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T Test – Mispecification error Test 16.15903

Jacque-bere Normality Test 1.469958

Probability (0.479515)

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The hypothesis, statistics and results for each test is summarized in table 3. There is high correlation between consumer price index and real gross domestic product. The figure of variance inflation factor (VIF) for these two variables as calculated in the table is more than 10, which means that the multicollinearity problem is serious. In order to solve the multicollinearity problem, either one of the correlated independent variables has to be dropped. The second solution is to obtain more data to produce more parameter estimates with the lower standard errors such as the formula of variance inflation factor for the variance of the estimate of a regression coefficient in terms of the degree of multicollinearity and the sample size. Besides that, the model has passes the Breusch-Godfrey Serial Correlation LM Test and Autoregression Conditional Heteroscedasticity Test at 5% significant level. It showed that there is no autocorrelation and heteroscedasticity problem. Ramsey RESET test suggests that the model is adequately specified while ARCH test fail to detect the heteroscedasticity problem. Jacque-bera normality test indicates that the error term is normally distributed.

CHAPTER 5: CONCLUSION

5.1 Summary of Finding

The main objective of this study is to understand more of the full impact of short run economic growth, inflation, and FDI towards the unemployment rate in the United States of America. In order to achieve the objective of this study, which is to examine the relationship between economic growth, inflation, and FDI towards the unemployment rate, unit root test, granger causality, multiply regression(OLS), multicollinearity, Breusch-Godfrey Serial Correlation LM Test, and Autoregressive Conditional Heteroscedasticity Test shows that economic growth and FDI is negatively related to the rate of unemployment, while inflation is positively related. This implies that sustainable economic growth and inflow of FDI would reflect a low short run unemployment rate in the country. However a high inflation would increases the unemployment rate as it is positively correlated. Meanwhile FDI and inflation has causal relationship among each other. Lastly, the co-integration test used has proven that the impacts of economic growth, inflation and FDI towards unemployment are only apparent in the short run.

5.2 Policy Implication and recommendations

The result from this study shows that all the independent variable (i.e economic growth, inflation, FDI) significantly impacts the rate of unemployment. There is also causality among inflation and economic growth. Since this study has proven that both inflation and FDI has positive relationship towards unemployment and causality relationship among inflation and FDI. Therefore, policy maker should control both inflation and FDI at an appropriate and satisfactory level hand-in-hand, rather than individually, so as to keep both balanced to sustain low rate of unemployment. Besides, it is important for a country to sustain healthy economic growth since it helps to reduce unemployment as there is a negative relationship between these two variables. In other words, an increase in economic growth wil