The Effect of Investment, Exports, and Interest Rates on the Gross Domestic Product of the Republic Of Yemen: An Econometric Analysis

Abstract

Purpose: The study aims to examine the effect of investment, exports, and interest rates on the gross domestic product of the Republic of Yemen. Approach/Methodology/Design: This study is based on secondary data. Data on the gross domestic product, interest rate, gross capital formation were obtained and analyzed using the autoregressive distributed lag (ARDL) technique, Wald test, Serial Correlation LM Test. The data were presented the Findings: The results through the use of the (E-VIEWS) program showed that there is a direct statistically significant relationship at a level of 5% between investment and gross domestic product. This means that if investment increases by 1%, it will lead to an increase in GDP by 28.63%. The result also showed that the dummy variable relationship to the GDP is direct and statistically significant. The level of significance is 5%, that is, by increasing the dummy variable by 1%, it leads to an increase in GDP by 25.13%. As long as the interest rate was on an inverse relationship and statistically significant at a significant level (10%), this means that an increase in interest rates by 1% would lead to a decrease in GDP rates by 19.54%. In addition, there is a positive relationship between exports and GDP and a statistical significance at level 5%. This means that an increase in exports by 1% leads to an increase in GDP by 69.76%. Practical Implications: The investment could be double more than what the results showed in the case of political and economic stability. Improving legislation is also a significant aspect. There is an urgent need to focus on investment in infrastructure. In addition, increasing exports improve the gross domestic product. Based on the results, it is recommended to real invest instead of placing capital in banks as increasing interest rates lead to lower gross domestic output. Originality/value: The analysis indicates that there is a direct statistical and significant relationship between total investment and gross domestic product at a significant level of 5%, as whenever the investment increased by 1%, this led to an increase in the gross domestic product by about 28.63%.