Does Labor Force and Capital Investment Have an Influence on Qatar GDP - Research Proposal Example

Does labor force and capital investment have an influence on Qatar GDP? al affiliation: Introduction The economic freedom of Qatar is 70.8 and this makes it to be 32nd freest in the 2015 index. Since last year, there has been a decline in the scores by 0.4 points, with trade freedom improvement as well as decline in 5 of the 10 economic freedoms being outweighing the labor freedom and this include monetary freedom, corruption, as well as business freedom. The general score of Qatar is seen to be above the global average and its ranked as 3rd out of fifteen nations in the middle East region. It enjoys a very high living standard as a result of vast gas and oil reserves. Efforts of diversifying the economy as well as reducing the energy sector reliance are seen to have been relatively successful and the gas and oil industries are seen to contribute about half of the GDP (Hakura 2004). The GCC region rapid development has resulted to the generation of new cities, new industry expansion and infrastructure development. New industry expansion is seen to have attracted new labor force and capital around the world (Hakura 2004). The growth of these nations including Qatar has been considered to be higher when compared with the nations that are advanced because the GCC nations including Qatar size is seen to have doubled since the year 1986 (Hakura 2004).The development of the economy is seen to have been accompanied by a high foreign workers inflow where, there was a population increase by approximately 80% in the GCC including Qatar but with Kuwait exempted (Hakura 2004). This leads to a decline in the GDP per worker (measure applied in the assessing the worker productivity improvement) in Kuwait, Bahrain and United states of Emirates. On the other hand, it was seen to improve at a rate which was very low in Qatar, Saudi Arabia and Oman (Hakura 2004). Hypothesis Capital investment and labor force as the explanatory variables are known to have influence on GDP per capita in Qatar Research Question Does labor force and capital investment have an influence on Qatar GDP? Theoretical Framework It was quit alarming for the decline in the GDP growth specifically in Oman, Saudi Arabia and Oman where, there was a big proportion of international population having a low income as well as job prospects particularly for the young population being scarce (Hakura 2004). Youth unemployment as well as poor economic performance is considered to be one of the major political transitions triggers and it usually happens in a wider region. The economic challenges in the GCC nations are seen not to be that acute but the region is considered to be lagging in various developing areas (Hakura 2004). The human development index generated by the UN and which considered the life expectancy as well as education quality ranks consistently the GCC nations at degree which is below what is focused by their GDP per capita. The GCC government including that of Qatar is seen having the aim of diversification that is not in line with oil and with high investment policies that are financed by revenues of oil as well as with the help of the migrant workers. To understand the investment role, growth factors, labor force and skills roles as well as refining the success measures is considered to be critical even for richer and smaller nations of the Gulf. The long-term productivity and growth analysis is known to have been started by Solow (1957).It was assumed by his growth accounting model that output or production is normally estimated by real GDP and it is generated through combining of two inputs that include labor measures and capital where, labor measure include factors such as the number of workers or working hours in a given year. However, it was noted by Slow (1957) that the two production factors for the United States never defined appropriately the output where, the remaining part that was not defined was inherited by him as a total factor productivity or technical change. This is considered to be an efficiency measure in the factor use of production. There were debates by economist regarding the growth in East Asia Sources, but it was indicated by surveys that the TFP results were seen to be relatively sensitive to the given assumptions (Felipe 1997).As such, the growth that accounted for the exercise is still considered to be the very critical in data interpretation as well as factors accumulation and the growth source. The major focus of this paper is to understand the determinants of GDP. It has been indicated that GCC nations including Qatar have constantly accumulated a big physical capital stocks, but increase in population size as well as shifting away from the oil implied that there was a decrease in the capital intensity or it approximately remained constant. The efforts made on the other hand to improve human capital is seen to have an impact that is positive on the growth, despite the achievements related to education are still below what was attained by the economies that had similar income levels. The compilation of GDP can be in various ways. In terms of production, the GDP id the output value sum for all sectors (that are calculated by inventories and sales of the companies), the intermediate input is subtracted from this (GDP is the value added measure (Hakura 2004). In terms of expenditure, Nominal GDP is the sum of the private sector investment, consumption and public expenditure, and the imports are subtracted from this. The production method however, is considered to be more reliable since the surveys on spending as seen to be incomplete (Hakura 2004). How capita (fixed investment) influence Growth or GDP It has been emphasized by the literature that the investment role as well as the capital stocks is one of the major drivers of growth. The reason to this is that capital has been employed in the process of production. Investment is seen not to be relatively higher between 1980 -2009 in the GCC or oil exporters including Qatar than in other nations (Hakura 2004).Typically, 22 % is estimated to be invested and this is a percent of their production where, Qatar is not exempted. However, investment in proportion to non-oil GDP is considered to be the ratio that is significant in assessing the capital formation level in the given economy. In this case, it is seen to being a relatively high for nations that are oil exporters (Hakura 2004). How Labor force/Human capital influences Growth or GDP Human capital is considered to be that factor which defines growth as the labor force quantification level .Psacharopoulos (1994) noted that human capital modeling as where s represents the schooling average years of the population that is aged at least 15 years and represents the piecewise linear function which is based on the observations that there is a decrease in the returns to education. Such a form of function has emerged to be standard in the literature focusing on growth and the s value was got from Barro and Lee (2010). All the GCC nations including Qatar are seen to putting up plans for increasing schooling between 1990 and 2010The schooling average number of years increase of the population was seen to be significant in Saudi Arabia, United states of Emirates and Bahrain. The increase was observed to be moderate in Qatar and Kuwait (7).The approximated growth in the human capital stock could be overstated since the education quality in the region including Qatar is quite compromising (Barro and Lee 2010). It has been argued by Caselli and Wilson (2004) that all investments are not the same where, heterogeneity in the different capital goods technology content could define some of the growth factors that are unexplained. In simple terms, economies that employ capital that is more productive (such as computers in case there is skilled labor force).will generate more for a specific value of capital stock. Feenstra (200) data could be use in the investigation of the capital type employed in the GCC countries that include Qatar where the data is based on the imports of capital goods that is considered to be proxy for capital stocks. The application of such proxy is significant since the capital goods in most nations can never be imported as well as produced domestically. It has been indicated that nations such as Qatar have heavily invested in the high-tech equipments such as aircraft and communication equipment. Table with data of GDP capital investment and labor force Year Labor force Capital (Fixed investment) GDP 2007 84.3 46.81 184838 2008 85.3 41.22 217486 2009 86 43.91 243492 2010 86.4 38.12 284232 2011 86.6 31.01 321243 2012 86.7 28.75 340646 Table 1.GDP regressed on labor force and capital fixed investment. Dependent Variable: GDP Method: Least Squares Date: 04/26/15 Time: 16:46 Sample: 2007 2012 Included observations: 6 Variable Coefficient Std. Error t-Statistic Prob.   CAPITAL__FIXED_INVESTMEN -7452.634 1000.250 -7.450774 0.0017 LABOR_FORCE 6413.850 452.5421 14.17294 0.0001 R-squared 0.938605     Mean dependent var 265322. Adjusted R-squared 0.923257     S.D. dependent var 60664.5 S.E. of regression 16805.65     Akaike info criterion 22.5580 Sum squared resid 1.13E+09     Schwarz criterion 22.4886 Log likelihood -65.67406     Hannan-Quinn criter. 22.2801 Durbin-Watson stat 2.028709 According to the table above, it is observed that both labor force and capital fixed investment are statistically significant. The explanatory power which is R squared (94%) as well as the model general significance is very strong. The capital fixed investment has a negative effect on the GDP since it has a coefficient of correlation of -0.745. On the other hand, the labor force has a positive effect on GDP. The Durbin –Watson stats is observed to be 2 and the diagnostic test was carried out to determine if there is serial correlation in the current model. Table 2. Heteroskedasticity Test: White F-statistic 1.378452     Prob. F(3,2) 0.4466 Obs*R-squared 4.044124     Prob. Chi-Square(3) 0.2567 Scaled explained SS 0.916922     Prob. Chi-Square(3) 0.8213 Test Equation: Dependent Variable: RESID^2 Method: Least Squares Date: 04/26/15 Time: 16:52 Sample: 2007 2012 Included observations: 6 Variable Coefficient Std. Error t-Statistic Prob.   C 1.42E+09 9.55E+09 0.148710 0.8954 CAPITAL__FIXED_INVESTMEN^2 -3714104. 2848899. -1.303698 0.3222 CAPITAL__FIXED_INVESTMEN*LABOR_FORCE 3378822. 2332290. 1.448715 0.2844 LABOR_FORCE^2 -911373.2 1567580. -0.581389 0.6198 R-squared 0.674021     Mean dependent var 1.88E+0 Adjusted R-squared 0.185052     S.D. dependent var 2.08E+0 S.E. of regression 1.88E+08     Akaike info criterion 41.1773 Sum squared resid 7.07E+16     Schwarz criterion 41.0384 Log likelihood -119.5320     Hannan-Quinn criter. 40.6215 F-statistic 1.378452     Durbin-Watson stat 2.02077 Prob(F-statistic) 0.446637 The above table represents the summary of the first order serial correlation. It is observed that the residuals don’t suffer from the first order serial correlation Table 3. Wald Test: Equation: Untitled Test Statistic Value df Probability t-statistic -7.451773  4  0.0017 F-statistic  55.52892 (1, 4)  0.0017 Chi-square  55.52892  1  0.0000 Null Hypothesis: C(1)=1 Null Hypothesis Summary: Normalized Restriction (= 0) Value Std. Err. -1 + C(1) -7453.634  1000.250 Restrictions are linear in coefficients. It is critical to test if the estimated coefficients that are associated to labor force and capital fixed investment are equal to one. By putting into account the null hypothesis of Ho: β1=1, is can be noted basing on the above results that the null hypothesis is to be rejected since the p value is greater than 0.05.Therefore, this implies that the associated coefficients are not statistically different from one and this means that the explanatory variables are less related to GDP which is the dependent variable. Cyclical residue plotted over time Basing on the above cyclical residue plotted over time, it is clearly evident that there is no pattern in residuals at all. This implies that there is no autocorrelation. One of the autocorrelation causes is non-stationarity. In this case, when handling time series data, it is required to check if the time series is stationary. In case the mean, covariance and variance are time variant where, they never change over time, it means there is non-stationary time series and this applies to our case where there was no autocorrelation Conclusion It can be concluded that labor force and capital investment statistically significantly influences the GDP. The capital fixed investment has a negative effect on the GDP since it has a coefficient of correlation of -0.745.This is not in line with the literature where, it has been emphasized by the literature that the investment role as well as the capital stocks is one of the major drivers of growth (Gadir 2003). The reason to this is that capital has been employed in the process of production. Investment is seen not to be relatively higher between 1980 -2009 in the GCC or oil exporters including Qatar than in other nations On the other hand, the labor force has a positive effect on Qatar GDP. This is in line with the literature where, it has been argued by Caselli and Wilson (2004) that all investments are not the same where; heterogeneity in the different capital goods technology content could define some of the growth factors that are unexplained. In simple terms, economies that employ capital that is more productive (such as computers in case there is skilled labor force).will generate more for a specific value of capital stock. This is also supported by the fact that the development of the economy is seen to have been accompanied by a high foreign workers inflow where, there was a population increase by approximately 80% in the GCC including Qatar but with Kuwait exempted (Hakura 2004). This leads to a decline in the GDP per worker (measure applied in the assessing the worker productivity improvement) in Kuwait, Bahrain and United states of Emirates. On the other hand, it was seen to improve at a rate which was very low in Qatar, Saudi Arabia and Oman (Hakura 2004). References Solow, R. M. (1957). Technical Change and the Aggregate Production Function. Review of Economics and Statistics, 39 (3):312–320. Felipe, J. (1997). Total Factor Productivity Growth in East Asia: A Critical survey. ADB EDRC Report Series N. 65. Psacharopoulos, G. (1994). Returns to investment in education: A global update. World Development, 22(9):1325-43. Barro, R. and Lee, J.W. (2010). A New Data Set of Educational Attainment in the World, 1950-2010. NBER Working Paper No. 15902. Caselli, F. (2005). Accounting for Income Differences Across Countries.In Handbook of Economic Growth Volume 1A, ed. by Philippe Aghion and Steven Durlauf. (New York: North-Holland).1: 679-741 Feenstra, R. (2000).World Trade Flows, 1980-1997. mimeo. Gadir Ali, A..A.. (2003). Globalization and Inequality in the Arab Region. Arab Planning Institute, Kuwait. Hakura, D. (2004). Growth in the Middle East and North Africa. IMF Working Paper, 04/56. Read More