ACKNOWLEDGEMENT

We would like to express our heartfelt gratitude towards our

Database and Statistical Packages’ teacher Dr Varun Bhandari who gave
us an opportunity to do a research paper on the topic ‘Effects of Exports and
Government Consumption Expenditure on Gross domestic Product’
and helped us immensely throughout the entire paper with his constant guidance
and motivation.

ABSTRACT

It is believed that export and government consumption expenditure are crucial in

providing the impetus for economic growth in developing countries. Therefore, our
aim, here, is to address the export/government consumption expenditure effect on
the GDP of India. The focus here has been on three approaches, first, Regression
analysis, to ascertain the relationship between the dependent and independent
variables. Second, Deterministic relationship, that implies that there is an exact
mathematical relationship between the variables. Third, Graphical analysis, wherein
the variables are plotted against the years and analysis is conducted.
With the help of our analysis we ascertain that, exports and government
consumption expenditure have an effect on the GDP as our null hypothesis i.e.
Beta2 and Beta3 is equal to zero is rejected as t-value calculated is greater than t-
value tabulated.
INTRODUCTION
Gross Domestic Product(GDP) is the final value of the goods and services
produced within the geographic boundaries of a country during a specified period of
time, normally a year. GDP growth rate is an important indicator of the economic
performance of a country. In India, contributions to GDP are mainly divided into 3
broad sectors – agriculture and allied services, industry and service sector. In India,
GDP is measured as market prices and the base year for computation is 2011-12.

An export is a function of international trade whereby goods produced in one

country are shipped to another country for future sale or trade. The sale of such
goods adds to the producing nation's gross output. Exports are one of the oldest
forms of economic transfer and occur on a large scale between nations that have
fewer restrictions on trade, such as tariffs or subsidies. Most of the largest
companies operating in advanced economies derive a substantial portion of their
annual revenues from exports to other countries.
The ability to export goods helps an economy to grow. One of the core functions of
diplomacy and foreign policy within governments is to foster economic trade for
the benefit of all trading parties.Exports are a crucial component of a country’s
economy as they facilitate international trade and stimulate domestic economic
activity by creating employment, production, and revenues.

Government final consumption expenditure (formerly general government

consumption) includes all government current expenditures for purchases of goods
and services (including compensation of employees). It also includes most
expenditures on national defense and security, but excludes government military
expenditures that are part of government capital formation.
The government expenditures are amongst the most significant instruments of fiscal
policies. For this reason, the interaction of government expenditures with economic
variables has been the subject of long debates between pros and cons in all major
schools of Economics.
Liberalisation refers to the slackening of government regulations. The economic
liberalisation in India denotes the continuing financial reforms which began since
July 24, 1991.
Privatisation refers to the participation of private entities in businesses and services
and transfer of ownership from the public sector (or government) to the private
sector as well.
Globalisation stands for the consolidation of the various economies of the world.
The economy of India had undergone significant policy shifts in the beginning of
the 1990s. This new model of economic reforms is commonly known as the LPG or
Liberalisation, Privatisation and Globalisation model. The primary objective of this
model was to make the economy of India the fastest developing economy in the
globe with capabilities that help it match up with the biggest economies of the
world.

The chain of reforms that took place with regards to business, manufacturing, and
financial services industries targeted at lifting the economy of the country to a more
proficient level. These economic reforms had influenced the overall economic
growth of the country in a significant manner.

In this paper we will study about how the exports and the government consumption
expenditure affects the GDP of India during Liberalization, Privatization and
Globalization which took place in 1990’s.
LITERATURE REVIEW

1. *Causal Relationship between Exports and Agricultural GDP in India*

Rajwant Kaur, Amarjit Singh Sidhu
First Published March 20, 2014 Research Article

This article is an attempt to investigate the causal relationships between

agriculture gross domestic product (GDP) and exports in India on the basis of
time series data for forty year from 1970–1971 to 2010–2011. The empirical
evidence reveals that the null hypothesis that the variables have a unit root is
not rejected in the case of all the variables under study. However, the null
hypothesis that the first-differences of these variables have a unit root is
rejected. Hence we conclude that these variables are integrated of order one (I
(1)). On the basis of trace and maximum eigenvalue tests of Johansen
technique of cointegration, the study found that agricultural GDP and
total exports of India were found cointegrated. The findings of the study have
significant implications for India’s economic policy as both the variables have
shown a strong long-run relationship. The study further found the existence of
uni-directional Granger-causality between the total exports and
agricultural GDP of India, which is running from total exports to
Agricultural GDP.

2. *Government expenditure and growth in developing countries*

Minh Quang Dao
First Published February 21, 2012 Research Article

This article investigates the impact of the growth of the share of

various governmentexpenditure programmes in the GDP on economic growth
in developing countries while taking into consideration the major issue of
potential simultaneity.
Based on data from the World Bank and using two samples of 28 developing
economies, we find that per capita GDP growth is dependent upon the growth
 of per capita public health expenditure in the GDP, growth of per capita public
spending on education in the GDP, population growth, growth of the share of
total health expenditure in the GDP and the share of gross capital formation in
the GDP.

OBJECTIVE AND HYPOTHESIS

The objective of this paper is to analyze and interpret the impact of general
government consumption expenditure and exports on Gross Domestic Product of
India over the time period of 57 years (1960 to 2016).
The paper also intends to show the impact of liberalization, privatization and
globalization on the Gross Domestic Product of India which occurred during
1990 to 2000.

The hypothesis formulated is that the general government consumption

expenditure and exports have no impact on Gross Domestic Product of India.
DATA AND METHODOLOGY

1. GRAPHICAL ANALYSIS
Result :
The of Gross domestic Product of India increases from 1960 to 2016.There
are some years in between when the expenditure decreases. In the year 2016
the General Government Consummption Expenditure have become almost
100 times of the expenditure of 1960.

The Exports of India increases from1960 to 2016.There are some years in

between when the expenditure decreases. In the year 2016 the General
Government Consummption Expenditure have become almost 300 times of
the expenditure of 1960.

The General Government Consummption Expenditure of India increases from

1960 to 2016.There are some years in between when the expenditure
decreases.In the year 2016 the General Government Consummption
Expenditure have become almost 100 times of the expenditure of 1960.
2. Descriptive Analysis

This gives us all the statistical measures of a variable.

1.Arithmetic Mean : The arithmetic mean, also called the average or

average value, is the quantity obtained by summing two or more numbers or
variables and then dividing by the number of numbers or variables.

2.Standard Deviation and Variance : Standard deviation is a measure of

the dispersion of a set of data from its mean. It is calculated as the square
root of variance by determining the variation between each data point
relative to the mean. If the data points are further from the mean, there is
higher deviation within the data set.

3. Skewness: Skewness is a term in statistics used to describes asymmetry

from the normal distribution in a set of statistical data. Skewness can come
in the form of negative skewness or positive skewness, depending on
whether data points are skewed to the left and negative, or to the right and
positive of the data average. A dataset that shows this characteristic differs
from a normal bell curve.

4.Kurtosis: Kurtosis is a statistical measure that's used to describe the

distribution, or skewness, of observed data around the mean, sometimes
referred to as the volatility of volatility

5.Median : Denoting or relating to a value or quantity lying at the midpoint

of a frequency distribution of observed values or quantities, such that there
is an equal probability of falling above or below it.

6.Range : Difference between the highest and lowest value.

 7.Sample Maximum : It is called the largest observation, is the value of the
greatest element of sample.

8. Sample Minimum: It is called the smallest observation, is the value of

the least element of sample.

9. Sum: It is the aggregate of two or more observation.

10. Count: It is the total of no. of observations.

3. REGRESSION ANALYSIS

The regression equation (without using the dummy variable) for the model
becomes as follows :
GDP = 3111416365 + 6.900 GC + 1063 EX

where , GDP = Gross Domestic Product

GC = General Government Consumption Expenditure
EX = Exports

Partial Regression Coefficient of of 6.900 tells us that with the influence

Exports held constant, if General Government Consumption Expenditure goes
up by 1000 dollars on an average,the Gross Domestic Product goes by 6900.

Holding the influence of General Government Consumption Expenditure, on

average the Gross Domestic Product goes up by 1063 dollars as the Exports
goes up 1000 dollars.

The intercept value of 3111416365 means that if the values of General

Government Consumption Expenditure and Exports were fixed at 0,the mean
Gross domestic Product would be about 3111416365 per 1000 dollars.
As computed value of t is greater than the tabulated value of t,we reject our
Null hypothesis (beta 2 and beta 3 is equal to zero) , that is ,General
Government Consumption Expenditure and exports does not have an impact
on GDP. Thus, both of the factors do have an impact on GDP.

However , if we use the dummy variables to show the effect of liberalization ,

privatization and globalization on Gross Domestic Product, then our model
changes to the following model :

GDP = 1.267E+11 + 2.324E+11(D1) + 1.203E+12 (D2)

where , GDP = Gross Domestic Product

D1 = 1 during LPG reform, 0 otherwise
D2 = 1 post LPG reform, 0 otherwise

As per the p value or t value there is significant difference in the GDP in Pre
Liberalisation, Privatisation and Globalisation of India and GDP during
Liberalisation, Privatisation and Globalisation of india because of of the
difference 2.324E+11 is coming out to be significant as 10% level of
significance (p value = 0.051).

There is a significant difference between GDP during Pre Liberalisation,

Privatisation and Globalisation and Post Liberalisation, Privatisation and
Globalisation because of the difference of 1.203E+12 is coming out to be
significant at 1% level of significance (p value = .000)
CONCLUSION

The final results shown in this research paper are obtained from data collected from
different sources. The research has been conducted to explain effect of Government
consumption expenditure on GDP of India. During this process we understood how
different situation have different impacts on GDP and how GDP fluctuates under
certain circumstances. Understanding these fluctuations and how our variables
effect them is an important topic of research altogether.

We adapted different approaches to arrive at the given result. Through Regression

Analysis we established a relationship between dependent and independent
variables. An exact mathematical relationship is proved through Deterministic
Relationship.
And the proper analysis is conducted through graphical analysis. With the help of
these tools, we came to our final conclusion that Government Consumption
Expenditure has an impact on GDP as the t-value calculated is greater than the
tabulated one.

By using the dummy variable regression analysis we also were able to analyse the
impact of liberalization, privatization and globablisation that occurred during the
years 1990 and 200. We could sum up that there was a significant difference
between GDP during Pre Liberalisation, Privatisation and Globalisation and Post
Liberalisation, Privatisation and Globalisation.
REFERENCES

1. www.data.worldbank.org

2. www.journals.sagepub.com

3. http://www.investinganswers.com/financial-dictionary/economics/gross-
domestic-product-gdp-1223

4. http://lexicon.ft.com/Term?term=government-consumption

5. https://www.investopedia.com/terms/e/export.asp
APPENDIX

1. The following steps were followed to do the graphical analysis :

Graphs > Charts Builder > Drag the chart and the variables > Click Ok.
2. The following steps were followed to do the regression analysis :
Analyse > Regression > Linear > Transfer Variables > Click Ok
3. The following steps were followed for the descriptive analysis :

Analyse > Descriptive Statistics > Descriptives > Transfer Variables > Select
from Options > Click Ok