of OLS (ordinary least square method) method, due to the nature of the data which in this case is time-series data, there is a high possibility of the occurrence of autocorrelation, the existence of autocorrelation will violate the assumptions of the OLS estimation method and therefore our model will not be BLUE. The existence of autocorrelation in our estimation is determined using the Durbin Watson test and the Breusch Godfrey test to check for first order correlation. Autocorrelation, however, has its own remedies and one of the remedies involves time lagging variables also known as a general least square method, this method involves the replacement of the model with the serially correlated error term with a model with a serially independent error term.
Estimation of the model one LGDPt = 1 + 2LXt + 3LFDIt + 4LDIt+5INF involves the use of the data for the period 1970 to 2002 regarding the UK economy, estimation of the above model using Eviews had the following results:
From the results of the correlation of determination R squared which is equal to 0.99229 we can conclude that 99.22% of variations in LGDP are explained by the independent variables, this shows a very strong relationship between the dependent and the independent variables.
From the results if we hold all other factors constant and the level of LX, LFDI, LDI, and INF are equal to zero then the level of LGDP will be equal to 11.158 which is also our autonomous value, we can explain the coefficient of the log of exports by stating that if we hold all other factors constant and increase the level of LX by one unit then the level of LGDP will increase by 0.366704 units, also if we hold all other factors constant and increase the level of LFDI by one unit then the level of LGDP will decrease by 0.006544 units.
If we also hold all the other factors constant and increase the level of LDI by one unit then the level of LGDP will increase by 0.265253 units, finally, if we hold all factors constant .and increase the level of INF by one unit then the level of LGDP will decline by 0.00131. .