The relationship of real Gross Domestic Product (GDP), inflation, and unemployment in the Philippines (1970-2011)

IJRSE Volume 9, Issue Number 2
Special Issue on Educational Studies and Action Researches

Available Online: 11 July 2020

Author/s:

Pascual, Kyle Christine Abalos*
University of the Philippines Diliman Extension Program in Pampanga, Philippines (kyle_072595@yahoo.com.ph)

Dionisio, Christine Pauline
University of the Philippines Diliman Extension Program in Pampanga, Philippines (christinepaulinedionisio@gmail.com)

Capulla, Rose
Visayas State University, Philippines (rosecapulla2018@gmail.com)

Abstract:

The study was made to examine the relationship among GDP, inflation, and unemployment in the Philippines (1970-2011). Augmented Dickey-Fuller Test was used to check the unit root property of the variables, resulted in all the variables having a unit root at single differencing. The Engle-Granger Test was used to test cointegration of each variable—showed no cointegration (there is no long-run relationship among the variables). The researchers could still study the short-run relationships between and among the variables using the VAR model which was interpreted using the Short-Run Model, IRF, Variance Decomposition, and Graph Residuals. Diagnostic checking was used to check on heteroscedasticity, normality, and serial correlations. The Granger Causality Test was used to know if changes in a variable would impact other variables which showed that all variables do not Granger-cause each other. After performing the tests, there exist significant short-run relationships between real GDP and CPI; between real GDP and UP; and between CPI and UP. The verifications of inverse relationship between real GDP and CPI, Okun’s Law, and Phillips curve in the Philippines were not justified since the models do not have long-run relationships. Reasons enumerated to explain the relationships existing among the variables in the Philippines: (1) heavy dependence on external finance and response on crises (relationship between GDP and CPI); (2) structural issues, relatively high redundancy cost, heavily regulated hiring/firing practices (relationship between GDP and UP); (3) implementation of inflation targeting, globalization of markets, and rigidity in the labor market (relationship between CPI and UP).

Keywords: economic growth/health; economic indicators; economic theories variable relationships; short-run relationships

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DOI: https://doi.org/10.5861/ijrse.2020.5804

Cite this article:
Pascual, K. C. A., Dionisio, C. P., & Capulla, R. (2020). The relationship of real Gross Domestic Product (GDP), inflation, and unemployment in the Philippines (1970-2011). International Journal of Research Studies in Education, 9(2), 81-102. https://doi.org/10.5861/ijrse.2020.5804

*Corresponding Author