Assistant Professor, Economics, SDM Institute for Management Development, Mysore
The present study investigates the impact of demand factors on Gross Domestic Product (GDP) in Indian context. The study is undertaken based on the theoretical framework of aggregate demand model developed by J.M. Keynes. According to Keynes GDP is generated from the sum of all domestic and foreign effective demand for national goods. Domestic demand comprises government expenditure (G), household expenditure (C), and domestic investment (I). While, foreign demand for national goods emerges from foreign buyers and will be registered in exports account (E). Domestic demand envelopes not only national goods but also foreign goods and this forms imports (M). The aggregate demand is the aggregation of elements of C, I, G and net exports (X-M). The rise and fall in consumption expenditure, investment expenditure, government spending or net exports effect the country‘s GDP. The study is effectively employing this model of growth and tries to test empirically whether demand factors viz. C, I, G and X-M have any impact on GDP in Indian context. It also aims atmeasuring the strength and direction of relationship between independent and dependent variables. For this purpose econometric tools like ADF unit root test to investigate the stationarity of time series data and multiple linear regression model are employed. Results reveal that aggregate demand forces explain 99.5 percent variation in Gross Domestic Product. Investment, government expenditure and net exports are found positively influencing the national income. This underlines the theoretical predictions. However, household consumption expenditure impacts the GDP negatively. This result contradicts with Keynesian prediction of positive relationship between consumption expenditure and GDP. From the results it appears that the impact of investment, government expenditure and net exports on GDP is statistically significant. Though, consumption expenditure has profound influence on GDP, this impact is tested not statistically significant.
GDP, GDP identity, aggregate demand, Keynes, national income determinants
