PIR MEHR ALI SHAH
ARID AGRICULTURE UNIVERSITY- RAWALPINDI
(UNIVERSITY INSTITUTE OF MANAGEMENT SCIENCES)
DATA ANALYSIS AND DECISION MAKING
SUBMITTED TO:
DR. AHMED IMRAN HUNJRA
GROUP MEMBERS:
MALIK UMAR INSAF (13-ARID-3755)
ANEEQ SAHAB SHAFQAT (13-ARID-3741)
ANEES UR REHMAN (13-ARID-3742)
INTRODUCTION:
Since the end of apartheid foreign trade in South Africa has increased, following the lifting of
several sanctions and boycotts which were imposed as a means of ending apartheid.
South Africa is the second largest producer of gold and is the world's largest producer
of chrome, manganese, platinum, vanadium and vermiculite, the second largest producer
of limonite, palladium, rutile and zirconium. It is also the world's third largest coal
exporter. Although, mining only accounts for 3% of the GDP, down from around 14% in the
1980s. South Africa also has a large agricultural sector and is a net exporter of farming products.
Principal international trading partners of South Africa—besides other African countries—
include Germany, the United States, China, Japan, the United Kingdom and Spain. Chief exports
include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Machinery and
transportation equipment make up more than one-third of the value of the country’s imports.
Other imports include chemicals, manufactured goods, and petroleum.
On 23 November 2010, government, under the leadership of Minister Ebrahim Patel, released the
Framework of the New Economic Growth Path aimed at enhancing growth, employment
creation and equity. The principal aim of the policy is to create five million jobs over the next 10
years.
This framework reflects government's commitment to prioritizing employment creation in all
economic policies. It identifies strategies that will enable South Africa to grow in a more
equitable and inclusive manner while attaining South Africa's developmental agenda.
Importantly, the document underlying the New Growth Path recognizes the challenges of an
uncompetitive currency and sets out clear steps whereby government can address the impact of
the Rand on the economy. More specifically, on p. 2, the document discusses a trade-off between
a competitive currency that supports growth in production, employment and exports and a
stronger Rand that makes imports of capital and consumer goods cheaper.2 The 2011 industrial
policy action plan (IPAP, 2011:39) also calls for a competitive exchange rate.
The South African Reserve Bank (SARB) stated its own position on the exchange rate as
follows:
Exchange rate appreciation has been both a positive and a negative, on the one hand lowering
South Africa's trade competitiveness, but also helping to dampen inflationary pressures given the
influence of the exchange rate on consumer prices (SARB, 2012:6)
This shows that the debate about growth through competitiveness and exchange rate pass-
through - the effects of a weaker Rand on inflation - is still alive and well.
In this paper we find for the time period of 1994-2011, there is vigorous statistical proof that, in
long run, net exports are boost by a weaker real effective exchange rate. However, this effect
does not clutch in the short run. We thus find empirical proof supporting the J-curve effect for
South Africa.
A depreciation of the Rand may have adverse effects on South African consumer price inflation.
This link is known as exchange rate pass-through, which in empirical studies is typically
analyzed in three ways.
The first approach is to explore the direct link between the nominal exchange rate and CPI
inflation. This is the route followed by; inter alia, Razafimahefa (2012). He analyzes the pass
through of the nominal effective exchange rate to domestic prices in sub-Saharan African
countries from 1985 to 2008. He finds that the average elasticity is estimated at 0.4. Half of the
increase (of domestic prices in response to depreciation) occurs within the first quarter following
the exchange rate change, and the full impact generally takes place within four quarters. For
South Africa, the impact of a 10 per cent depreciation of the Rand after four quarters is 1.31 per
cent (1.6 per cent after eight quarters). This is in line with his finding that higher income
countries have a lower exchange rate pass-through.
The second approach is to investigate the relationship between the nominal exchange rate and
import prices (where the latter would feed into the CPI). This is the avenue followed by Aron,
Farrell, Muellbauer and Sinclair (2012). They examine exchange rate pass-through to the
monthly import price index in South Africa during 1980-2009. They find that pass-through is
about 50 per cent in a year and 30 per cent in six months. Johansen analysis broadly supports
these short-run results but implies lower long-run pass-through.
A third approach is to assess both the relationships between exchange rate movements, prices of
imported inputs and domestic inflation. This is obviously the most complex modeling strategy
and is employed by Rigabon (2007). It can be motivated by realizing that the pass-through is a
function of the monetary policy framework. Rigabon evaluates how credible the SARB's
inflation targeting is to shocks to the nominal exchange rate. His argument is that a credible
central bank that announces an inflation target is 100 per cent credible if, in the presence of a
transitory exchange rate shock, the target is unaffected, and the central bank is therefore able to
keep it. This would be the case of zero pass-through. On the other hand, a non-credible central
bank implies that nominal exchange rate devaluation will be accommodated by the central bank
with further domestic inflation. The definition he uses in his paper is: How many of the nominal
exchange rate movements are ultimately accommodated by the monetary authority? So, by
looking at the change in the pass-through, he is able to detect the gains in credibility. Rigabon
concludes that the large reduction in the pass-through experienced in South Africa is the outcome
of a large gain in the inflation targeting regime's credibility.
During apartheid, South Africa's foreign trade and investment were affected by sanctions and
boycotts by other countries ideologically opposed to apartheid. In 1970, the United Nations
Security Council, adopted resolution 282imposing a voluntary arms embargo upon South Africa,
and which was extended by subsequent resolutions 418 and 591, declaring the embargo
mandatory. In 1978, South Africa was prohibited loans from the Export-Import Bank of the
United States which was later followed by a prohibition on IMF loans in 1983. An oil embargo
was imposed by OPEC in 1983 which was strengthened by Iran in 1979.
The trade balance for any country is the difference between the total values of its exports and
imports in a given year. When a country’s total annual exports exceed its total annual imports, it
is said to have a trade surplus. When imports exceed exports, a country has a trade deficit.
The Balance of Trade includes only visible imports and exports, i.e. imports and exports of
merchandise, the difference of imports and exports is called Balance of Trade. If imports are
more than exports, it is unfavorable balance of trade. If exports exceeds imports, it is favorable
balance of trade.
Balance of Trade includes revenues received or paid on account of imports and exports of
merchandise. It shows only revenue items.
Balance of Trade can be favorable or unfavorable. If imports are more than exports, it is
unfavorable balance of trade. If exports exceeds imports, it is favorable balance of trade.
In case of Balance of Trade, there is no deficit or surplus balance. The balance shows favorable
or non-favorable. So, external assistance is not required.
Trade, in general connotation, means the purchase and sales of commodities. In International
Trade, purchase and sale are replaced by imports and exports. Balance of Trade is simply the
difference between the value of exports and value of imports. Thus, the Balance of Trade denotes
the differences of imports and exports of a merchandise of a country during the course of year. It
indicates the value of exports and imports of the country in question. If the value of its exports
over a period exceeds its value of imports, it is called favorable balance of trade and, conversely,
if the value of total imports exceeds the total value of exports over a period, it is unfavorable
balance of trade. The favorable balance of trade indicates good economic condition of the
country.
Policies of early modern Europe are grouped under the heading mercantilism. Early
understanding of the imbalances of trade emerged from the practices and abuses of mercantilism
in which colonial America's natural resources and cash crops were exported in exchange for
finished goods from England, a factor leading to the American Revolution. An early statement
appeared in Discourse of the Common Wealth of this Realm of England, 1549: "We must always
take heed that we buy no more from strangers than we sell them, for so should we impoverish
ourselves and enrich them." Similarly a systematic and coherent explanation of balance of trade
was made public through Maun's 1630 "England's treasure by foreign trade, or, The balance of
our foreign trade is the rule of our treasure"
Annual trade surpluses are immediate and direct additions to their nations’ GDPs. To some
extent exports induce additional increases to GDP that are not reflected within the export
products’ prices; thus contributions to GDP from trade surpluses are generally understated.
Products’ prices generally reflect their producers’ production supporting expenditures. Producers
often benefit from some production supporting goods and services at lesser or no cost to the
producers.
For example, governments may deliberately locate or increase the capacity of their infrastructure,
or provide other additional considerations to retain or attract producers within their own
jurisdictions. The curriculum of a nation's schools and colleges may provide job applicants
specifically suited to the producer’s needs, or provide specialized research and development. All
national factors of production, including education, contribute to GDP, and unless globally
traded products fully reflect those goods and services, these other export supporting
contributions are not entirely identified and attributed to their nations’ global trade.
Annual trade deficits are immediate and indirect reducers of their nations’ GDPs.
Trade deficits make no net contribution to their nations’ GDPs but the importing nations
indirectly deny themselves of the benefits earned by producing nations; (refer to “Annual trade
surpluses are immediate and direct additions to their nations’ GDPs”). Among what’s being
denied is familiarity with methods, practices, the manipulation of tools, materials and fabrication
processes.
The economic differences between domestic and imported goods occur prior to the goods entry
within the final purchasers' nations. After domestic goods have reached their producers shipping
dock or imported goods have been unloaded on to the importing nation’s cargo vessel or entry
port’s dock, similar goods have similar economic attributes.
Although supporting products not reflected within the prices of specific items are all captured
within the producing nation’s GDP, those supporting but not reflected within prices of globally
traded goods are not attributed to nations' global trade. Trade surpluses' contributions and trade
deficits' detriments to their nation's GDPs are understated. The entire benefits of production are
earned by the exporting nations and denied to the importing nation.
South Africa’s trade balance shifted back into surplus in March as exports of precious metals and
electronics climbed.
The trade surplus of 482 million rand ($41 million) compared with a revised 8.7 billion rand
deficit in February, the Pretoria-based Revenue Service said in a statement on its website
Thursday. The median estimate of 12 economists surveyed by Bloomberg was for a shortfall of
6.5 billion rand. The deficit for the first three months of the year was 32.6 billion rand compared
with 27.2 billion rand in 2014.
Eskom Holdings SOC Ltd., the state-owned utility that supplies about 95 percent of the nation’s
power, is rationing electricity supply because its aging plants can’t meet demand. The scheduled
blackouts, known locally as load shedding, will harm growth prospects in Africa’s most-
industrialized economy, according to the World Bank.
The effect of power cuts “was not as severe on mining and manufacturing as we had suspected,”
Isaac Mats ego, an economist at Ned bank Group Ltd., said by phone from Johannesburg on
Thursday. “We will be watching the number very closely in April and May because in April is
when load-shedding became more severe.”
A positive trade balance may relieve pressure on the current account, the broadest measure of
trade in goods and services, and the rand. The current-account gap averaged 5.4 percent of gross
domestic product in 2014 and will narrow to 4.5 percent this year, according to the National
Treasury.
South Africa posted a trade deficit in July as imports of vehicle and transportation equipment
increased, offsetting a surge in base metals exports.
The trade balance swung to a 0.4 billion rand ($30 million) deficit from a revised 5.48 billion
rand surplus in June, the Pretoria-based South African Revenue Service said in an e-mailed
statement on Monday. The median estimate of seven economists surveyed by Bloomberg was for
a deficit of 1.6 billion rand. The shortfall for the first seven months of the year was 25.3 billion
rand compared with 53.4 billion rand in 2014.
A deficit on the trade account will keep pressure on the current account, the broadest measure of
trade in goods and services, and the rand, which fell to a record against the dollar last week. The
current-account shortfall eased to 4.8 percent of gross domestic product in the three months
through March, from 5.1 percent in the previous quarter.
“The economy is probably going to struggle to meaningfully narrow the current-account deficit
much below 4 percent of GDP over the medium term,” Jeffrey Schultz, an economist at BNP
Paribas Cadiz Securities, said by phone from Johannesburg. “South Africa is going to remain
very reliant on portfolio flows and other investments in the capital account to finance its
deficits.”
The trade balance for any country is the difference between the total values of its exports and
imports in a given year. When a country’s total annual exports exceed its total annual imports, it
is said to have a trade surplus.
When imports exceed exports, a country has a trade deficit. Recent history has shown the United
States has recorded the largest trade deficits that the world has ever seen. The U.S. trade deficit
declined between 2011 and 2012 from $559.9 billion to $540.4 billion (Scott, 2013). After
recording relatively large trade deficits during the 1980s, U.S. trade deficits declined
substantially during the first half of the 1990s. At the end of the twentieth century, however, the
deficit began increasing again, and peaked in 2005. A drop in the trade deficit in 2013 has
pointed towards an economic recovery for the U.S. This is a result of a boom in oil exports from
increased exploration (Deseret, 2013)
Significance of the U.S. Trade Deficit. For decades, economists and citizens in the U.S. and
other countries have debated the significance of trade balances. Many argue that it is better for
countries to have trade surpluses— to export more than they import—than to have deficits. They
believe that trade deficits are harmful for a number of reasons:
Trade deficits are often interpreted as a sign of a nation’s economic weakness. They are said to
reflect an excessive reliance on products made by others, and to result from deficiencies in the
home country’s economic output. In the eyes of many labor supporters, an excess of imports
over exports comes at the expense of domestic production and jobs. Some people argue that the
loss of millions of manufacturing jobs in the United States over the past several decades is due to
the trade deficit.
Trade deficits represent a sacrifice of future growth. Because a nation with a trade deficit is
purchasing more than it produces, investment in future growth is being traded for consumption in
the present. Large trade deficits create an environment conducive to financial crises that could
damage the economy.
According to this view, when the United States runs a large trade deficit, foreign sellers of goods
and services simultaneously accumulate large amounts of U.S. dollars. These dollars cannot be
spent inside their own countries, so they need to be invested somewhere. Much of this trade
deficit-driven accumulation of dollars is used to purchase American stocks and bonds, pieces of
American companies, and other U.S. assets.
The potential for instability arises if foreign investors in U.S. assets begin to worry that a
persistent trade deficit is going to make the U.S. dollar less valuable relative to currencies in
other countries. If this concern prompts a lot of foreign investors to sell their U.S. assets at the
same time (in the hope of reinvesting the proceeds somewhere else), then the value of the U.S.
dollar could fall substantially in a short period of time.
Others doubt the importance of these risks, and counter that:
Consumers, particularly in the United States, can enjoy a higher living standard than they would
if limited to domestically produced goods and services;
Trade deficits have rarely sparked financial crises in advanced industrial countries; and
Trade deficits can be a sign of economic strength; as imports tend to increase rapidly during
times of economic growth when consumers and firms have more money to spend on foreign as
well as domestic goods.
This argument is consistent with the experience of the United States during the second half of the
1990s, when a booming economy and rising employment were accompanied by record import
levels and trade deficits.
In economics, broad money is a measure of the money supply that includes more than just
physical money such as currency and coins (also termed narrow money). It generally includes
demand deposits at commercial banks, and any monies held in easily accessible accounts.
Components of broad money are still very liquid, and non-cash components can usually be
converted into cash very easily. One measure of broad money is M3, which includes currency
and coins, and deposits in checking accounts, savings accounts and small time deposits,
overnight repos at commercial banks, and non-institutional money market accounts.
This is the main measure of the money supply, and is the economic indicator usually used to
assess the amount of liquidity in the economy, as it is relatively easy to track.
However broad money can have different definitions depending on the situation of usage, usually
it is constructed as required to be the most useful indicator in the situation. More generally, broad
money is just a term for the least liquid money definition being considered and less a fixed
definition across all situations. As such broad money may have different implications in the
United States than it does in Australia, and even from academic paper to paper. The term broad
money will usually be more exactly defined before a discussion, when it is not sufficient to
assume a wider definition of money.
Broad money to total reserves ratio in South Africa
Broad money to total reserves ratio in South Africa was last measured at 5.24 in 2013, according
to the World Bank. Broad money (IFS line 35L..ZK) is the sum of currency outside banks;
demand deposits other than those of the central government; the time; savings; and foreign
currency deposits of resident sectors other than the central government; bank and traveler’s
checks; and other securities such as certificates of deposit and commercial paper. This page has
the latest values, historical data, forecasts, charts, statistics, an economic calendar and news for
Broad money to total reserves ratio in South Africa.
In the U.S. the most common measures of the money supply are termed M0, M1, M2 and M3.
These measurements vary according to the liquidity of the accounts included.
M1(A measure of the money supply that includes all physical money, such as coins and
currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal
(NOW) accounts. M1 measures the most liquid components of the money supply, as it contains
cash and assets that can quickly be converted to currency. It does not contain "near money" or
"near, near money" as M2 and M3 do ( M0 includes only the most liquid instruments, and is
therefore narrowest definition of money.M2 (a measure of money supply that includes cash and
checking deposits (M1) as well as near money. “Near money" in M2 includes savings
deposits, money market mutual funds and other time deposits, which are less liquid and not as
suitable as exchange mediums but can be quickly converted into cash or checking deposits.
M3( A measure of money supply that includes M2 as well as large time deposits,
institutional money market funds, short-term repurchase agreements and other larger liquid
assets. The M3 measurement includes assets that are less liquid than other components of the
money supply, and are more closely related to the finances of larger financial institutions and
corporations than to those of businesses and individuals. These types of assets are referred to as
“near, near money.”)
includes liquid instruments as well as some less liquid instruments and is therefore considered
the broadest measurement of money. Complicating the situation, different countries often define
their measurements of the money slightly differently. In academic settings, the term "broad
money" should be separately defined in order to prevent potential misunderstandings.
The value for Broad money (current LCU) in South Africa was 2,513,870,000,000 as of 2013.
As the graph below shows, over the past 48 years this indicator reached a maximum value of
2,513,870,000,000 in 2013 and a minimum value of 4,768,400,000 in 1965.
Definition: Broad money (IFS line 35L..ZK) is the sum of currency outside banks; demand
deposits other than those of the central government; the time, savings, and foreign currency
deposits of resident sectors other than the central government; bank and traveler’s checks; and
other securities such as certificates of deposit and commercial paper.
Source: International Monetary Fund, International Financial Statistics and data files.
Broad money (% of GDP) in South Africa was 71.13 as of 2013. Its highest value over the past
48 years was 80.80 in 2008, while its lowest value was 45.50 in 1993.
Definition: Broad money (IFS line 35L..ZK) is the sum of currency outside banks; demand
deposits other than those of the central government; the time, savings, and foreign currency
deposits of resident sectors other than the central government; bank and traveler’s checks; and
other securities such as certificates of deposit and commercial paper.
Source: International Monetary Fund, International Financial Statistics and data files, and World
Bank and OECD GDP estimates.
The value for Broad money growth (annual %) in South Africa was 5.92 as of 2013. As the
graph below shows, over the past 47 years this indicator reached a maximum value of 27.02 in
1988 and a minimum value of 1.76 in 2009.
Definition: Broad money (IFS line 35L..ZK) is the sum of currency outside banks; demand
deposits other than those of the central government; the time, savings, and foreign currency
deposits of resident sectors other than the central government; bank and traveler’s checks; and
other securities such as certificates of deposit and commercial paper.
Source: International Monetary Fund, International Financial Statistics and data files.
Deposits Included in
Broad money
Deposits Excluded from Broad Money
Trade Balance
METHODOLOGY:
Detailed data was being collected and techniques were used for the analysis of
data for decision making. The intention behind the project was to test the OLS and the
assumptions of OLS Concept.
DATA:
South Africa is being selected as Population.Secondary Data used for the testing and
analysis OLS and the assumption of OLS. Data has been collected from IFS Browser. The data is
collected from the period of January 1971 to October 2010.
THEORETICAL FRAME WORK:
MATHMATICAL EXPRESSION:
Trade Balance = + (DEBM) + (DIBM)
*DIBM = Deposits included in broad money
*DEBM = Deposits excluded from broad money
TECHNIQUES:
“ASSUMPTIONS OF ORDINARY LEAST SQUARES (OLS)”
Following are the assumptions of ordinary least squares (OLS).
LINEARITY:
The equation must be linear in parameters; the dependent variable y can be calculated as
a linear function of a specific set of independent variables plus an error term.
XT HAS SOME VARIATION:
There should be some variations in the values of independent variables.
XT IS NON-STOCHASTIC (NON-RANDOM) AND FIXED IN REPEATED SAMPLES:
The independent variables (x) are non-stochastic, whose values are fixed. This
assumption means there is a unilateral causal relationship between dependent variable, y,
and the independent variables x. Suppose 10 families have same income but their
consumption could be different.
THE EXPECTED (MEAN) VALUE OF THE DISTURBANCE TERM IS ZERO:
The mean of the error terms has an expected value of zero given values for the
independent variables.
HETEROSKEDASTICITY:
All disturbance/ error terms should be not be same and are not correlated with each other.
SERIAL INDEPENDENCE (NO AUTOCORRELATION):
The disturbance/ error terms are associated with different observations are not related to
each other and are independently distributed.
NORMALITY OF RESIDUALS:
The residuals must be normally distributed having mean zero and variance constant.
n>k AND MULTICOLLINEARITY:
The number of observations is greater than the number of parameters to be estimated,
usually written n > k and there will be no linear relationship between independent
variables.
“MULTICOLLINEARITY”
Multi-collinearity (also collinearity) is a phenomenon in which two or more than two
independent / exploratory variables have a direct relationship between them. An assumption of
CLRM suggests that there is no relationship between the independent variables. When
explanatory variables are very highly correlated with each other (correlation coefficients either
very close to 1 or to -1) the problem of multi-collinearity occurs. Multi-collinearity increases the
standard errors of the coefficients. Multi-collinearity misleads the standard errors. Thus, it makes
some variables statistically insignificant while they should be otherwise significant.
PERFECT MULTICOLLINEARITY:
Perfect multi-collinearity exists when two or more explanatory variables are perfectly
correlated. Perfect multi-collinearity does not occur often, and usually results from the way
which variables are constructed. If we have perfect multi-collinearity, then we cannot obtain
estimates of the parameters. This can be expressed as X2=2X
1.
CONSEQUENCES OF PERFECT MULTICOLLINEARITY:
Under perfect multi-collinearity, the OLS estimators do not exist. If you try to estimate an
equation in E-Views and your equation conditions undergo perfect multi-co linearity, E-Views
will not give you results but will give you an error message mentioning multi-collinearity.
IMPERFECT MULTICOLLINEARITY:
Imperfect multicollinearity exists when two or more explanatory variables are not perfectly
Correlated .This can be expressed as: X2=2X
1+v where v is a random variable that can be view
as the ‘error’ in the exact linear relationship. Results may change with very small changes in
data.
CONSEQUENCES OF IMPERFECT MULTICOLLINEARITY:
OLS estimation may be indefinite because of large standard errors.
Affected coefficients may fail to attain statistical significance due to low t-stats.
There will be existence of sign reversal.
Addition or deletion of few observations may result in considerable changes in the probable
coefficients.
DETECTING OF MULTICOLLINEARITY:
Simple correlation co-efficient: If independent variables are highly correlated there will be multi-
collinearity.
High R2 and Low t-Statistics: multi collinearity does not affect the R2 statistic; it only affects
the estimated standard errors and hence t-statistics. A possible symptom of severe
multicollinearity is to estimate an equation and get a relatively high R2 statistic, but find that
most or all of the individual coefficients are insignificant, i.e., t-statistics less than 2.
Variance Inflating Factor (VIF): Higher the R2 there will be higher VIF it shows that there will
be higher multicollinearity.
VIF= 1/1-R
2
Tolerance (TOL): When multi-collinearity is higher than tolerance will be smaller.
Tolerance =1/VIF.
An easiest way of detection is by simply looking at the matrix of correlation between variables.
RESULTS & THEIR INTERPETATIONS
Variable Coefficient t-Statistic Prob.
D.I.I.B -3.026659 -1.978712 0.0952
D.E.F.B -0.085932 -0.303643 0.7717
C 3550.078
R-squared 0.507195
Adjusted R-squared 0.342927
Sum squared residual 62321387
F-statistic 3.087600
Prob(F-statistic) 0.119681
INTERPETATIONS OF RESULTS
R-square vale is 0.507195, so out of 100, independent variables (Deposit include in bro and
Deposit exclude from bro ) are explaining Depended variable (trade balance) 0.507195 and
remaining 0.492805 is error. or contribution of explanatory variable is 0.507195,it is Goodness
fit of model.
Adjusted R-square is less than R-square (0.342927 > 0.507195), aggregate of independent
variables is relevant and function is correct so there degree of freedom is 0.342927.
Comparison
T-stat value of DIBM is -1.978712, is beyond the limit +- 1.96 so it is significant.
T-stat value of DEBM is -0.303643, between the limit +- 1.96 so it is not significant.
P value of DIBM is 0.0952, not in range of .05 so it’s insignificant.
P value of DEBM is 0.7717, not in range of .05 so it’s insignificant.
F-stat value of DIBM is 3.08, is more than 3 so overall model is significant.
P value of F-state is 0.119681 not in range of .05 so it’s insignificant.
Slope of DIBM is -3.026659, its mean when 1 unit of DIBM changes than 3.026659 units of
trade balance changes inversely or negatively.
Slope of DEBM is -0.085932, its mean when 1 unit of DEBM changes than 0.085932 units of
trade balance changes inversely or negatively.
Solution:
Balance of trade = α + β (DIBM) + β (DEBM)
Balance of trade = 3550.078 + (-3.026659) + (-0.085932)
Balance of trade =3546.965409
Ess and Tss:
Ess = Rss × Tss
Variance Inflation Factor and Tolerance
Centered Tolerance
Variable VIF
DIBM 1.338921 0.74687
DEBM 1.338921 0.74687
Value of Centered VIF in respect to both Independent variables is less than 3, so there is no
multi co linearity or there is no linear relationship among the explanatory variables.
Value of Tolerance of is near to 1 (0.74687) so higher the tolerance means no multi co-linearity
exist.
Correlation:
D.I.I.B D.E.F.B
D.I.I.B 1.000000 0.503120
D.E.F.B 0.503120 1.000000
GRAPHICAL METHOD
SCATTER DIAGRAM
Variance of error term is not constant there no is equal spread.
Variance of error term is constant there is equal spread.
Variance of error term is constant there is equal spread.
HETEROSKEDASTICITY
ARCH METHOD
Heteroskedasticity Test: ARCH
F-statistic 1.653637 Prob. F(1,6) 0.2459
No Heteroskedasticity exists because P value of F-Stat is more than 0.05.
WHITE CRITERIA
Heteroskedasticity Test: White
F-statistic 4.704616 Prob. F(5,3) 0.1163
No Heteroskedasticity exists because P value of F-Stat is more than 0.05.
Reference:
https://en.wikipedia.org/wiki/Foreign_trade_of_South_Africa
http://www.scielo.org.za/scielo.php?pid=S2222-34362014000500006&script=sci_arttext
Reference :Globalization101.Sunny Levin Institute
http://www.bloomberg.com/news/articles/2015-04-30/south-africa-trade-balance-swings-to-
surplus-as-exports-climb
http://www.bloomberg.com/news/articles/2015-08-31/south-africa-posts-trade-deficit-in-july-as-
vehicle-imports-rise
http://www.investopedia.com/terms/b/broad-money.asp#ixzz3r1uRrvHN