CHAPTER I

INTRODUCTION
1.1 Background of Study
Economic Survey is the document prepared by Ministry of Finance, Government of
Nepal. Effort is made to the extent possible, to bring sector programs into one report
although different entities are responsible to implement the programs. This Economic
Survey for the fiscal year 2013/14 is prepared with analytic review of policies that the
country has adopted in major sectors of the economy, and achievements made through
implementation of such policy based programs. Data of the previous years has been
updated and provided as a part of this report.
The real GDP is estimated to grow by 5.2 percent at basic prices and 5.5 percent at
producers' prices against the target of 5.5 percent for current fiscal year 2013/14. Such
growth rate had remained at 3.5 percent at basic prices and 3.9 percent at producers'
prices in the previous year. Favorable climates, improved investment environment,
timely release of budget are attributable factors for such a rise in the economic growth
in current fiscal year as compared to the previous fiscal year.
Production of the agriculture sector is estimated to grow by 4.7 percent in current
fiscal year 2013/14. Such growth rate was just 1.1 percent last year. The nonagriculture sector is estimated to grow by 5.3 percent in current fiscal year, while this
sector had grown by 4.6 percent last year. Among the non-agriculture sector, growth
rates of industry and services sector are estimated to remain at 2.7 percent and 6.1
percent respectively in current fiscal year while these figures were2.5 percent and 5.2
percent respectively in the previous fiscal year.
The structure of Nepalese economy has been changing gradually. Contribution of
agriculture and industry sectors to GDP showed a declining trend while that of services
sector showed the opposite. From the sectoral perspective, the contribution of primary,
secondary and tertiary sector contribution to nominal GDP are estimated to remain at
33.7 percent, 14.1 percent and 52.3 percent respectively. While classifying GDP into
agriculture and non-agriculture sectors, contribution of the agriculture sector showed
declining trend while the non-agriculture sector showed the opposite. Contribution of
the agriculture sector to GDP at current prices stood at 37.4 percent in FY 2001/02,
while it has come down to 33.1 percent in current fiscal year 2013/14.

Analysis of sector-wise economic growth for the last decade reveals that though the
growth rate of the services sector remained satisfactory, industry sectors growth rate
did not record as such. Except for three fiscal years, services sector recorded a growth
of over 5.0 percent in the other fiscal years. During this period, the growth rate of
agriculture sector was much more influenced mainly by the climate factor and supply
of seeds and fertilizers, while the industry sector under the non-agriculture sector was
greatly influenced by the investment environment, labor problems, energy crisis, and
prolonged political transition among others.
Estimated government expenditure for the fiscal year 2013/14 is higher by 44.2
percent as compared to actual expenditure of FY 2012/13. Of Rs. 404.82 billion
expenditure allocated for FY 2012/13, actual expenditure amounted to Rs. 358.63
billion only. Actual total expenditure was Rs. 339.16 billion in fiscal year 2011/12 with
an increase of 15 percent thatis increased by 5.7 percent in FY 2012/13.
The Government expenditure in FY 2012/13 remained low mainly due to political
crisis, which emerged after dissolution of the Constituent Assembly on 28th May 2013,
failure of political parties to forge consensus to bring full budget in the beginning of the
fiscal year, and announcement of full budget only by mid-March upon completion of
the second trimester of the fiscal year.
The Government income (Revenue and Grants) is estimated to reach Rs.429.53
billion in FY 2013/14 with 28.6 percent growth in comparison to the actual income in
FY 2012/13. The government income had grown by 15.9 percent reaching Rs. 333.92
billion in FY 2012/13 as compared to its preceding year. Such income had grown by
17.2 percent reaching Rs. 287.98 billion in FY 2011/12 as compared to its preceding
year.

1.2 Objective of the Study

The main objective of the study is to have an insight on the economic survey of Nepal
by using various descriptive and inferential test statistics.

1.3 Variables under Study

Gross Domestic Product: Gross domestic product (GDP) is the market value

of all officially recognized final goods and services produced within a country in a

year, or over a given period of time. GDP per capita is often used as an indicator of a
country's material standard of living.
GDP can be determined in three ways, all of which should, in principle, give the same
result. They are the production (or output) approach, the income approach, or the
expenditure approach. We have used production approach the study of GDP of Nepal.

Government Expenditure: Government spending or expenditure includes all

government consumption, investment, and transfer payments. In national income

accounting the acquisition by governments, of goods and services for current use, to
directly satisfy the individual or collective needs of the community, is classed as
government final consumption expenditure.Net profit represents the number
of sales amount

remaining

after

all operating

expenses,

interest,

taxes and

preferred stock dividends (but not common stock dividends) have been deducted from
a company's total revenue.

Government Revenue: Government revenue is money received by a

government. It is an important tool of the fiscal policy of the government and is the
opposite factor of government spending. Revenues earned by the government are
received from sources such as taxes levied on the incomes and wealth accumulation of
individuals and corporations and on the goods and services produced, exported and
imported from the country, non-taxable sources such as government-owned
corporations' incomes, central bank revenue and capital receipts in the form of external
loans and debts from international financial institutions.

Other Variables: Other variables used are agriculture, manufacturing,

construction, wholesale, transport and real state, which have a significant impact on the
GDP of the country.

1.4 Methodology
This study report is based secondary information which was published on Economic
Survey 2013/14 by Ministry of Finance.
For statistical results, we have used Microsoft Excel 2010. We have used population
samples from 2005-2013 for the analysis.
We have computed the following statistics to come to conclusion.

Descriptive statistics
Descriptive statistics is the discipline of quantitatively describing the main features of a
collection of data or the quantitative description itself.
Some measures that are commonly used to describe a data set are measures of central
tendency and measures of variability or dispersion. Measures of central tendency
include the mean, median and mode, while measures of variability include the standard
deviation (or variance),

the

minimum

and

maximum

values

of

the

variables, kurtosis and skewness.

Mean

The arithmetic mean is the most common measure of central tendency. The mean is the
only common measure in which all the values play an equal role. Since all the values
play an equal role, a mean is greatly affected by any value that is greatly different from
others in the data set. In case of extreme values, we should avoid using mean as a
measure of central tendency.

Median

The median is the middle value in an order array of data that has been ranked from
smallest to largest. Half of the values are smaller than or equal to the median and half
of the values are larger than or equal to the median. The median is not affected by
extreme values so it is possible to use median when extreme values are present.

Mode

The mode is the value in a set of data that appears most frequently. Like the median and
unlike mean, extreme values do not affect the mode.

Standard Deviation

The standard deviation is the measure of dispersion. It denotes how the data vary from
the central position or mean. Standard deviation shows how much variation or
"dispersion" exists from the average.

Coefficient of Variation (C.V.)

The coefficient of variation measures the scatter in the data relative to the mean. It is
the measure of consistency of the data.

The coefficient of variation denotes the

variation or riskiness.

Skewness

Skewness is the measure of asymmetry of the probability distribution of a real-valued

random variable. It can be positive or negative, or even undefined. Skewness is an
important consideration when examining investment returns.

Kurtosis

Kurtosis measures whether the data is sharp or flat relative to a normal distribution. It
focuses on how returns are ranged around the mean.

CHAPTER II
ANALYSIS AND FINDINGS
2.1 Descriptive Analysis:
There are many sectors which has a direct impact on GDP. Out of them agriculture,
manufacturing, construction, wholesale, transport and real state has greater impact than
other variables.
Table 1: Contribution of different sectors in GDP for year 2012/13
Contribution of different sectors in GDP for year 2012/13

Agriculture and forestry

52786.9

Manufacturing

10031.2

Construction

10897.9

Wholesale and retail trade

22874.7

Transport, storage and communications

14053.7

Real estate, renting and business activities

13858.7

Others

33302.7
Source: Economic Survey 2013/2014,Ministry of Finance

Fig. 1: Contribution of different sectors in GDP for year 2012/13

Contribution of different sectors in GDP for

year 2012/13
Others
21%
Agriculture and
forestry
33%
Real estate, renting
and business
activities
9%
Transport, storage
and
communications Wholesale and
9%
retail trade
15%

Manufacturing
6%
Construction
7%

Table 2: Descriptive Statistics of GDP

Gross Domestic Product (Rs. Million)

Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count

106166.30
13395.06
98827.20
40185.19
1614849180.20
-1.41
0.39
110323.09
58941.17
169264.26
955496.72
9.00
Source: Economic Survey 2013/2014,Ministry of Finance

Fig. 2: Histogram of GDP

Gross Domestic Product (Rs. Million)

180000.0
160000.0
140000.0
120000.0
100000.0
Gross Domestic Product (Rs.
Million)

80000.0
60000.0
40000.0
20000.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013

2.1.1

Data Interpretation

Gross Domestic Product

The mean GDP is Rs. 106.2 billion. Since the maximum value and minimum value are
too extreme, the mean is affected by these variables. This indicates that there is high
difference between the GDP. Similarly, the median for GDP is Rs. 98.8 billion, which
divides the data into two equal parts so that there are equal data above and below the

median. The standard deviation for the GDP is Rs. 40.2 billion, which shows high
deviation of data from the average. Likewise, the skewness is 0.39, which shows that
the data is right skewed. Most values are concentrated on right of the mean, with
extreme values to the left. The minimum GDP during the nine fiscal years is Rs. 58.9
billion and the maximum GDP during the nine fiscal years is Rs. 169.3 billion. Since
frequency is not available, mode cannot be calculated. The kurtosis is -1.41, which
shows platykurtic distribution. It is flatter than a normal distribution with a wider peak.
The probability for extreme values is less than for a normal distribution, and the values
are wider spread around the mean.

Box-plot summary

A boxplot provide a graphical representation of the data based on five number

summaries.
Gross Domestic Product (GDP)
The figure below is the box-plot summary of GDP. In box-plot summary the vertical
line left to Q2 i.e. median is Q1 and the vertical line right to median is Q3.
MIN= Rs. 58.9 billion

MAX= Rs. 169.3 billion

Fig. 3: Box Plot for GDP

Q1=Rs. 72.8 billion

Q2=Rs. 98.8 billion

Q3=Rs. 136.7 billion

Figure 3 indicates that it is right skewed. It is because the distance between

the median and the highest value is greater than the distance between the lowest value
and the median value. Right tail is longer than the left tail.

Coefficient of Variation

Manufacturing and transportation are important contributors to the GDP of Nepal. So,
we have tried to find out which one is more consistent in terms of increase in the
amount contributed.

Table 3: Descriptive analysis of Manufacturing and Transport

Manufacturing

Mean
Standard Error
Median
Mode
Standard Deviation
Sample Variance
Kurtosis
Skewness
Range
Minimum
Maximum
Sum
Count

7398.76
671.66
7092.40
10031.24
2014.97
4060104.33
-1.60
0.16
5247.21
4784.03
10031.24
66588.81
9.00

Transport

10053.42
976.12
9530.40
14053.73
2928.35
8575226.46
-1.30
0.22
7928.78
6124.95
14053.73
90480.76
9.00

For Manufacturing, the coefficient of variation is 27.23% while the coefficient of

variation for the transportation is 29.13%. Though the difference is not too large, the
increase in manufacturing sector is more consistent in compare to transportation sector.

2.2 Inferential Analysis

T- test

Here, we have two variables the rate of increase in government revenue and rate of
increase in government expenditure. We want to check whether the population
average of rate of increase in revenue and rate of increase in expenditure are equal or
not.
Table 4: Rate of increase in revenue and Rate of increase in expenditure
Particulars

2009/10

2010/11 2011/12

2012/13

Rate of increase in govt. revenue

11.45

23.19

21.13

19.75

Rate of increase in govt.

13.38

14.51

2.44

45.17

expenditure

Source: Economic Survey 2013/2014,Ministry of Finance

H0: 1= 2
Null hypothesis: The population mean of rate of increase in revenue and rate of
increase in expenditure are equal.
H1: 1 2
Alternate hypothesis: The population mean of rate of increase in revenue and rate of
increase in expenditure are not equal.
Table 5: T-test for rate of increase in revenue and rate of increase in expenditure
t-Test: Two-Sample Assuming Equal Variances

% increase in Revenue
Mean
Variance
Observations
Pooled Variance

% increase in Expenditure

18.88

18.87

26.522

337.05

181.78

Hypothesized Mean
Difference

Df

t Stat

0.0005

P(T<=t) one-tail

0.49

t Critical one-tail

1.94

P(T<=t) two-tail

0.99

t Critical two-tail

2.44

From the data above the tstat value was found out to be 0.0005 while the tcritical value
was 2.4469. Since, tcritical > tstat, so the null hypothesis is accepted. At 5% level of
significance, there is enough evidence that the population mean of rate of increase in
revenue and rate of increase in expenditure are equal.
Also, since the value of P is 0.999 > 0.05. We can conclude that the population mean of
rate of increase in revenue and rate of increase in expenditure are equal.

10

ANOVA

Here, we have five variables agriculture and forestry, fishing, mining and quarrying,
manufacturing and electricity, gas and water. We want to check whether the population
average of these growth rates of different sectors are equal or not.
H0: 1= 2 = 3= 4= 5
Null hypothesis: The population mean of the growth rate of different sectors is equal.
H1: 1 2 3 4 5
Alternate hypothesis: The population mean of the growth rate of different sectors is not
equal.
Table 6: Growth rate for different sectors
Industries

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

Agriculture

3.45

1.67

0.94

5.80

2.98

1.99

4.49

4.58

1.07

Fishing

7.13

9.91

3.01

7.29

5.31

3.55

5.88

7.53

2.71

Mining and

6.80

8.26

1.48

5.46

0.72

2.14

2.01

5.03

3.30

Manufacturing 2.62

2.00

2.55

-0.87

-1.05

2.96

4.05

3.63

3.72

Electricity gas

4.01

13.00

1.06

-3.44

1.87

4.43

8.30

0.28

and forestry

Quarrying

3.97

and water
Source: Economic Survey 2013/2014,Ministry of Finance
Table 7:ANOVA result
Anova: Single Factor
SUMMARY
Groups

Count
9
9
9
9
9

Agriculture and forestry

Fishing
Mining and Quarrying
Manufacturing
Electricity gas and water

ANOVA
Source of Variation
Between Groups
Within Groups
Total

SS

Sum
Average Variance
26.97
3.00
2.94
52.33
5.81
5.82
35.18
3.91
6.76
19.61
2.18
3.58
33.48
3.72
22.66

df
65.90
334.14

4
40

400.04

44

MS
16.47
8.35

F
1.97

P-value
0.12

F crit
2.61

11

We have found out the Fstat to be 1.97, while the Fcrit value was 2.61. Since the
Fcrit>Fstat, null hypothesis is accepted. At 5% level of significance we can conclude
that there is enough evidence that the population mean of the growth rate of different
sectors (agriculture and forestry, fishing, mining and quarrying, manufacturing and
electricity, gas and water) is equal.

Correlation

If a change in one variable affects the change in other variable also, then these two
variable are said to have correlation. It is a measure of strength of linear association
between two variables. It lies between +1 and -1. If correlation is +ve, we have a +ve
relationship and vice versa.
Table 8: Correlation between Total Production, Chemical fertilizer and Improved seeds

Total Production

Total Production

Chemical Fertilizer

( Metric Ton)

(Metric Ton)

Improved Seeds

( Metric Ton)
Chemical Fertilizer

0.7496

-0.1507

-0.3309

(Metric Ton)
Improved Seeds

Now,
Calculation of Variance Inflation Factor (VIF):
Between Chemical fertilizer and improved seeds
VIF

= 1/ (1-r 2)
= 1/ (1- (-0.3309)2)
= 1.12

Since, VIF between chemical fertilizer and improved seeds is less than 10 the multi-colinearity does not exist.

Regression

Regression is a way of describing how one variable, the outcome, is numerically related
to predictor variables. The dependent variable is also referred to as Y. The predictor

12

variable(s) is(are) also referred to as X, independent, prognostic or explanatory

variables.
The Linear regression Equation is given as
Y = + x
is the gradient, slope or regression coefficient
is the intercept of the line at Y axis or regression constant
Y is a value for the outcome
X is a value for the predictor. The fitted equation describes the best linear relationship
between the population values of X and Y that can be found using this method.
The method used to fit the regression equation is called least squares. This minimizes
the sum of the squares of the errors associated with each Y point by differentiation.
This error is the difference between the observed Y point and the Y point predicted by
the regression equation. In linear regression this error is also the error term of the Y
distribution, the residual error.

The simple linear regression equation can be generalized to take account of n predictors
and this is the multiple regression equation for the n variables.
Y = + 1x1+ 2x2++ nxn
Where is the intercept, is the coefficient of the multiple regression.
Note: For the purpose of this lab assignment we have considered the three variables to
compute the regression equation that is one dependent variable Y and two independent
variables X1 and X2. Therefore, the regression equation is given as:Y = + 1x1+ 2x2
Table 9: Total production, chemical fertilizer and improved seeds
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013

Total Production
(000 Metric Tons) (y)
4277.7
4596.82
4698.46
4693.59
4931.2
5183.36
5403.37
5747.62
5879.9

Chemical Fertilizer
Improved Seeds
(Metric Tons) (x1)
(Metric Tons) (x2)
18458
2748.543
8136
3514
12751
3380
3285
3781
3157
3947
42178
4337.3
29604
4192.34
45672
2348
145653
2946
Source: Economic Survey 2013/2014,Ministry of Finance

13

We have taken total production as an dependent variable (y), which depends upon the
independent variables chemical fertilizer(x1) and improved seeds(x2).
Table 10: Computation of regression equation
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.76
R Square
0.57
Adjusted R Square
0.43
Standard Error
412.18
Observations
9.00
ANOVA
df
Regression
Residual
Total

Intercept
Chemical Fertilizer
Improved Seed

2
6
8

SS
1365104.56
1019339.39
2384443.95

Coefficients Standard Error

4410.54
849.08
0.01
0.00
0.09
0.23

MS
682552.28
169889.90

t Stat
5.19
2.78
0.39

Significance F
4.02
0.08

P-value
Lower 95% Upper 95% Lower 95.0% Upper 95.0%
0.00
2332.90
6488.17
2332.90
6488.17
0.03
0.00
0.02
0.00
0.02
0.71
-0.47
0.65
-0.47
0.65

Now, the estimated regression equation is as follows:

Y= + 1 X1+2 X2
Y=

4410.54 + (0.01X1) + (0.09X2)

(5.19)

(2.78)

(0.39)

Note: * signify the significance level at 5%.

Now, Interpret regression coefficient:
From the above Table 9, we have got the following:
= 4410.54. It indicates that when chemical fertilizer and improved seed are zero, the
total agricultural output is 4410.54 which is illogical.
1= 0.01 indicates that if chemical fertilizer is increased by 1 metric ton then the total
agricultural output increases by 0.01 thousand metric ton keeping improved seeds at its
constant level.
2= 0.09 indicates that if improved seed is increased by 1 metric ton unit then the total
agricultural output increases by 0.09 thousands metric ton unit keeping chemical
fertilizer constant at its same level.

14

Interpretation
R= 0.76 means the multiple correlation between the total agriculture output, chemical
fertilizer and improved seed is 76%. There is positive relationship between the
variables.
R2= 0.57 means 57% of variation in total agricultural output is explained by linear
relationship of chemical fertilizer and improved seeds , while 43% of variation remains
unexplained.
F= 4.02 using the 0.05 level of significance from the table the critical value of F
distribution is more than the F statistical value, we accept the null hypothesis and
conclude that the total agricultural output is significantly related to the chemical
fertilizer and improved seeds.
Table 11: Prediction using the Regression equation
Predicted Y

Total Production

Residuals

4830.12

4277.70

-552.42

4798.40

4596.82

-201.58

4830.94

4698.46

-132.48

4775.32

4693.59

-81.73

4788.72

4931.20

142.48

5198.06

5183.36

-14.70

5064.46

5403.37

338.91

5056.31

5747.62

691.31

6069.68

5879.90

-189.78

Fig 4: Prediction using the Regression equation

7000.00
6000.00
5000.00
4000.00
Predicted Y
3000.00

Total Production

2000.00
1000.00
0.00
2005 2006 2007 2008 2009 2010 2011 2012 2013

15

From the above figure, we can see that the difference between the predicted production
and actual production is very less. So, our line of fit is good.

Forecasting

Forecasting is the process of making statements about events whose actual outcomes
(typically) have not yet been observed. A commonplace example might be estimation
of some variable of interest at some specified future date. Prediction is a similar, but
more general term. Both might refer to formal statistical methods employing time
series, cross-sectional or longitudinal data, or alternatively to less formal judgmental
methods. Usage can differ between areas of application: for example, in hydrology, the
terms "forecast" and "forecasting" are sometimes reserved for estimates of values at
certain specific future times, while the term "prediction" is used for more general
estimates, such as the number of times floods will occur over a long period.
Risk and uncertainty are central to forecasting and prediction; it is generally considered
good practice to indicate the degree of uncertainty attaching to forecasts. In any case,
the data must be up to date in order for the forecast to be as accurate as possible.

Table 12: Total output Production for last nine years

Year
2005
2006
2007
2008
2009
2010
2011
2012
2013

Total Production ('000 Metric Tons)

2629.79
2725.55
2873.77
3169.46
3440.61
3711
4034.6
4613.57
4853.25
Source: Economic Survey 2013/2014,Ministry of Finance

16

Table 13: Output for Forecasting using Least Square Method

SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations

0.98
0.97
0.96
156.56
9.00

ANOVA
df

SS
MS
5058245.42 5058245.42
171575.62 24510.80
5229821.04

Regression
Residual
Total

1
7
8

Intercept
X Variable 1

Coefficients
Standard Error
-579755.21
40605.37
290.35
20.21

F
Significance F
206.37
0.00

t Stat P-value
-14.28
0.00
14.37
0.00

Lower 95%
Upper 95% Lower 95.0% Upper 95.0%
-675771.64 -483738.77 -675771.64 -483738.77
242.56
338.14
242.56
338.14

Table 14: Prediction of Total Production using Forecast equation

RESIDUAL OUTPUT
Year

Predicted Production

Actual Production

Residuals

2005

2399.882222

2629.79

229.907778

2006

2690.233889

2725.55

35.3161111

2007

2980.585556

2873.77

-106.815556

2008

3270.937222

3169.46

-101.477222

2009

3561.288889

3440.61

-120.678889

2010

3851.640556

3711

-140.640556

2011

4141.992222

4034.6

-107.392222

2012

4432.343889

4613.57

181.226111

2013

4722.695556

4853.25

130.554444

17

The equation for forecasting is

Y= -579755.2094 + 290.3517 X
Where Y is the total agricultural output and
X is the year.

For the next three years we have forecasted the following outputs:
Table 15: Forecast for next three years
Year

Total Production
(000 Metric Tons)

2014

5013.12

2015

5303.48

2016

5593.83

So, the forecasted outputs for the next three years i.e. 2014, 2015, 2016 are 5013.12,
5303.48, and 5593.83 (000 metric tons) respectively.

18

CHAPTER III
CONCLUSION
3.1 Conclusion:
From our analysis, we have found that chemical fertilizer has a positive correlation with
the total agricultural production. 57% of the variation of the total agricultural
production can be explained by its relationship with chemical fertilizers and improved
seeds.
The forecasted outputs for the next three years i.e. 2014, 2015, 2016 are 5013.12,
5303.48, and 5593.83 (000 metric tons) respectively.
By using T-test, we found out that at 5% level of the population mean of rate of
increase in revenue and rate of increase in expenditure are equal.
Using ANOVA, we also found that at 5% level of significance there was significant
evidence that the population mean of the growth rate of different sectors (agriculture
and forestry, fishing, mining and quarrying, manufacturing and electricity, gas and
water) were equal.

19