The relationship between fiscal development and economic growing has been one of the most problematic subjects in recent old ages and has received considerable attending in the theoretical every bit good as empirical growing literature. The Financial system of any state encompasses fiscal establishments, markets, loaners and borrowers. Fiscal systems exist to pull off resources and to assist doing programs for the fiscal sustainability of the economic system. Fiscal systems steer the discoveries from rescuers to borrowers which can be either through direct market based funding or indirect market based funding. “ The fiscal system provides three key services: payment services, intermediation between rescuers and borrowers, and insurance against hazard ” ( Davies and Richardson, 2010, p.321 )
Harmonizing to Buckle and Thompson ( 2004 ) , Economic growing is a state ‘s addition of public assistance over clip, normally measured by Gross National Product ( GNP ) . Money is an of import establishment ; therefore the phase of i¬?nancial development is rei¬‚ected in the i¬?nancial construction of a peculiar state. This is the ground that relationship of fiscal systems and economic development has been a problematic subject among many of the research workers like Schumpeter ( 1911 ) , Cameron ( 1967 ) , Goldsmith ( 1969 ) , and McKinnon ( 1973 ) , Lucas ( 1988 ) . In 1911, the position of Schumpeter highlighted this relationship and so several researches have been conducted on this up till now. Many literatures have discussed different factors impacting the economic growing chiefly institutional development, macroeconomic stableness, cultural and spiritual diverseness and fiscal market imperfectnesss ( Christopoulos and Tsionas, 2004 ; Khan et Al, 2005 ) and from these the importance of fiscal markets have emerged as an of import determiner of growing. Stavrou ( 2011 ) states that, the fiscal system promotes efficiency as it determine the allotment of the available loan able financess. It allocates money to the most efficient investor, therefore the best investing will be financed ensuing in invention, advancement, growing, and therefore the fiscal system benefits the whole economic system. Harmonizing to Suttons and Jenkins ( 2007 ) , Financial Sector is considered as a important portion for private sector development, as it facilitates about doing recognition and minutess therefore straight have an impact on the poorness decrease. Many researches have shown a positive nexus between fiscal development and economic growing ( King and Levine, 1993b ; Levine et al. , 2000 ; Chistopoulos and Tsionas, 2004 ; Neusser and Kugler, 1998 ; Rousseau and Wachtel, 1998 ; Khan and Senhadji, 2003 ; ; Khan et Al, 2005 ; and Khan and Qayyum, 2006 ) .
There are many fluctuations in the fiscal system construction of different states. The impact of the fiscal sector on economic growing of any state depends on the extent to which the state has a strong fiscal system.
1.2 Brief Overview of UK Financial Sector
UK has ever been much dependant on its fiscal sector. Financial sector is among the five chief sectors of UK economic system. Harmonizing to International Monetary fund study ( 2011 ) , “ International foreign bank subordinates and subdivisions hold half of U.K. banking assets, while U.K owned Bankss have over half of their assets outside the state. Overall, these establishments hold about ?11 trillion of assets in the United Kingdom and globally, equal to approximately nine times GDP, of which U.K. Bankss account for assets tantamount to five times GDP ” . “ The U.K. insurance industry is the 3rd largest in the universe, after the United States and Japan. “ ( International Monetary Fund, 2011 ) .
The importance of UK fiscal services sector can be illustrated from the following table demoing the part of fiscal services sector to GDP and employment.
Beginning: Fiscal Statisticss. National Statistics on-line database ( hypertext transfer protocol: //www.statistics.gov.uk/stakbase/TSDTimeZone.asp ) .
1.2.1 UK Financial Institutions:
The Bank of England was founded in 1694 to move as the Government ‘s banker andA debt-manager. Since so its function has developed and evolved, centred on the direction of the state ‘s currency and its place at the Centre of the UK ‘s fiscal system.
Harmonizing to Davies and Richardson ( 2010 ) , Banks ‘ and edifice societies ‘ sterling assets grew steadily from around 50 % to 65 % between 1962 and 1979. In this period London emerged as an international fiscal Centre. The foreign owned Bankss began to spread out and foreign currency keeping increased to ?172 billion which was about half of their entire assets.
Since late 1990 ‘s, UK banking sector expanded really rapidly. Levine ( 1997 ) studies that harmonizing to Walter Bagehot ( 1873 ) and John Hicks ( 1969 ) , fiscal system of England is an of import factor for its industrialisation. The UK has a trade excess in fiscal and insurance activities, i.e. exports exceed imports in the sector from many old ages. “ The trade excess has been turning as a proportion of GDP over the last two decennaries, although it dropped between 2008 and 2010 ”
“ Jointly, UK Bankss ‘ balance sheets are now more than 500 % of one-year UK GDP, with much of this growing holding occurred over the past decennary. Three of the four largest Bankss separately have assets in surplus of one-year UK GDP. Relative to the size of the national economic system, the UK banking system is 2nd merely to Switzerland among G20 economic systems, and is an order of magnitude larger than the US system ” ( Davies and Richardson, 2010, p.324 ) . UK rely much on its banking system and as Davies and Richardson ( 2010 ) , said that when some establishment becomes “ excessively of import to neglect ” , it can do hurt in the economic system.
In the UK pension financess and insurance companies grew really quickly from 20
per cent to 80 per cent of GDP between 1980-2009 whereas Insurance company assets increased from 20 per cent to 100 per cent of GDP during this period.
Pension Provision in UK comes from three basic beginnings including the province strategy, occupational strategy and personal pension. UK is considered to be one of the few states that do n’t confront serious pension payment jobs.
Harmonizing to the study of metropolis of London ( 2011 ) , Capital markets play a critical function in imparting the financess from rescuers into the fiscal sector by raising debt and equity capital for concerns. The experience of London demonstrates the valuable function that active and strong capital markets can play in back uping the liquid market which can be an attractive force for both domestic and international investors who wish to raise money. In UK, pension financess and insurance companies have been the most of import subscriber to the development of capital markets in the UK.
The planetary fiscal crisis of 2007 weakened the banking sector and left a damaging affects on it ( OECD Economic Surveys, 2008 ) . Around the universe stock markets have fallen, big fiscal establishments have collapsed or been bought out, and authoritiess in even the wealthiest states have had to come up with deliverance bundles to bail out their fiscal systems. A decennary before the fiscal crisis of 2007, UK fiscal sector was turning twice as GDP but the universe fiscal crisis of 2007 has disrupted UK fiscal system. Harmonizing to the study of international pecuniary fund ( 2011 ) , from 2007-2011 UK witnessed a serious crisis of fiscal sector and the advancement of mending the crisis was non yet completed to day of the month of this study. UK economic system started shriveling and in 2008, it was the biggest bead in GDP since 2009 ( Guardian, 2008 )
Businesss that were already hit by falling gross revenues and profitableness besides faced the increasing jobs in procuring bank support for continued trading. In the fourth one-fourth of 2008 UK Gross Domestic Product ( GDP ) fell by 1.5 % and the state officially entered into a recession.
Definition of Problem:
Harmonizing to Raby ( 2010 ) , UK has the largest fiscal service industry in Europe and it contributes 12 % of the UK ‘s entire GDP. Many foreign investors prefer to put in UK ; therefore it has the ability to pull capital influx from other states. So, the fiscal sector holds much importance in the growing of UK economic system. As in the position of Erturk et Al ( 2008 ) , fiscal services are the cardinal factor of economic growing in UK. But recent fiscal crisis which has affected every state ‘s economic system severely highlights the issue of serious deductions on the financials services taking economic growing for UK ( Gallic et Al. 2009 )
Purposes and Objective of Study:
Although there have been extended empirical surveies proving the positions on the finance-growth link but this survey would look into this relationship in UK entirely. This survey aims to hold a deeper apprehension of the importance of fiscal service sector for any state. Acknowledging the job that UK can confront because of its much dependance on fiscal sector ; this survey has the aim to happen replies of the undermentioned inquiries: The general aim of the survey is to look at development in the fiscal sector and its deductions on the economic growing in UK over a 10 20 twelvemonth period. So the aim of the survey is
To analyze the consequence of fiscal sector development on economic growing utilizing the Co-Integration analysis
The thesis seeks to reply the undermentioned inquiries:
What is the chief part of fiscal services sector of UK to the growing over the period 1992-2011?
How M2 and CPS affect economic growing of UK individually?
Importance of Survey:
This paper makes an empirical part to bing literature by analyzing the relationship of fiscal development and growing in an economic system of big fiscal service industry. It would give way to farther researches on economic growing. The consequences from this survey can be helpful in measuring different economic policies and their deductions on economic system. Policymakers need to understand the extent to which the fiscal sector end product can be capable to uncertainness.
1.5 Organization of the Study
For the intent of accomplishing the aims of survey, this paper would follow the undermentioned design.
Chapter 2: Literature Reappraisal
This chapter will travel through all the old literatures on this subject. This will include both the theoretical every bit good as empirical literature. First this chapter will undergo theoretical literature which will give us the penetration about the general relationship between fiscal development and economic growing. Then empirical plants by different research workers will be discussed and critically analysed. This chapter would besides include some portion discoursing the fiscal system and growing tendencies in UK.
Chapter 3: Research Methodology
This chapter will be discoursing the methodological analysis to be used for this survey. This will see the methodological analysis used in literatures every bit good. This includes the information aggregation, choice and the description of the theoretical accounts to be used.
Chapter 4: Consequences
This chapter will analyze the informations collected and will construe the consequences gathered through the research theoretical accounts ( through arrested development ) . The coveted consequence is obtained in this portion.
Chapter 5: Decision
This chapter summarizes the findings of the survey. It highlights the methodological analysis used in our survey and consequences obtained from that. This subdivision put together our consequences, literatures reviewed and depending on that recommend some policies that can be adopted by UK Government. Some restrictions of our survey and range for farther researches related to this subject are besides discussed in this chapter.
Chapter 2: Literature Reappraisal
Capital formation has been widely accepted as a requirement for economic growing ( Lewis, 1955 ; Nurkse, 1962 ) . This is the ground that ‘The fiscal sector has emerged as the chief economic engine over the past two decennaries ‘ ( OECD, Economic study 2008, p.47 ) .In recent old ages, it has undergone many important alterations in footings of technological developments, alterations in nest eggs pattern by families and altering function of competition. ( Freedman, 1998 ) .
For centuries economic experts like Schumpeter ( 1911 ) , Cameron ( 1967 ) , Goldsmith ( 1969 ) , and McKinnon ( 1973 ) , Lucas ( 1988 ) have long debated on the relationship of fiscal systems and economic development. Schumpeter ( 1911 ) gave position that fiscal system can advance economic growing. He argued the nexus of growing and the consequence of fiscal services on growing. He besides described the importance of Bankss which can take to more investings and therefore more economic growing.
This chapter gives an overview of the theoretical and empirical literature available on this survey analyzing the relationship of fiscal services sector and economic growing.
2.2 Theoretical Literature
The World Bank ( 1989, p. 30 ) studies that, ‘faster growing, more investing and greater unfriendly deepness all come partially from higher economy. In its ain right, nevertheless, greater unfriendly deepness besides contributes to growing by bettering the productiveness of investing. Investment productiveness is signii¬?cantly higher in the faster turning states, which besides have deeper i¬?nancial systems. This suggests a nexus between i¬?nancial development and growing. ‘ The literatures on this relationship have by and large discussed four different positions which are supply taking, demand following, common impact of finance and growing and those that suggest that the function of finance in advancing economic growing is overemphasized.
Schumpeter ( 1911 ) is considered as the first advocate of the position that fiscal establishments are of import parts to economic growing. He besides argued that fiscal mediators incite technological invention which in bend triggers economic growing. The survey by David, Claremont and Abdullahi ( 2011 ) theoretical accounts the relationship between the fiscal sector andA economic growing and supported the theory that fiscal sector affects economic growing. Both theoretical and empirical literatures have emerged from these surveies. In measuring the relationship, a big figure of recent empirical surveies including De Serres et Al ( 2006 ) and Levine ( 2005 ) have relied on steps of size or construction to supply grounds of a nexus between fiscal system development and economic growing.
2.2.1 Relationship between Financial Development and Economic Growth
Patrick ( 1966 ) described the ‘demand-following ‘ and ‘supply-leading ‘ function of the fiscal sector development. Therefore he explained the two side relationship of growing and fiscal sector development. The ‘supply-leading ‘ side explains that fiscal sector is the services sectors which if perform good, increased the demand for services, therefore more exports of services and therefore advance the economic development. While on the other side the ‘demand-following ‘ function explains that economic growing drives the fiscal sector therefore impacting its public presentation. The advocates of ‘supply-leading ‘ function argue that “ Fiscal intermediation can impact economic growing by moving on the salvaging rate, on the fraction of salvaging channelled to investing, or on the societal fringy productiveness of investing ” ( Pagano, 1993 ) . The McKinnon-Shaw hypothesis supports the supply-leading statement of Patrick ( 1966 ) . McKinnon ( 1973 ) suggests that being of fiscal markets provide the chances for external finance and therefore open the waies for possible investors to set about expensive investing undertakings. The advocates of this thought argues that fiscal establishments channelize the nest eggs to investings which increased the measure and therefore triggers economic growing ( Quartey and Prah, 2008 ) .One more position in favor of this hypotheses is that fiscal sectorA development is stipulation for FDI to enhanceA economic growing ( Nair and Chee, 2010 ) .
The other position is demand following and the advocates of this thought says that fiscal development follows economic growing. ( Robinson, 1952 ) . Harmonizing to Robinson ( 1952 ) , economic development creates demands for fiscal agreements and fiscal system responds harmonizing to these demands. So harmonizing to this position economic growing is the cause of fiscal development. The advocates of this thought argues that economic growing give rise to the demand for financess and therefore affect fiscal sector development ( Robinson 1952, Ghirmay, 2004, Levine 2008 ) .This position is besides supported by Gurley and Shaw ( 1967 ) , Goldsmith ( 1969 ) and Jung ( 1986 ) .
Therefore, there are different positions by different writers about the relationship of economic growing and fiscal service sector. Some research workers found in their survey that there is bidirectional relationship ( Anyanga, 2011 ) . So, some of the research workers are agreed on the fact that there exists a common relationship between both the variables. Demetriades & A ; Hussein ( 1996 ) carried out research on 13 states and ascertained and concluded that the issue of causality is state specific instead than general as suggested by surveies earlier. Several surveies, ( Odedokun, 1998 ; Ghirmay, 2004 ) supported this claim.
Contrary to these positions, Lucas ( 1988 ) rejects the being of a relationship between growing and fiscal development. He argues that economic experts tend to over-emphasize the function of fiscal factors in the procedure of growing. Fiscal markets can turn out to be an obstruction in the manner of growing when it discourages the hazard averse investors to put because these ca n’t protect the investors from confronting the hazard wholly. The presence of some of the fiscal instruments fudging the hazard has led investors to put in hazardous assets and therefore lowers economic growing ( Mauro, 1995 ) . Mohamed ( 2008 ) investigated the relationship between fiscal development and economic public presentation in Sudan over the period 1970-2004. His consequences besides supported the position of Lucas. He found the weak relationship between fiscal development and economic growing.
Goldsmith ( 1969 ) illustrated a positive relationship between per capita end product and the ratio of fiscal establishments ‘ assets to GNP in three twelve states. Harmonizing to the section for international development ( 2004 ) “ Financial services are cardinal to economic growing and development. Banking, nest eggs and investing, insurance and debt and equity funding aid private citizens save money, guard against uncertainness, and construct recognition, while enabling concerns to get down up, expand, addition efficiency and compete in international and local markets. ”
2.2.2 Fiscal Indexs
Levine and Zervos ( 1998 ) found the positive relationship between stock market development and long tally growing. Levine ( 1991 ) derived the theoretical account where he explained that if the stock market are liquid, it is less expensive to merchandise equities, therefore the liquid trade market promote nest eggs and therefore more investing and accordingly high economic growing. Similarly Deveraux and Smith ( 1994 ) stock markets diversify the international hazard therefore convey on high return investings instead than low return investings and accelerates economic growing. Levine and Zervos ( 1996 ) concluded that ‘stock market development explains future economic growing ( Levine, 1996, p.8 ) . Greenwood and Smith ( 1996 ) besides showed the same facet of the relationship of stock market with the economic growing in their survey.
The survey by Rajan and Zingales ( 1998 ) suggest that the being of a well-developed market in a certain state represents a beginning of comparative advantage for that state in industries that are more dependent on external finance. They concluded that fiscal development may be the chief factor impacting growing but non the causal factor, so there can be other factors as good that causes alterations in the state ‘s investing chance set. So harmonizing to them, fiscal mediators development can be one of the ways to heighten growing but non needfully the causal factor of economic growing.
Hence these surveies conclude that economic development pave the manner for fiscal development and strong fiscal construction can promote the economic growing.
Harmonizing to the findings by Christopoulus and Tsionas ( 2004 ) , their clip series analysis provides back uping grounds about the cointegeration of growing, fiscal development and investings. The survey of Benhabib and Spiegel ( 2000 ) besides back up a positive relationship between fiscal development and entire factor productiveness growing and investing. Levine ( 1991 ) and Bencivenga et Al ( 1995 ) explained that liquidness is the factor which urges nest eggs and this is due to the presence of fiscal establishments. These nest eggs encourage investings and therefore excite economic growing.
Pagano ( 1993 ) besides concluded that ‘Financial intermediation can impact economic growing by moving on the salvaging rate, on the fraction of salvaging channelled to investing, or on the societal fringy productiveness of investing ‘ .
Trade openness is another index which has been found as the important factor of growing harmonizing to the survey by Yanikkaya ( 2002 ) . The fiscal development is increased when state allows trade and allow the capital flow into the economic system ( Rajan and Zingales, 2003 ) . Law and Demetriades ( 2006 ) carried out research in 72 states to happen the fiscal development effects on GDP per capita and their consequences supports the thought by Rajan and Zingales ( 2003 ) .
Harmonizing to Beck et Al ( 2000 ) , private recognition is the primary step of banking sector development. Survey by Anyanga, 2011concludes that the growing of private sector recognition has more impact on economic growing than the growing of money supply. Harmonizing to the work by Bayoumi & A ; Melander ( 2008 ) , a 2A? % decrease in overall recognition causes a decrease in the degree of GDP by around 1A? % . The surveies by Beck et al 2005 ; Levine 2002 and Boyreau-Debray 2003 emphasised the importance of efficiency of the allotment of recognition and harmonizing to them, recognition to the populace sector is non that effectual in bring forthing growing within the economic system. They concluded that fiscal development can merely hold a positive impact on growing if they are expeditiously allocated.
Barro ( 1995 ) conducted research in around 100 states and his consequences indicate that ‘the impact effects from an addition in mean rising prices by 10 per centum points per twelvemonth are a decrease of the growing rate of existent per capita GDP by 0.2-0.3 per centum points per twelvemonth and a lessening in the ratio of investing to GDP by 0.4-0.6 per centum points ‘ . From different researches by Barro ( 1995 ) , Bruno and Easterly ( 1998 ) , Bullard and Keating ( 1995 ) , DeGregorio ( 1992 ) , Fischer ( 1993 ) , Levine and Renelt ( 1992 ) , and Wynne ( 1993 ) , there is clear grounds that high rates of rising prices can impact the growing adversely. These surveies explains that, in the period of high rising prices, people ‘s ability to salvage lessenings therefore cut downing investing in the economic system and accordingly can hold an inauspicious impact on the fiscal service sector.
2.3.1 Financial Development Indexs
Different researches have used different econometric theoretical accounts to analyse the consequence of fiscal Intermediaries development on economic growing. Goldsmith ( 1969 ) in its survey proved that economic growing is led by fiscal development. He used the value of fiscal intermediary assets divided by GNP to mensurate fiscal development. He besides stated in its survey that the positive relationship between the fiscal intermediation and growing could be the ground of both efficiency and the volume of investing. Although his work was criticized on the footing that he did n’t command for other variables and his consequences did n’t estimate for the causality of the two variables.
Several empirical findings support the supply taking hypothesis. King and Levine ( 1992 ) research was an betterment on some of the things that were criticized in Goldsmith ( 1969 ) work. They tried to turn to some of the failings of old researches. They took about 60-90 states for their survey to analyse the consequence of fiscal system on growing during the period 1960-89. They used simple arrested developments to look into whether the correlativity between the fiscal size indexs and growing remain important after commanding for other variables. King and Levine ( 1992 ) made usage of fiscal and growing indexs which are as follows:
Size of fiscal intermediary sector to GDP
Real per capital growing rate
% age of recognition allocate to private sector
Ratio of domestic investing to GDP
Importance of Bankss relative to cardinal Bankss
Ratio of physical capital accretion
Based on mean existent per capita growing rates, they analyzed the nexus between mean fiscal size and growing. The existent per capital growing rate was the dependent variable. Real per capita growing was calculated as the merchandise of investing portion and the efficiency of investing where investing portion is equal to gross national investing divided by end product and efficiency of investing is equal to alter in end product divided by the alteration in the domestic capital stock They calculated the Pearson correlativity coefficient that came out to be significantly positive. In their survey they examined the correlativities of investing portion and efficiency of the investing with the norm and fiscal size indexs. So they calculated the p-value ( correlativity ) with investing and efficiency. They concluded that the fiscal size index is more strongly correlated with the efficiency of the investing instead than the degree of investing made. This determination by this survey is supported by the survey of Gregorio and Guidotti ( 1994 ) . King and Levine ( 1992 ) and some of the other researches after Goldsmith ( 1969 ) like Gelb ( 1989 ) , Gertler and Rose ( 1994 ) Roubini and Sala-iMartin ( 1992 ) , Easterly ( 1993 ) and Pagano ( 1993 ) used four steps of fiscal development including DEPTH, BANK, PRIVATE and PRIVY whereas RGDPPC ( Real gross domestic merchandise per capital ) was used as a step of economic growing. Depth measures the size of fiscal mediators and peers liquid liabilities of the fiscal system ( currency plus demand and interest-bearing liabilities of Bankss and non bank fiscal mediators ) divided by GDP. Bank equals the ratio of bank recognition divided by bank recognition plus cardinal bank domestic assets. Private is the ratio of recognition allocated to private endeavors to entire domestic recognition ( excepting recognition to Bankss ) . Privy is equal to the recognition to private endeavors divided by GDP.
The other variables they included in their survey were trade, rising prices and authorities disbursement. To analyze the importance of different fiscal mediators, King and Levine ( 1992 ) selected cardinal bank and sedimentation money Bankss for their survey. They used the undermentioned three steps in their survey to analyse the importance of Bankss and cardinal Bankss.
CBY: The Ratio of Central Bank Domestic Assets to GDP.
BY: The Ratio of Deposit Money Banks Domestic Assets to GDP.
BTOT: The Ratio of Deposit Money Banks Domestic Assets to Lodge Money
Bank plus Central Bank Domestic Assets.
From this analysis they found that “ ( 1 ) faster turning states tend to hold larger ratios of sedimentation bank assets to GDP than slower turning states ; ( 2 ) faster turning states tend to hold larger sedimentation Bankss relative to cardinal Bankss than slower states ; and ( 3 ) there is weak, negative correlativity between cardinal bank size as a portion of GDP and growing ” ( King and Levine, 1992 ) .
The arrested development of domestic plus distribution and growing consequences showed that “ the portion of recognition allocated to the private sector by the fiscal system is positively and significantly correlated with both the investing rate ( INV ) and the efficiency of investing ( EFF ) ( King and Levine, 1992 ) . Therefore they concluded that “ plus distribution by the domestic fiscal system is related to growing via both the investing and efficiency channels ” . The survey by La Porta et Al. ( 2002 ) besides supports these findings.
The survey by Beck et Al ( 2000 ) conducted research on 63 states to measure the empirical relationship between the degree of fiscal intermediary development and ( I ) economic growing, ( two ) entire factor productiveness growing, ( three ) physical capital accretion, and ( four ) private nest eggs rates. They used the traditional cross sectional survey. This survey had the existent per capita growing rate as dependant variable every bit good. In their survey they besides found the positive nexus of fiscal intermediary development with growing. They tested different steps in their survey. Unlike other surveies like King and Levine ( 1993a, B ) that used a step of gross claims on the private sector divided by GDP they measure includes credits issued by the pecuniary authorization and authorities bureaus because Private Credit includes merely credits issued by sedimentation money Bankss and other fiscal mediators. These two steps were besides proved to be strongly correlated with growing. Odedokun ( 1996 ) conducted survey on 71 states and used clip series analysis.
The causality trials between the two variables were besides conducted by Demetriades and Hussein ( 1996 ) . They used clip series analysis and conducted research on 16 less developed states for the period 1960-90. The ratio of bank sedimentation liabilities to GDP and ratio of bank claims on the private sector to GDP were used as fiscal development indexs. The consequences indicated that the causality between fiscal development and growing is state specific.
Barro ( 1996 ) conducted research on 100 states and used the 8 factors in its survey to find their relationship with economic growing. He besides determined the relationship of human capital with growing and concluded that states holding higher ratio of human capital have greater ratio of physical investing to GDP. The theory of endogenous growing developed by Romer and Lucas focused the importance of human capital for economic growing.
Darrat ( 1999 ) conducted research on Saudi Arabia utilizing the ratio of M2 to nominal GDP, the ratio of demand sedimentations to the narrow money stock and recognition issued by fiscal establishments to the non-financial private sector as a portion of GDP. He took the period of 1973-2000 for his survey. His consequences concluded that “ fiscal development portions a robust long-term relation with growing volatility ” ( Darrat, 1999 ) .
By using clip series analysis, Rousseau and Wachtel ( 1998 ) found positive and important relationship between fiscal deepness and economic growing in five industrialised states.
Neusser and Kugler ( 1998 ) examined the finance-growth relationship for 13 Organization for Economic Cooperation and Development ( OECD ) states for the period 1970-1991. Using clip series analysis, the survey showed a positive correlativity between fiscal development and growing.
Levine et Al. ( 2000 ) conducted the survey on 71 states for the period of 1960-1995. They used the undermentioned fiscal indexs for their survey:
ratio of liquid liabilities to GDP
ratio of sedimentation money Bankss domestic assets to lodge
money Bankss domestic assets plus cardinal bank domestic assets
ratio of recognition issued to private endeavors to nominal GDP
The findings supported the positive correlativity between fiscal system and economic growing.
Chistopoulos and Tsionas ( 2004 ) conducted research on 10 developing states to
analyze the relationship between fiscal development and economic growing. They used the ratio of entire bank sedimentations liabilities to nominal GDP as a step of fiscal deepness and included the ratio of investing to GDP and rising prices rate as control variables. The consequences showed the presence long-term causality running from fiscal development to economic growing but bidirectional relationship was non found.
Ndebbio ( 2004 ) conducted research on some Sub-saharan African states. The survey used the ratio of M2 to GDP and growing rate in per capita existent money balances as indexs of fiscal development and the consequences found positive and statistically important impact of growing rate in per capita existent money balances on existent per capita GDP growing.
Some recent researches on the literature have used composite index as a placeholder for fiscal development to find this relationship. Ang and McKibbin ( 2005 ) used clip series informations from 1960-2001 to analyze the causal relationship between fiscal development and economic Growth in Malaysia. They used the ratio of liquid liabilities to nominal GDP, commercial bank assets to commercial bank plus cardinal bank assets, and ratio of domestic recognition to private sector to nominal GDP to build an index as a placeholder for fiscal deepness utilizing chief constituents analysis. The findings suggest that growing exerts a positive and uni-directional causal consequence on fiscal development in the long-run.
Fowowe ( 2008 ) conducted an empirical probe into the effects of fiscal liberalisation policies on the growing of 19 states in sub-Saharan Africa ( SSA ) . Two indexes were constructed which measure the gradual patterned advance and institutional alterations involved in fiscal liberalisation. Using panel informations estimations, the survey found a important positive relationship between economic growing and fiscal liberalisation policies.
Khan et Al ( 2005 ) investigated the nexus between fiscal development and economic growing in Pakistan over the period 1971-2004. They used the autoregressive distributed slowdown attack and the consequences found that fiscal deepness have positive impact on economic growing in the long tally. The portion of investing to GDP has positive affect on economic growing. The survey besides showed a positive impact of existent sedimentation rate on economic growing. This survey supports the thought position thatA fiscal development leads to economicA growing. The existent involvement rates besides have positive relationship with growing. ( Khan et al 2005 ; Fry, 1997 )
Although the empirical literature by and large finds a positive relationship between fiscal development and economic growing but still there is no understanding on the causality of the relationship and the appropriate index of fiscal development. This suggests the demand to analyze which of the findings from the empirical literature is applicable to UK economic system. This survey uses the separate indexs of fiscal development as in some of the old surveies. Therefore, a composite fiscal sector development index is used in this survey to set up the relationship.
It can be said with surety from the above literature reappraisal of the survey, that there is a positive relationship between fiscal sector development and growing.
Chapter 3: Research Methodology
The chief aim of this survey is to analyse the impact of fiscal services sector on UK economic growing. Although it is clear from the literature that economic growing and fiscal development are positively related but our research aims to happen this relationship in footings of UK because UK is a developed state with such a immense economic system and most significantly has ever been much dependant on its fiscal sector. This chapter throws visible radiation on the fiscal system of UK and analyses the part and importance of fiscal service sector in UK over the period 1992-11. The ground of taking these old ages for the survey is that such extended period of 20 old ages provides a good sample and can give better consequences. Besides this period includes old ages both before and after the fiscal crisis of 2007. This helps analyzing the clear part and importance of fiscal sector for the UK economic system. The theoretical literature discussed above provides clear indicant that fiscal development and economic growing are positively correlated. Empirical grounds from many surveies besides supports the fact that economic growing and fiscal development is positively related. The findings by Christopoulus and Tsionas ( 2004 ) , provides back uping grounds about the co-integration of growing, fiscal development and investings.
3.2 Data Selection and Collection
The informations used for our survey is same as used by different surveies in our literatures. For the empirical analysis the information is collected for the period 2002-2011. Time series theoretical account is used to measure the part of the fiscal services sector on economic growing. Based on the theoretical positions and following the empirical analysis by Abu-Qarn and Abu-Bader ( 2005 ) , King and Levine ( 1993 ) . Levine and Zervos ( 1998 ) , Beck ( 2000 ) , Christopoulos and Tsionas ( 2004 ) , Ang and McKibbin ( 2005 ) , Khan et Al ( 2005 ) and Khan and Qayyum ( 2006 ) , Kargbo and Adamu ( 2009 ) , the fiscal indexs used for our survey will be same as used in these surveies. Along with the fiscal indexs of growing, other major factor of economic growing will besides be taken into consideration for arrested development analysis. The indexs for both of our variables 1 ) fiscal development and 2 ) economic growing are the same as used by research workers in our literatures. Following fiscal development indexs are most normally used by King and Levine ( 1993 ) , Levine and Zervos ( 1998 ) , Abu Qarn and Abu Bader ( 2005 ) and Coleman and Tettey ( 2008 ) ( Table 4.1 ) .
Size of the fiscal system
Ratio of fiscal Assets to GDP
Efficiency of fiscal system
Commercial Bank Assets v/s Central Bank Assetss
Activity of Financial system
Banks private recognition to GDP
Structure of fiscal system
Ratio of chief fiscal establishment ‘s assets to entire fiscal assets
So looking at the indexs, we can acquire an thought that secondary informations is more appropriate for this research so secondary information is used for this research. The ground is that secondary informations is easy to roll up and less expensive. The point to see in secondary informations is that it should be taken from some dependable and trusted resource and for the intent of our research ; informations is taken from following sure beginnings.
Bank of England
International Financial Statistics
Central Statistical Office
3.3 Graphic Analysis
The graphical analysis has been performed to demo the tendency of the variables in UK over period 1992-2011
Figure 3.1: RGDPPC ( 1992-2011 )
Figure 3.1 shows tendency of Real gross domestic merchandise per capita ( RGDPPC ) . Over the period of 20 old ages, RGDPPC has been largely turning good. It has shown an increasing tendency from 1992-2007 but after 2007 it has been diminishing. The ground can be the fiscal crisis of 2007 that hit the economic system of really state severely. As UK is much dependant on its fiscal sector, the fiscal crisis has affected its growing severely. The damaging effects on fiscal services sector has cause economic growing to switch downward on mean 2 % yearly.
Figure 3.2: M2 to GDP ( 1992-2011 )
Figure 3.2 shows the tendency of M2 as a per centum of GDP over the period 1992-2011. M2 is one of the steps of fiscal development. M2 to GDP has increased from 1992-2008, while from 2009 it has shown a diminishing tendency. From 2008, there was a period of fiscal crisis which reduced the sum of money in circulation so the affect of this crisis is seeable from the tendency of M2 to GDP.
Figure 3.3: Inflation rate ( 1992-2011 )
Figure 3.3 shows the rising prices rate in UK over period 1992-2011. Many fluctuations in the rising prices rate can be noticed from the graph over the specified period. In 2000 it is at its lowest degree while in 2011, it stands at its highest degree of 4.5 % . From 1992 to 2000, it has shown a diminishing tendency, and so it started increasing after 2000. There is dramatic addition from 2007 onwards whose affects can be seen in the existent growing of UK as good. Inflation and growing of the state are negatively related. As rising prices increases growing of the state has the opportunities to demo negative affect. And our graphs support this relationship among rising prices and growing that when rising prices has an increasing tendency, growing of the state is affected negatively and frailty versa.
Figure 3.4: CPS- Credit to Private Sector ( 1992-2011 )
Figure 3.4 represents the tendency of ratio of recognition allocated to private sector. This is one of our indexs of fiscal development that we used in our survey to see its effects on economic growing. It is seeable from the graph that the ratio of private sector recognition allotment has an increasing tendency from 1992-2008, so it has somewhat decreased after this period. The fiscal crisis of 2008 hit the fiscal sector of UK severely and the concerns that were already hit by falling gross revenues and profitableness besides faced the increasing jobs in procuring bank support for continued trading. The Bankss were already in a recession and they could n’t widen loans to the private sector for investings.
Figure 3.5: Human Capital ( 1992-2011 )
Graph 3.5 shows the ratio of secondary school registration which describes the human capital of UK. As Barro ( 1991 ) suggested in its survey that states with high degree of human capital have more opportunities to spread out its physical capital and therefore higher ratios of investing. The tendency of human capital does n’t look to be impacting the economic growing because, in the period when economic growing was diminishing, human capital shows an increasing tendency.
Figure 3.6 Investings ( 1992-2011 )
Figure 3.6 demonstrate the tendency of investings in UK. Looking at the graph, we can state that UK investings ratio has largely been stable and there are non many fluctuations over the period. It has shown a little autumn from 2008 to 2011 whose affect can be seen in the growing form of UK. Capital formation has been widely accepted as a requirement for economic growing ( Lewis, 1955 ; Nurkse, 1962 ) . Thus investings are an of import index of growing.
3.4 Econometric Model
A clip series theoretical account is used to measure the part of fiscal service sector on economic growing. The econometric theoretical account constructed for this survey is as follows:
RGDP=f ( FD, X ) ;
Where RGDP is the index of economic growing, FD is the fiscal development indexs and X is the other independent variables impacting growing. The two indexs of fiscal development used in our survey are M2 and CPS ( recognition to private sector ) . The impact of two indexs impact is analyzed maintaining other variables same. Two econometric theoretical accounts are used to see the affect of both indexs individually and theoretical accounts are as follows:
RGDP= degree Fahrenheit ( INVG, M2, INF, HC ) ( 1 )
RGDP=f ( INVG, CPS, INF, HC ) ( 2 )
Inspired from the surveies by Abu-Qarn and Abu-Bader ( 2005 ) , King and Levine ( 1993 ) . Levine and Zervos ( 1998 ) , Beck ( 2000 ) , Christopoulos and Tsionas ( 2004 ) , Ang and McKibbin ( 2005 ) , Khan et Al ( 2005 ) and Khan and Qayyum ( 2006 ) , Kargbo and Adamu ( 2009 ) , equations ( 1 ) and ( 2 ) are designed as follows to happen the relationship between economic growing and fiscal development:
LRGDPPC= i??iˆ°iˆ«i??iˆ± LINV + i??iˆ?i??iˆ? +i??3INF+i??iˆ?HC+i?? iˆ?iˆ?iˆ©
LRGDPPC=i??iˆ°iˆ«i??iˆ± LINV + i??iˆ?CPS +i??3INF+i??iˆ?HC+i?? iˆ?iˆ?iˆ©
Where, RGDPPC is the dependent variable and is the index of growing. RGDPPC is the existent growing rate of GDP per capita. It is the macroeconomic step of the entire income and end product of the economic system. M2 and CPS are the steps of fiscal deepness, INV represents the investing and it is the ratio of gross fixed capital formation to GDP. The portion of investing is proxied by the ratio of gross fixed capital formation to nominal GDP. This includes the add-on to the physical assets of the state including works and machinery, edifices and other equipments, all valued at market monetary values. INF is the rising prices rate. It is expected to hold a negative impact on the economic system of the state. It affects the economic activities, therefore has an impact on the economic growing of any state. Harmonizing to Coleman and Tettey ( 2008 ) , high rate of rising prices addition the macroeconomic instability status. HC is the human capital which is considered to be an of import determiner of growing ( King and Levine, 1993 ) and vitamin E is an error term. Real GDP, INVG, M2, INF and HC are expressed in natural logarithmic signifier ( Kargbo and Adamu, 2009 )
In our survey, the economic growing index used is RGDPPC which is measured by taking changeless 2000 US $ GDP which takes affect of rising prices as good. The index twelvemonth used is 2000. The two fiscal development indexs are used- ratio of M2 to GDP, ratio of private sector recognition to GDP, and the ratio of private sector recognition in domestic recognition. These fiscal indexs are described below.
M2 to GDP
The ratio of M2 to GDP is calculated by spliting M2 by nominal GDP. M2 is one of the common indexs of fiscal development used in many researches. M2 is the Money and quasi money comprise the amount of currency outside Bankss, demand deposits other than those of the cardinal authorities, and the clip, nest eggs, and foreign currency sedimentations of resident sectors other than the cardinal authorities ( International Financial Statistics ) . M2 to GDP is a step of fiscal deepening, therefore it measures the state ‘s ability to utilize the best of its resources. We expect M2 to hold a positive impact on fiscal service sector and therefore the economic growing. King and Levine ( 1993 ) made usage of M1 to GDP alternatively of M2, but this survey will utilize M2 because this is largely used to estimate the economic pecuniary conditions. Hassan and Jung-Suk ( 2007 ) used the ratio of M3 to GDP as a placeholder of fiscal deepness. They argue that other pecuniary sums like M1 and M2 may be hapless placeholders in economic systems with developing fiscal system, where a high ratio of money to GDP exists because money is used as shop of value in the absence of other more attractive options. Vuranok ( 2009 ) found that M3 to GDP can non be a alone index of fiscal development. M3 is argued because of the failing that it does non reflect the allotment of nest eggs and so may non be an accurate index of the activities of fiscal mediators. M2 is criticized to be used for developing fiscal system whereas UK has good developed fiscal system so it can be a good fiscal development index. Based on the unfavorable judgment on other indexs this survey found M2 to be good index.
CPS ( Credit to Private Sector )
The 2nd step of fiscal development is the ratio of domestic recognition to the private sector to GDP. Recognition to the private sector represents the ability or the size of the banking sector. In the position of King and Levine ( 1993 ) , the recognition allocated to the private sector is clear part to growing alternatively of apportioning recognition to public endeavors which do non take to accomplish the efficient allotment of resources. Private recognition includes all group of fiscal mediators non merely lodge money Bankss. So this is one of the fiscal indexs chosen for our survey because it is most widely accepted and tested by the researches in our literature.
To gauge the relationship between our variables, we will follow a stepwise process. The first measure of the survey is to see the clip series variables that whether they are stationary or non. Largely fiscal clip series has non-stationary mean. Non-stationary variables create the job of specious arrested development. Unit root trials are most normally used to find swerving informations. Augmented Dickey Fuller ( ADF ) trial is the most popular and standard trial for unit root and is most normally used. The variables for the clip series should be stationary. Therefore, logarithms of clip series are taken and Augmented Dickey Fuller Test is used for proving series for stationary.
3.5 Unit Root Test
3.5.1 ADF Test ( Augmented Dicker Fuller )
Stationary and Unit Root Testing
A stationary series have a changeless mean, changeless discrepancy and changeless car covariance for each given slowdown. Some seasonal affects, dazes affect the series tendency. Time series should be made free from all these effects to do a right rating with right theoretical accounts ( Vuranok, 2009 ) . Differences of the clip should be taken until series will be stationary at same degree. One of import hazard of taking these differences is that the series may free the long term relationship possible. Thus it is best if the series is stationary at zero order degree I ( 0 ) which means it has no unit roots.
One of the methods to prove whether series is stationary or non is Dickey-Fuller ( DF ) ( 1979 ) , “ DF trial is really of import in footings of mensurating which degree stationary series have, but it does non see an autocorrelation in disturbance term. If disturbance term contains autocorrelation, DF trial is invalid ” ( Vuranok, 2009 )
3.6. COINTEGRATION METHODOLOGY
3.6.1. Engle and Granger Co-integration Test
A stationary co-integration relationship is performed utilizing Engle and Granger two measure process. “ If there is no co-integration between the variables, it can be continued with Granger Causality Test without including mistake rectification footings. If there is a co-integration between the variables, Granger Causality Test will be failed and it will be surely necessary to be included error rectification term into the theoretical accounts ” ( Vuranok, 2009 ) . Granger Causality trial besides gives information about the short-run relationship between the variables. We will regress our equation utilizing Ordinary Least Squares ( OLS ) to look into if there is co-integration among our variables. Then if there is co-integration, mistake rectification theoretical account is used to look into the short tally consequence.
Chapter 4: Consequences
4.1 M2 to GDP
The first fiscal index of our survey to prove for its impact on economic growing is M2 to GDP. So the arrested development equation to find this relationship is as follows:
RGDPPC= i??iˆ°iˆ«i??iˆ±INVG + i??iˆ?M2 +i??3INF+i??iˆ?HC+i??
Where, RGDPPC = Real gross domestic merchandise per capita
INVG= Ratio of investing to GDP
HC= Human Capital
INF= Inflation Rate
M2= demand sedimentations, foreign currency sedimentations, nest eggs and currency outside Bankss
Below is the drumhead statistics of our variables in logarithmic signifier.
Table 4.1 Drumhead Statisticss
The statistics consequences shown in table 4.1 are converting and show that our informations of the variables can suit in our theoretical account good.
4.2.1 Stationary and Unit Root Testing
Following are the hypothesis to prove series
H1: i?? = 0 ( Yt is non-stationary )
H2: i?? a‰ 0 ( Yt is non non-stationary )
T-statistic value and Dicker Fuller value is obtained and comparing is made. If t-ratios are greater than Dicker Fuller value than we can state that variables are stationary.
It can be decided by comparing these values with ADF trial statistics whether series are stationary or non. If ADF trial statistic is greater than McKinnon critical values perfectly, the series are stationary at that degree.
Table 4.2 ADF Test Statistics
L ( RGDPPC )
L ( M2 )
L ( INF )
L ( HC )
L ( CPS )
L ( INV
Table 4.2 shows that all of our variables are non-stationary at flat signifier because the value of t-statistic is less than the critical values at 95 % significance degree. So the trial will hold to be carried out at first order degree. The first order degree requires differencing of non-stationary variables so that we can bring forth the stationary series.
Table 4.3 ADF Test at First Difference
L ( RGDPPC )
L ( M2 )
L ( INF )
L ( HC )
L ( CPS )
L ( INV
Table 4.3 shows the consequences of ADF trial at first difference degree. It can be clearly seen from the consequences that all variables are stationary at first difference degree, as the values of t-statistics are greater than critical values at 5 % assurance degree. The SchwartzBayesian Criterion ( SBC ) and Akaike Information Criterion ( AIC ) are used to find the optimum figure of slowdowns included in the trial. These consequences are obtained utilizing Akaike Information Criterion. Once it is tested from ADF trial that variables behave as incorporate procedure, the following measure is to execute co-integration.
4.1.2 Engle and Granger Co-integration Test
Following hypothesis is tested utilizing granger co-integration trial.
H0: i??= 0 ( there is no co integrating between the series )
H1: i??iˆ a‰ 0 ( there is co integrating between the series )
Table 4.4: OLS ( Ordinary Least Square ) Consequences
No of Observations
The co-integration trial consequences are reported in table 4.4 and from the consequences above, our equation can be written as follows:
RGDPPC= -31.40+ 11.71INV+ 0.19M2+ 1.818HC- 0.54INF ( 5 )
The value of our intercept is negative which means that if all the explanatory variables remain changeless so if all other factors increase by 1 % , economic growing will diminish by 31 % . From the coefficient consequences we can see that economic growing is positively related with fiscal index used for our survey ( M2 ) . If there is 1 % addition in M2, economic growing will increase by 0.19 % .
Investings are besides positively related to growing. The magnitude of the coefficient implies that a 1 % addition in investings can do a alteration of 11.71 % in economic growing. Our consequences confirm the literature by Christopoulus and Tsionas that economic growing and investings are correlated.
The coefficient calculated for human capital besides have positive mark which means it is besides positively related to growing. As Barro ( 1991 ) suggested in its survey that states with high degree of human capital have more opportunities to spread out its physical capital and therefore higher ratios of investing.
The coefficient of rising prices is negative from which we can infer that rising prices and economic growing has negative relationship. An addition in 1 % rising prices can diminish the economic growing of UK by 0.54 % , therefore impacting the economic system severely. Our consequences supports the surveies by Barro ( 1995 ) , Bruno and Easterly ( 1998 ) , Bullard and Keating ( 1995 ) , DeGregorio ( 1992 ) , Fischer ( 1993 ) , Levine and Renelt ( 1992 ) , and Wynne ( 1993 ) , that rising prices and economic growing are negatively related to each other.
All the variables in our theoretical account are statistically important therefore they have an of import function in economic growing. All affect the economic growing in one manner or the other.
To prove the co-integration foremost the variables should be stationary at first difference degree and so so the remainders should be tested for stationary utilizing Dicker Fuller Test so our hypothesis is
H0: i??= 0 ( Remainders are non-stationary )
H1: i??iˆ a‰ 0 ( Remainders are stationary )
Where H0 is void hypothesis and H1 is alternate hypothesis.
If we reject the void hypothesis that means that the remainders are stationary and hence, the series are co-integrated.
The consequence obtained for the estimation of residuary mistake to be stationary shows that there is co-integration as the t-statistic is greater than the critical value of Dicker Fuller trial so we reject the void hypothesis. If there is co-integration among variables, this means that we can utilize error rectification theoretical account to find the short tally estimation for our survey.
4.1.3 Error Correction Models
The appraisal consequences of error rectification theoretical account are as follows:
Table 4.5: Short Run Effectss
RES1 ( -1 )
No of Observations
Table 4.5 study the consequences of error rectification theoretical account. From the consequences obtained we can see that 44 % of the fluctuation in economic growing is explained by our theoretical account. The value of F-statistics is 2.055 which mean our variables have explained the growing form of UK. Most significantly the value of mistake coefficient is negative which means that there is a long tally relationship between the variables of our theoretical account.
Turning to the fiscal development index of our theoretical account, it can be seen that its value is smaller than that in the long tally. If the coefficient is smaller than that means that economic growing is sensitive to fiscal development in the short tally and is more dominated by its effects in the short tally. So our consequences suggest that kineticss have small consequence in the long tally than in the short tally.
Our findings suggest that secondary school registration is more of a concern for economic growing in the short tally every bit compared to long run as its value is greater in the short tally. So this determination supports the endogenous growing theory on the importance of human capital for economic growing.
The investing has besides positive coefficient ( 8.555 ) and shows that it is extremely important for our theoretical account as it has the highest coefficient demoing its major impact on economic growing of UK. The positive and important consequence of investing supports the consequences by Khan et Al ( 2005 ) . Turning to rising prices, this has a negative impact on economic growing both in the short and in the long tally. This has about equal short and long tally impact on economic growing. This confirms that rising prices conveys the bad signal for economic growing. The ground explained by many research workers for this impact of rising prices is that as monetary values increases, people ‘s ingestion power lessenings and therefore in the international market, for the trade intent, the economic system become less competitory.
The consequences of short-term dynamic coefficients indicate that the variables have the expected marks as in the long tally. The value of mistake rectification term ( -1.8 ) suggests that the velocity of accommodations from short tally divergences to hanker run equilibrium growing is really low and therefore the consequences are statistically important. It indicates that the behavior of economic growing is dominated by short tally dynamic effects. Therefore from the consequences we can state that UK has a developed fiscal system
4.2 Credit to Private Sector ( CPS )
A 2nd fiscal index of our survey to prove for its impact on economic growing is CPS. For CPS this survey undertake the information of domestic recognition to the private sector as % age of GDP. So the arrested development equation to find this relationship is as follows:
RGDPPC= i??iˆ°iˆ«i??iˆ±INVG + i??iˆ?CPS +i??3INF+i??iˆ?HC+i?? iˆ?iˆ¶iˆ©
Where, RGDPPC = Real gross domestic merchandise per capita
INVG= Ratio of investing to GDP
HC= Human Capital
INF= Inflation Rate
CPS= Credit to Private Sector
Table 4.6 Drumhead Statisticss
Table 3.5 provide the drumhead statistics of our theoretical account in natural logarithmic signifier. The consequences of the statistics support our informations and the theoretical account selected for our survey.
4.2.1 Stationary and Unit Root Testing
The 2nd fiscal index affect will besides be tested utilizing Engle Granger two measure process. First OLS arrested development is performed and reported below in the tabular array.
Table 4.7 OLS Regression consequences
No of Observations