CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 METHODOLOGY
The methodology to be adopted is multiple regression analysis,
employing ordinary least square (OLS) technique.
The other technique is adopted because of the following reasons,
(1) The parameter estimates obtained posses optimal properties of
un-biasedness, minimum variance, linearity etc.
(2) It is BLUE (i.e. best linear unbiased estimator).
(3) The computational procedure of OLS is fairly simple as compared
with other econometric techniques.
(4) OLS is an essential component of most other econometric techniques
(Kontsoyiannis 1997).
3.2 MODEL SPECIFICATION
3.2.1 DEPENDENT VARIABLE
AGDP: This is chosen as a dependent variable in the course of this
study because it is used as an indicator for assessing the growth of
agricultural output in the country.
3.2.2 EXPLANATORY OR INDEPENDENT VARIABLE
(a) Commercial bank credit advances to agricultural sector (CBCA). This
is employed as an explanatory variable in the curse of study to show the total
loan advances from commercial banks to agricultural sector.
(b) Real Interest Rate on Agricultural Loan (IRAL): This is used as an
explanatory variable because it shows the rate of interest that causes the
change in AGDP.
(c) Real Exchange Rate: This is used to capture the exchange rate
volatility and its impact on the agricultural productivity level. It will be
included as an explanatory variable.
3.3 STRUCTURAL PRESENTATION OF THE MODEL
This could be symbolically expressed as:
RAGDP = F (CBLAE, REIR, REXR)
Where:
RAGDP = Real Agricultural Gross Domestic Product.
CBLA = Commercial Bank Loan to Agriculture
RINTR= Real Interest Rate on Agricultural Loan
REXR= Real Exchange Rate.
3.4 MATHEMATICAL PRESENTATIOON OF THE MODEL
This can be mathematically written as:
RAGDP: b0 + b1CBLA + b2 REIR + b3 REXR
+Ut
Where:
RAGDP = Real Agricultural Gross Domestic Product.
CBLA = Commercial Bank Loan to Agriculture
REXR = Real Exchange Rate
B0 = Constant term
B1 = Coefficient of CBLA
B2 = Coefficient of Real Exchange Rate
B3 = Coefficient of Real Exchange Rate
Ut = Stochastic error term.
Based on prior grounds, there should be a positive relationship between
the CBLA and REXR explanatory variable and dependent variable, while the REIR
will have negative relationship with the dependent variable.
3.5 METHOD OF EVALUATION
Having specified and estimated the parameters of model the research
would proceed with the evaluation of the results of the calculation, that is,
with the determination of the reliability of these results. That is, with the
evaluation of the reliability of these results. The evaluation consists of
deciding whether the estimates of the
theoretically meaningful and statistically satisfactory.
In view of the researcher will evaluate the estimated parameters using
the following criteria;
(1) The adjusted R-²test
(2) The student t - test
(3) The f- test
(4) The Durbin – Watson test
1. The Adjusted R-²
This is also coefficient of multiple determinations. It measures the
percentage of the total variation of the dependent variable (RAGDP) explained
by the regression plane, that is by changes in explanatory variables, (CBLA,
REIR, REXR). The value of R-² is between 0 and 1. The higher the R-²
the better the goodness of fit of the regression plane to the sample
observations, and the closer the R-² to zero worse the fit (Gujarati 2004).
2. The student T-test.......................................................................................
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