20E+11 8.30E+11 1.10E+12 1.50E+12 2.00E+12 2.50E+12 2.90E+12 3.30E+12 3.40E+12 3.90E+12 3.90E+12 3.40E+12 3.10E+12 3.20E+12 3.20E+12 trade 35.8 34.3 33.8 34.5 32.4 33.5 39.4 38.5 42.7 51.8 59.5 62.2 64.5 62.1 57.5 44.7 49 50.7 48.3 46.7 45.1 39.6 37.2 38.1 38.2 25 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The Stata estimation outputs The output of the command sum gdpgrowth uem ift fdi tr trade: Figure 2.1 Data description The output of the command corr gdpgrowth uem ift fdi tr trade: Figure 2.2 Correlation matrix between variables 26 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com The output of the command reg gdpgrowth uem ift fdi tr trade: Figure 2.3 Results of linear regression analysis in Stata using Ordinary Least Squares (OLS) method 27 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INDIVIDUAL ASSESSMENT The individual assessment is based on each member’s attitude towards the group work Thuy Mai Hoai Anh Bao Ngoc Phuong Thao Minh Hang Thuy Mai - 10 10 10 10 Hoai Anh 10 - 10 10 10 Bao Ngoc 10 10 - 10 10 Phuong Thao 10 10 10 - 10 Minh Hang 10 10 10 10 - Average score 10 10 10 10 10 Evaluator 28 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... vital, especially in such a big country like China From the research findings, there are factors influencing on the GDP of China in 1994- 2018, while others have inconsiderable effects Therefore, our... irrefutable that GDP is one of the key elements contributing to the development of a country in the aspect of economy The research on the factors affecting on the GDP has become increasingly important... capital increase, the economy maintains its steady - state rate of economic growth According to the Solow/Swan model, to increase the rate of economic growth, we need: An increase in proportion of GDP