Polytechnic Polytechnic University of the Philippines Sta. Mesa, Manila
THE EFFECT OF INFLATION ON THE ECONOMIC GROWTH OF THE PHILIPPINES FOR YEAR 1984 UP TO 2013
A Research Paper Presented to Professor Professor Maniego, Norie L.
In Partial Fulll!ent of the Re"uire!ents Re"uire!ents for the #ourse $#%N &'(&)$cono!ics of Money and *an+ing st Se!ester Se!est er S-. S-. '()'/ '() '/
*y GROUP 1
Ahorro, Ahorro, Alyssa 0ale #onsuelo, #laudine 1on2ales, 0ivina Marpa, Mario Picardal, Picardal, $loise 1race 3illarante, Mary 4hoy Septe!5er '(
Abstrat 1eneral prices of co!!odities in the Philippines continued to rise !ore rapidly in the past years. It is therefore i!portant to +no6 6hether in7ation rate has an e8ect on country9s 10P gro6th rate. :his study ai!ed to nd out the sig signi nican cantt relat relation ionshi ship p of in7ati in7ation on rate rate and 10P gro6t gro6th h rate rate in the coun countr try y fro! fro! ; ;<( <( to ' '& &.. 0esc 0escri ript ptiv ive e resea esearrch !eth !ethod od 6as 6as us used ed in analy2ing the data o5tained. :he researches gathered relevant and relia5le data data fro! fro! Nati Nation onal al Stat Statis isti tics cs #o!! #o!!is issi sion on *oar *oard d %=ce %=ce and the the *ang *ang+ +o Sentral ng Pilipinas and even the non)govern!ent organi2ations li+e :rade $cono! $cono!ic ics.#o s.#o! ! and >orld5 orld5an+. an+.or org. g. :hese :hese data data are are then then proce processe ssed d and evaluated evaluated through the use of e=cient e=cient soft6are soft6are called $cono!etr $cono!etric ic 3ie6s 3ie6s ?$3ie6s@. It provided the researchers the precise results needed to validate their hypotheses. Fro! the results generated, as can 5e o5served, if the in7ation reached &., 10P gro6th rate is ;.; on the st "uarter of ' and <.B on the gro6th rate if the in7ation is .(& on the & rd "uarter of '&. Moreover, as of the Philippines in the year ;<(, 6hen in7ation rate soared /&C, the 10P gro6th rate 6as );.'C and 6hen in7ation rate 6as .;C in ', 10P gro6th rate turned /.(C. :his entails that an increase in the in7ati in7ation on rate rate have have a sponta spontaneo neous us e8ect e8ect on the 1ross 1ross 0o!est 0o!estic ic Produ Product ct gro6th rate in the long run. It turned out that in7ation rate slightly a8ects the 10P gro6th rate positively in the short run 5ut its e8ect is !ore visi5le in the long)run as in7ation rate gives a negative e8ect on the gro6th rate.
CHAPTER 1 THE PRO!LEM AN" ITS !AC#GROU"
:his chapter presents the Introduction, *ac+ground of the Study, :heoretical Fra!e6or+, #onceptual Fra!e6or+, State!ent of the Pro5le!, Dypotheses, Scope and Li!itation, Signicance of the study and the 0enition of :er!s.
I$tr%&'t(%$ :he Philippines, once 5elonged to the poorest countries in Asia, has 5een !a+ing head6ay these years. It has 5een re!ar+ed as one of the fastest gro6ing econo!y in its region, 6ith the purpose of attaining high and sustained gro6th. Asian 0evelop!ent *an+ has cited that private consu!ption and invest!ent drove econo!ic gro6th higher in '&. It is eEpected to continue in the forecast period, though !oderating fro! last year. Do6ever, econo!ic gro6ths do not ensure a sta5le in7ation rate. It 6as reported 5y the National Statistics %=ce that despite the devastation 5rought 5y natural disasters and higher electricity prices, the country9s in7ation rate in '& 6as the lo6est in siE years. Not6ithstanding 6ith the latter scenario, today9s increase in the general price level of goods and services tend to pic+ up 5ris+ly May9s headline in7ation registered at (. percent fro! &.; percent in March '( and .B percent in the sa!e period a year ago. In7ation in the rst four !onths of '( also stood at (. percent, according to the Philippine Statistics Authority ?PSA@.
:oday9s condition, 6hereas the 5uoyancy of the price of co!!odities is li+ely to re!ain the status "uo, it is engrossing to +no6 the relationship 5et6een econo!ic gro6th and in7ation in the country. :his paper is organi2ed to provide a rational eEplanation regarding the e8ect of in7ation in econo!ic gro6th.
!a)*r%'$& %+ t,- St'&. :he Philippines is a ne6ly industriali2ed nation located in the South $ast Asia. :he country eEperienced lo6 econo!ic develop!ent earning it the title Gthe sic+ !an of AsiaH due to its failure to attain the sa!e level of develop!ent as 6hat its neigh5ors has achieved. Do6ever, in contrast to the fate of !ost of its neigh5ors,
the
Philippines registered an average of (.; percent on its Real 10P gro6th rate on the year ''< and '.; percent in '';, a very upsetting situation due to so!e Asian countries such as India recording an < percent gro6th on ''< and B./ percent on '';, and 3ietna! 6ith B./ percent on ''< and (.( percent on ''; respectively. In so!e instances the e8orts of the people and the ad!inistration has evaded vanity the country did achieve a success fro! 6hich the econo!ic gro6th of the Philippines averaged (.< C in ''')', gre6 5y .< C in the rst "uarter of '&, faster than so!e countries. :he "uarterly gro6th rate 6as the highest since President *enigno A"uino III too+ o=ce in ''. Also, it ran+ed Bth out of ( countries in the Asia)pacic region in the '( IndeE of $cono!ic Freedo!, re7ecting nota5le i!prove!ents in invest!ent freedo!, 5usiness freedo!, !onetary freedo!, and the control of govern!ent spending.. :he country has also ascended / notches to &
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In the face of i!pressive gro6th gures, the Philippines is dealing 6ith !any challenges. A!ong these is the tangi5le rapid change of the price level of goods and services. :hus, the govern!ent introduced policies to help !itigate in7ation rate. :he *SP9s approach to Monetary Policy has 5een introduced. :he policy9s o5Jective is to pro!ote price sta5ility, 6hich is genuinely conducive in acco!plishing 5alanced and sustaina5le gro6th of the econo!y. It is !ainly focused to achieving a lo6 and sta5le in7ation, supportive of the econo!y9s develop!ent o5Jective. :he Philippine 0evelop!ent Plan ') 'B 6as also introduce to set an a!5itious goal of sta5le econo!ic gro6th in the country in siE years. :he condition of the progress of 5oth the econo!ic perfor!ance and in7ation is too co!pelling for the researchers to resist evaluating. :hey 6ant to +no6 the e8ect of having an escalated econo!y to the cost of co!!odities, in 6hich the citi2ens are directly a8ected as consu!ers.
T,-%r-t(a/ Fra-%r) :he study regarding the e8ect of in7ation to the econo!ic gro6th of the Philippines fro! the year ;<& up to year '& is anchored to $ndogenous $cono!ic theory on Keynesian Mode discussing the relationship of in7ation rate and econo!ic gro6th specically the Keynesian A0)AS Model. Keynesian !odel fra!e6or+ co!prising of Aggregate 0e!and ?A0@ and Aggregate Supply ?AS@ curves, the AS curve is up6ard)sloping rather than vertical in the short)run the i!plication is that changes in the de!and side of the econo!y resulting
fro! eEpectations , la5or force and policy
actions such as discretionary !onetary or scal policies, a8ect 5oth prices and output in the short run as predicted 5y the Phillips #urve ?*lanchard and Kitoya+i, ;< 0orn5usch et al.,;;B Ro!er ,''@ therefore the Keynesian !odel advocates that there eEists a positive relationship 5et6een
in7ation and output. Do6ever, in this Keynesian fra!e6or+, it is not the case that in7ation is itself a gro6th)enhancing force the point is rather that if rising aggregate de!and is leading to increased gro6th , then so!e in7ation pressures are li+ely to e!erge as relatively 5enign 5yproduct. :he positive relationship 5et6een in7ation and gro6th eEhi5ited in the short)run dyna!ics is unsustaina5le in longer ter! and turns negative 6ith higher in7ation rate. Moreover, in7ation causes real appreciation of the do!estic currency and
reduces
international
co!petitiveness
5y
!a+ing
eEports
!ore
eEpensive in a country 6ith Eed eEchange rate, in7ation 6ould lead to the deterioration of the trade 5alance and capital out7o6s and i!pact negatively on the long)ter! econo!ic gro6th ?0ollar, ;; $asterly, ;;;@. #oncepts and principles of this !odel 6ill lead the researcher to a deeper analysis of the study. :his entail that in7ation has a 6ea+ correlation to di8erent varia5les that can a8ect the econo!ic gro6th of a country and every institution involved plays a vital role to the econo!ic sustaina5ility of a nation.
C%$-t'a/ Fra-%r) :he 7o6 of the study is discussed through conceptual fra!e6or+. :he study used the syste! approach. :he syste! of three fra!es is co!posed of input 6hich 6ent through the process or operations and e!erged as the output. Philippine $cono!ic Analysis of 0ata Indicators Statistical Analysis 1ross 0o!estic $cono!etric Product gro6th 3ie6s ?$3ie6s@ INPU: rate ''()'& %U:PU:1ross 0o!estic Product gro6th ratd ;<() '& In7ation Rate •
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$cono!ic 1ro6th
•
PR%#$SS
FI1UR$ #%N#$P:UAL FRAM$>%RK
Stat--$t %+ t,- Pr%b/- :his research paper titled :he $8ect of In7ation on :he $cono!ic 1ro6th of :he Philippines for the year ;<& up to '& ai!ed to ans6er the follo6ing "uestion >hat is the e8ect of in7ation on the econo!ic gro6th of the Philippines fro! the year ;<& up to '& Specically the study endeavored to ans6er the follo6ing . >hat is the econo!ic gro6th and in7ation trend of the Philippines for the year ;<()'& . 0oes in7ation rate a8ect econo!ic gro6th of the Philippines for the year ;<()'& a. 0oes in7ation rate a8ect the econo!ic gro6th on short run 5asis 5. 0oes in7ation rate a8ect the econo!ic gro6th on long run 5asis
Stat--$t %+ t,- H.%t,-s-s :he null hypotheses tested are
. In7ation has no signicant e8ect on the econo!ic gro6th of the Philippines on the st "uarter of ' up to ( th "uarter of '&. . In7ation has no signicant e8ect on the econo!ic gro6th of the Philippines on the year ;<( up to '&.
S%- a$& L((tat(%$s %+ t,- St'&. :his study 6as conducted to deter!ine ho6 in7ation a8ects econo!ic gro6th. Since in7ation is a condition, 6hen cost of services coupled 6ith goods rise and the entire econo!y see!s to go out of control. >henever there is eEpected in7ation, govern!ents ta+e appropriate steps to !ini!i2e the ill e8ects of in7ation to a certain eEtent. In7ation often increases 6hen econo!ies eEperience 5oo!s in the econo!y. :he study involved only the year ;<( up to year '& here in the Philippines. :his given period provides an eEcellent 5ac+drop given the presence of 7uctuations in the trends of the in7ation rate and econo!ic gro6th for &' years. For the short run 5asis, data fro! ''( up to '& 6as collected. 0ata are gathered 6ithin this ti!e fra!e 6hich is su5Jected to specic process to yield pertinent results. :he Real 1ross 0o!estic Product gro6th rate is used 5y the researchers 5ecause a!ong the indicators, this !easures the gro6th of an econo!y either per "uarter or annually. Also, in7ation rate as !easured 5y 10P de7ator is used to sho6 the 7uctuations happening to in7ation rate for the past &' years. :o !a+e this possi5le, the study 6as anchored on the o=cial govern!ent data released 5y the govern!ent agencies other independent organi2ations 6hich are signicant to the su5Ject of this study.
S(*$(a$- %+ t,- St'&. :his study 6ill 5e 5enecial and e8ective especially to the follo6ing people
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:o the society As price ta+ers, sellers, and consu!ers, they 6ill really 5e the ones 6ho are a8ected 6hen in7ation occurs. :his study 6ill help the! +no6 the changes in prices especially of pri!e co!!odities and
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so that they 6ill 5e 6ell e"uipped in case of spi+es in in7ation. :o the Philippine 1overn!ent 1overn!ent agencies especially the eEecutive 5ody is tas+ed in crafting econo!ic policies to rein in in7ation and encourage econo!ic gro6th to lead the country to progress. :his research paper shall help the! !a+e decisions that 6ill prevent or the
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!ini!i2e e8ect of in7ation on the econo!y and
for!ulate e8ective solutions to the pro5le!. :o the students ?especially $cono!ics students@ :his study 6ill help the! understand the i!portant issues and its i!plication to the econo!y. :hrough their a6areness 6ith the in7ation9s e8ect to the econo!ic gro6th, they 6ill 5e a5le to !a+e educated consu!ption decision to so!eho6 lessen its i!pact to their personal 5udget and eventually contri5ute to s!all yet gradual i!prove!ent to our econo!y. :his 6ill also ensure that they are e"uipped 6ith the right
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+no6ledge that they can use for the future. :o the researchers :his study served in great part for the co!pletion of the researcher9s course re"uire!ent. And also led the! to discover ne6 +no6ledge and 6iden their understanding on the relevant
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econo!ic issues. :o other researchers :his paper shall 5e e8ective and helpful reference for the researchers 6ho 6ould intend to !a+e any further relevant study a5out the e8ect of in7ation on the econo!ic gro6th.
"EFINITION OF TERMS C%%&(t. is a !ar+eta5le ite! produced to satisfy 6ants or needs. $cono!ic co!!odities co!prise goods and services.
"-a$& is a 5uyers 6illingness and a5ility to pay a price for a specic "uantity of a good or service. 0e!and refers to ho6 !uch ?"uantity@ of a product or service is desired 5y 5uyers at various prices.
E%$%( *r%t, is the increase in the !ar+et value of the goods and services produced 5y an econo!y over ti!e. It is conventionally !easured as the percent rate of increase in real gross or real 10P.
E%$%. or econo!ic
syste! consists
of
the production, distri5ution or
trade, and consu!ption of li!ited goods and services 5y di8erent agents in a given geographical location.
G%-r$-$t is a group of people that has the po6er to rule in a territory, according to the la6. :his territory !ay 5e country, a state or province 6ithin a
Gr%ss
country,
&%-st(
r%&'t ?G"P@
or
is
a
the !ar+et
region.
value of all
o=cially
recogni2ed nal goods and services produced 6ithin a country in a year, or over a given period of ti!e.
I$5at(%$ is a sustained increase in the general price level of goods and services in an econo!y over a period of ti!e.
Mar)-t is one of the !any varieties of syste!s, institutions, procedures, social and infrastructures 6here5y parties engage in eEchange.
Pr(- ta)-r is a person or co!pany that has no control to dictate prices for a good or service. In the trading 6orld, a price ta+er is a trader 6ho does not a8ect the price of the stoc+ if he or she 5uys or sells shares.
Pr(- is
the "uantity of pay!ent or co!pensation given
5y
one party to
another in return for goods or services. In !odern econo!ies, prices are generally eEpressed in units of so!e for! of currency. ?For co!!odities, they are eEpressed as currency per unit 6eight of the co!!odity, e.g. euros per +ilogra!.@
S%(-t. is
a group of
people
involved
in
persistent interpersonal
relationships, or a large social grouping sharing the sa!e geographical or social territory, typically su5Ject to the sa!e political authority and do!inant cultural eEpectations.
S'/. is the a!ount of a product that producers and r!s are 6illing to sell at a given price all other factors 5eing held constant.
CHAPTER 2 RE6IEW OF RELATE" LITERATURE AN" STU"IES
:his chapter presents the signicant areas of the !aJor co!ponents of the study. $ach section is organi2ed under related literature, foreign and local and related studies. Insistent to identify the e8ect of in7ation on the econo!ic gro6th, there is see!ed a need to conduct a research on the su5Ject for a 6ider vie6 of so!e relevant circu!stances. In vie6 of a5ove considerations, studies are presented as they lead Justication to the study.
RE6IEW OF THE RELATE" LITERATURE :his portion presents a revie6 of several literatures that 6ould 5e 5enecial to the study su!!ari2ed fro! previous 6ritings, sho6ing detailed facts asserted 5y fe6 people on the e8ect of in7ation in econo!ic gro6th. %n this ele!ent of study so!e revie6s of the proponents and author9s passage in order to help the proponents to nd 6ays in contact 6ith the pro5le! that have 5een encountered.
LOCAL LITERATURE 4osef :. -ap has cited the stand of econo!ic gro6th of the Philippines at various in7ation rate, at di8erent periods of ti!es on his discussion paper,
7I$5at(%$ a$& E%$%( Gr%t, ($ t,- P,(/(($-s ?Septe!5er ;;B@.
At the !acroecono!ic level, studies have 5een !ore "uantitative in nature. :here has 5een recent cross)country evidence supporting the vie6 that long)run gro6th is adversely a8ected 5y in7ation. An oft)cited reference is that of Fischer ?;;&@. :he fra!e6or+ that is used is derived fro! endogenous gro6th theory 6hich tries to deter!ine the causes of di8erence in gro6th rates in di8erent countries. :he negative e8ect of in7ation on output ste!s fro! the resulting !acroecono!ic insta5ility 6hich !a+es it !ore di=cult for econo!ic agents to plan e=ciently thus reducing invest!ent. In the Philippine the direct costs of in7ation have 5een !easured 5y esti!ating its i!pact on output and its co!ponents. :he 6elfare costs and distri5utional e8ects of the in7ation taE have 5een largely ignored. In the PI0S Annual Macroecono!etric Model ?Reyes and -ap, ;;&a@, for eEa!ple, a rise in sectoral prices and the general price level results in a decline in de!and for the relevant sectoral output. :his eEplains 6hy the i!pact of a peso depreciation on total output is contractionary, particularly in the industry and service sectors.
In7ation as a proEy for !acroecono!ic sta5ility also has a negative i!pact on real Eed invest!ent in the PI0S !odel. :hus, controlling in7ation 6ill result in higher capital for!ation and eEpand the future productive capacity of the econo!y.
FOREIGN LITERATURE
RE6IEW OF RELATE" STU"IES :his portion presents a revie6 of fe6 studies that 6ould 5e 5enecial to the study, sho6ing thesis a5stracts asserted 5y fe6 people on the e8ect of in7ation in econo!ic gro6th.
LOCAL STU"IES
#esar *. Ouicoy, A!elia M. L. *ello and :irso *. Paris, 4r. on their paper,
7Pr(- Stab(/(at(%$ M-as'r-s a$& (ts -:-ts %$ t,- P,(/(($E;%rt S-t%r ?;;;@, have supposed the result of in7ation to gro6th
Using a general e"uili5riu! !odel, it is sho6ed that there 6as a structural relationship 5et6een in7ation and gro6th ) higher in7ation reduced gro6th. :hey suggested, ho6ever, that future e!pirical studies should ta+e !ore care to control for the factors that in7uence 5oth in7ation and gro6th since these are Jointly a8ected 5y a nu!5er of other factors. :he short)run relationship runs fro! output to in7ation, 6ith higher levels of econo!ic activity tending to push in7ation up 6hen
aggregate spending in the econo!y runs ahead of the level of output that the econo!y can supply on a sustaina5le 5asis.
FOREIGN STU"IES
Min Li of the University of Al5erta, #anada, has proven that there9s a negative relationship 5et6een in7ation and econo!ic gro6th in the long)run in his paper, I$5at(%$ a$& E%$%( Gr%t,< T,r-s,%/& E:-ts a$&
Tra$s(ss(%$ M-,a$(s=
Findings provide
so!e strong
policy i!plications.
For developing
counties, rst, the !arginal negative e8ect of !oderate in7ation in the range of ( to &< percent is pronounced. An increase in in7ation 5y ' percentage points per year 6ill reduce econo!ic gro6th 5y a5out '.)'.( percentage points. :his adverse in7uence of !oderate in7ation on gro6th 6ill lead to a su5stantial negative e8ect on econo!ies in the long ter!. Second, policy!a+ers should not eEert e8orts to +eep the in7ation rate at 2ero percent since single)digit in7ation ?5elo6 the rst threshold of (C@ does not i!pede and can even sti!ulate econo!ic perfor!ance. :hird, hyperin7ation does not have hyper)negative e8ects on econo!ic gro6th 5ecause the !arginal i!pact of hyperin7ation is !uch lo6er than that of !oderate in7ation. $!pirically, 6e can o5serve that reductions in the hyperin7ation rate have never had signicant e8ects on econo!ic gro6th. :herefore, controlling !oderate in7ation should 5e the !ain goal for policy!a+ers in developing countries.
Ro5ert 4. *arro on his paper, I$5at(%$ a$& E%$%( Gr%t, ?'&@ that 6as supported 5y the National Science Foundation, $ngland assessed the e8ects of in7ation on econo!ic perfor!ance.
A !aJor nding fro! the e!pirical analysis is that the esti!ated e8ects of in7ation on gro6th and invest!ent are signicantly negative 6hen so!e plausi5le instru!ents are used in the statistical procedures. :hus, there is so!e reason to 5elieve that the relations re7ect causation fro! higher long) ter! in7ation to reduced gro6th and invest!ent. It should 5e stressed that the clear evidence for adverse e8ects of in7ation co!es fro! the eEperiences of high in7ation. :he !agnitudes of e8ects are also not that large for eEa!ple, an increase in the average in7ation rate 5y' percentage points per year is esti!ated to lo6er the gro6th rate of real per capita 10P ?on i!pact@ 5y '.)'.& percentage points per year. %ver long periods, these changes in gro6th rates have dra!atic e8ects on standards of living. For eEa!ple, a reduction in the gro6th rate 5y '.)'.& percentage points per year ?produced on i!pact 5y' percentage points !ore of average in7ation@ !eans that the level of real gross do!estic product 6ould 5e lo6ered after &' years 5y ()C.( In !id ;;/, the U.S. gross do!estic product 6as over Q trillion ()C of :his a!ount is Q&'')/'' 5illion, !ore than enough to Justify a +een interest in price sta5ility.
Literature revie6s fro! 3i+esh 1o+al and Su5rina Danif9s 6or+ing paper,
R-/at(%$s,( !-t--$ I$5at(%$ a$& E%$%( Gr%t, ?''(@
stated
that in7ation !ay have slightly positive e8ect on gro6th
N%$>/($-ar -:-ts %+ ($5at(%$ %$ -%$%( *r%t, 5y Michael Sarely :here is evidence of a structural 5rea+ that is signicant. :he 5rea+ is esti!ated to occur 6hen the in7ation rate is < percent. *elo6 that rate, in7ation does not have any e8ect on gro6th or it !ay even have a slightly positive e8ect. >hen the in7ation rate is a5ove < percent, ho6ever, the
esti!ated e8ect of in7ation on gro6th rates is negative, signicant, ro5ust and eEtre!ely po6erful. :his study also de!onstrated that 6hen the structural 5rea+ is ta+en into account, the esti!ated e8ect of in7ation on econo!ic gro6th increases 5y a factor of three. :he results suggest that the eEistence of a structural 5rea+ also suggests a specic nu!erical target for policy +eep in7ation 5elo6 the structural 5rea+.
R%/- %+ Mar%-%$%( Fat%rs ($ Gr%t,
5y Stanley Fischer
In7ation is signicantly correlated 6ith the gro6th rate. :he si!ple panel regressions conr! the relationships 5et6een in7ation, in7ation varia5ility and gro6th. :he gro6th accounting fra!e6or+ !ade it possi5le to identify the !ain channels through 6hich in7ation reduces gro6th. :he author pointed out that, in line 6ith past theory and studies, the results of the paper i!plied that in7ation i!pacted on gro6th 5y reducing invest!ent, and 5y reducing the rate of productivity gro6th. $Ea!ination of eEceptional cases also sho6ed that 6hile lo6 in7ation and s!all decits 6ere not necessary for high gro6th even over long periods, high in7ation 6as not consistent 6ith sustained gro6th.
CHAPTER 3 RESEARCH METHO"OLOGY :his chapter discussed the designs and procedures underta+en during the conduct of the study. It presented the research !ethod used, instru!ent used, and validation of instru!ent, data gathering procedures and statistical treat!ent of data.
RESEARCH METHO" USE" 0escriptive research is a !ethod used in the process of nding ade"uate and precise interpretation of the facts presented. :he researches e!ployed this research !ethod to e!phasi2e the pro5le!s revolving around the situation rather than si!ply identifying the!. :o dene the descriptive type of research, #res6ell ?;;(@ stated that the descriptive !ethod of research is the gathering of infor!ation a5out the present eEisting condition. :he ai! of descriptive research is to verify for!ulated hypotheses that refer to the present situation in order to elucidate it. Moreover, this !ethod uses a 7eEi5le approach, thus, 6hen i!portant ne6 issues and "uestions arise during the duration of the study, further investigation can 5e conducted. :he descriptive research is one in 6hich infor!ation is collected 6ithout changing the environ!ent So!eti!es these are referred to as G correlational H or G o5servational H studies. :he %=ce of Du!an Research
Protections ?%DRP@ denes a descriptive research as GAny research that is not truly eEperi!ental.H Moreover, it is also conducted to de!onstrate associations or relationships 5et6een things in the 6orld around. A case study on the other hand, is an in)depth study of a particular research pro5le! rather than a s6eeping statistical survey. It is often used to narro6 do6n a very 5road eld of research into one or a fe6 easily research eEa!ples. :he case study research design is also useful for testing 6hether a specic theory and !odel actually applies to pheno!ena in the real 6orld. It is a useful design 6hen not !uch is +no6n a5out a pheno!enon. Since this study regarding the relationship 5et6een the econo!ic gro6th and the in7ation rate is a ti!e series research, this type of study is the 5est suit.
INSTRUMENT USE" :o gather data that 6ill 5e su5Ject to di8erent processes to yield !eaningful infor!ation that !ay support or reJect the presented hypotheses, the researchers used li5rary !ethod in researching pertinent data. :hrough surng in the internet in various 6e5sites of the govern!ent and other relia5le non)govern!ent organi2ations, the researchers 6ere a5le to get secondary data to 5e su5Ject for cross)validation.
6ALI"ATION OF THE INSTRUMENT :he secondary data garnered 5y the researchers are considered !ore relia5le given the fact that the sources of these records have already 5een processed to alleviate fallacies and to acco!plish authenticity.
"ATA GATHERING PROCE"URE :he researchers endeavored to loo+ for su=cient data fro! various 6e5sites of the govern!ent such as the National Statistics #o!!ission *oard %=ce and the *ang+o Sentral ng Pilipinas and even the non) govern!ent organi2ations li+e :rade $cono!ics. #o! and >orld5an+.org.
:he researchers gathered the re"uired data fro! 4une up to 4uly of '( and this duration gave the! enough ti!e to gather su=cient data.
STATISTICAL TREATMENT OF "ATA :o yield !eaningful infor!ation fro! the data gathered fro! various sources that can lead to the deeper analysis of the processed data, the researchers used the $cono!etric 3ie6s ?$3ie6s@.
After the data are
collected, the researches face the tas+ of converting nu!5ers into assertions they !ust nd a 6ay to choose a!ong the hypotheses the one closest to the truth. Statistical tests are the preferred 6ay to do this, and soft6are progra!s li+e $3ie6s !a+e perfor!ing these tests !uch easier. $3ie6s organi2es data, graphs, output, and so forth, as o5Jects. $ach of these o5Jects used for further analysis. $3ie6s is a po6erful progra! 6hich provides !any 6ays to rapidly eEa!ine data and test scientic hunches. It can produce 5asic descriptive statistics, such as averages and fre"uencies, as 6ell as advanced tests such as ti!e)series analysis and !ultivariate analysis. :he progra! also is capa5le of producing high)"uality graphs and ta5les. Kno6ing ho6 to !a+e the progra! 6or+ for you no6 6ill !a+e future 6or+ in independent research proJects and 5eyond !uch easier and !ore sophisticated.
CHAPTER 4 PRESENTATION? ANALYSIS? AN" INTERPPRETATION OF "ATA :his
chapter presents the
ndings
o5tained
fro! the
pri!ary
instru!ent used in the study. It shall discuss the results o5tain fro! the data processed through $vie6s to co!e up 6ith precise conclusion regarding the pro5le!. In order to si!plify the discussions, the researcher provided ta5les and
graphs.
Presented 5elo6 is the result fro! $vie6s to ans6er the "uestion, if there is a signicant relationship 5et6een the in7ation rate and 1ross 0o!estic Product gro6th rate in the short run 5asis.
:he ta5le a5ove sho6s that R)s"uared o5tain fro! the short run data is '.''<( 6hich !eans the variance of 1ross 0o!estic Product gro6th rate can 5e eEplain 5y in7ation rate 5y 'C. :his entails that the !odel has a very s!all capa5ility to t and eEplain the relationship 5et6een the independent varia5le 6hich is the in7ation rate and the dependent varia5le 6hich is the 1ross 0o!estic Product gro6th rate. In7ation9s coe=cient is '.B& connotes that there is a positive relationship 5et6een the t6o varia5les 5ut since the r)s"uared is lo6, its positive relationship is less signicant. :) statistics pro5a5ility is '.(( and is less than /C 6hich indicate that the rst null hypothesis is reJected, 10P gro6th rate and in7ation rate has signicant relationship and the '.< of the :)statistics !eans that the even there9s a positive relationship a!ong the t6o varia5le, 5ut still it has a !inor e8ect. Moreover, the F)statistics pro5a5ility, '.((&, 6hich is less than /C, denotes that the independent varia5le in7uence the dependent varia5le and since the value of F)statistics is '.B(, in7ation rate can in7uence 10P gro6th rate 5y B(C. 1iven that the result is signicant, the null hypothesis is reJected. Short Run Model
:he ta5le a5ove containing the results o5tain sho6s the !odel to 5e used to prove if there9s a relationship 5et6een the in7ation rate and 1ross 0o!estic
Product
gro6th
rate.
After su5stituting the in7ation rate to the !odel, the result o5tain in 6hich 6as presented on the previous page sho6 that if there is direct relationship 5et6een the independent and dependent varia5le it is very little that it is neglected and assu!e to 5e less signicant, 6hich proves that there is signicant relationship 5et6een in7ation rate and 10P gro6th rate.
Follo6ing is the presentation of the ta5le of the long run result processed fro! data dated fro! ;<()'& through $vie6s.
:he ta5le sho6s that the R)s"uared is ./BB 6hich denotes that the !odel tted good to eEplain the relationship of the independent varia5le and dependent varia5le since the result o5tain is near B'C that set as the 5ench!ar+ of 5eing the 5est !odel. :)statistics pro5a5ility is 2ero and is less than /C percent thus the second null hypothesis is reJected. :he )B.'((< value of :)statistics tells that the in7ation rate negatively eEplains the 10P gro6th rate. :he coe=cient ).'<( !eans there is a negative relationship 5et6een the in7ation rate and 10P gro6th rate. %n the other hand, the P) value of F)statistics is '.'''', less than /C, indicates that there is a signicant relationship 5et6een the in7ation rate and 10P gro6th rate and IR rate
can
in7uence 10P gro6th
5y
&B./( as stated in F)
statistics. Long
run
Model
:he ta5le sho6s the !odel to 5e used to prove the negative relationship 5et6een the in7ation rate and 10P gro6th rate in the long run.
IR
GDP
53.3
-9.198550145
17.6
5.950656513
3
5.097980716
7.5
3.818967021
9.6
3.222093963
9
3.392629122
13
2.25572806
16.5
1.26093963
7.9
3.705276915
6.8
4.017924707
10
3.108403857
7.6
3.790544494
7.7
3.762121968
6.2
4.188459866
22.4
-0.415989437
6.6
4.07476976
5.7
4.330572499
5.5
4.387417552
4.2
4.756910397
3.2
5.041135663
5.5
4.387417552
5.8
4.302149972
4.9
4.557952711
3.1
5.06955819
7.5
3.818967021
2.8
5.154825769
4.2
4.756910397
4
4.813755451
1.9
5.410628508
2
5.382205982
:he result o5tain 5y su5stituting the value of in7ation rate indicates that there is a negative relationship 5et6een the in7ation rate and 10P gro6th rate. For instance, if the in7ation rate is /&.&&C its e"uivalent 10P gro6th rate is );.' and if the IR is .;C the 10P is /.(. :his result entails that a large increase in the in7ation rate gives a large decrease on the gro6th rate in the econo!y. :his proves that there is a signicant relationship 5et6een in7ation rate and 1ross 0o!estic Product gro6th rate in the long run.
CHAPTER @ SUMMARY OF FIN"INGS AN" CONCLUSION
:he very purpose of this study is to deter!ine the e8ect of in7ation on econo!ic gro6th. :he results 6ere accu!ulated 5y conducting least)s"uare esti!ation of in7ation and 1ross 0o!estic Product gro6th rate through $vie6s . :he !ain o5Jective has 5een to indicate 6hether the general increase in prices of co!!odities could or could not ha!per the gro6th of the econo!y in the short)run and long)run period. :his chapter 6ill report the conclusion reached fro! the conduct of this underta+ing.
:he results suggested that in the long)run, in7ation i!poses a signicant negative e8ect on 10P gro6th rate. >hen in7ation soars, 10P gro6th rate 6ill 5e at its 5otto!. In converse, 6hen in7ation resorts in lo6 level, 10P gro6th rate 6ill ascend. As it 6ere, Aggregate 0e!and falls as in7ation rises since it lo6ers the level of consu!er spending, invest!ent and eEports. :his assertion 6as corro5orated 5y reasona5ly high result of R)S"uared, 6hich is /C, and the calculation of pro5a5ility, 6ith 'C, presenting a signicant relationship 5et6een the varia5les used, In7ation and 10P gro6th rate. A sustained rise in the general price level can do econo!ic da!age 5y distorting
consu!ption
decisions.
0istortions
result
fro!
households9
and
5usinesses9 uncertainty a5out in7ation9s future course. In7ation !a+es goods produced in the Philippines !ore eEpensive, to6ing eEports to decrease. -et it causes i!ports to increase 5y !a+ing goods !ade a5road less eEpensive. Also, this occurrence poses a GstealthH threat to investors 5ecause it chips a6ay at real
savings and invest!ent returns. Most investors ai! to increase their long) ter! purchasing po6er. In7ation puts this goal at ris+ 5ecause invest!ent returns !ust rst +eep up 6ith the rate of in7ation in order to increase real purchasing po6er. %n the other hand, the o5tained outco!e of the esti!ation has sho6n that in7ation pro!pts su5stantial gro6th in the short)run. Daving an R)S"uared of 'C, it is understood that gro6th could 5e eEplained 5y the hi+e in prices of co!!odities. :he rationale of this nding could 5e eEplained 5y 5uilding up of output, 6ith the producers having the !yopia that they 6ill 5e gaining !ore, 5elieving that prices of products 6ould 5e high. In conclusion, the researchers 6ere a5le to recogni2e the 6eight of in7ation rate to 5oth short)run and long)run period in the Philippine conteEt. :hough the said pheno!enon 6as proven not to 5e on the 6ay of attaining gro6th in the short)run, in7ation should still 5e controlled for it deteriorates progress in the long)run.
