The Impact of House Price Index and Household Debt on

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PROJECT PAPER

The Impact of House Price Index and Household Debt on Economic Growth in OECD Countries.

PREPARED BY:

NOORHAFIFAH BINTI SHAMSUL ARIFFIN (2015104421)

BACHELOR OF BUSINESS ADMINISTRATION (HONS.) BUSINESS ECONOMICS

FACULTY OF BUSINESS MANAGEMENT UNIVERSITI TEKNOLOGI MARA

CAWANGAN SABAH

JUNE 2019

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ii

DECLARATION OF ORIGINAL WORK

BACHELOR OF BUSINESS ADMINISTRATION (HONS.) BUSINESS ECONOMICS FACULTY OF BUSINESS MANAGEMENT UNIVERSITI TEKNOLOGI MARA

"DECLARATION OF ORIGINAL WORK"

I, Noorhafifah binti Shamsul Ariffin (950417-01-5240)

Hereby, declare that:

• This work has not previously been accepted in substance for any degree, locally overseas, and is not being concurrently submitted for this degree or any other degrees.

• This project-paper is the result of our independent work and investigation, except where otherwise stated.

• All verbatim extracts have been distinguished by quotation marks and sources of my information have been specifically acknowledged.

Signature:

_________________________ Date: ______________________

(Noorhafifah binti Shamsul Ariffin)

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v CONTENTS

TITLE PAGE i

DECLARATION OF ORIGINAL WORK ii

LETTER OF SUBMISSION iii

ACKNOWLEDGEMENT iv

TABLE OF CONTENTS vi

LIST OF FIGURE viii

LIST OF TABLE ix

LIST OF ABBREVIATIONS x

ABSTRACT xi

CHAPTER 1: INTRODUCTION 1

1.0 BACKGROUND OF STUDY 1

1.1 PROBLEM STATEMENT 2

1.2 RESEARCH OBJECTIVES 4

1.3 SIGNIFICANT OF RESEARCH 4

1.3.1 Body of Knowledge 4

1.3.2 Policy Makers 4

1.3.3 Government 4

1.4 SCOPE AND LIMITATION 4

1.4.1 Scope of the Study 5

CHAPTER 2: LITERATURE REVIEW 6

2.0 INTRODUCTION 6

2.1 LITERATURE REVIEW 6

2.1.1 The relationship between house price index and GDP Per Capita 6 2.2.2 The relationship between household debt and GDP Per Capita 7 2.2.3 The relationship between population and GDP Per Capita 8

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ix

LIST OF TABLE

Table Page

Table 4.1 Summary of Descriptive statistic 23

Table 4.2 Correlation Coefficient 24

Table 4.3 Panel Unit Root Test 25

Table 4.4.1 Breusch Pagan Lagrangian Multiplier (BPLM) Test 26

Table 4.4.2 Hausman Test 26

Table 4.5.1 Multicollinearity 27

Table 4.5.2 Result for Autocorrelation and Heteroscedasticity 27

Table 4.6 Multiple Regression Model 28

Table 4.7 Hypothesis Testing 31

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xi ABSTRACT

The increase in house price index and household debts in OECD countries which has escalated is deemed to be at worrying stage as it may in turn trigger another financial crisis. Thus, the aim of this study is to identify the correlation between house price index and the economic growth. The study also investigates the effect of household debt on economic growth and to determine which factor contributes to the economic growth in OECD countries via panel data techniques. Data collected from World Bank Data and OECD website from 2007 to 2017 by using OECD countries as sample. The estimation results show that there is a significant relationship between GDP per capita with house prices index, household debt, and inflation. While the rest indicators such as population and interest rate are not significant on economic growth in OECD countries., Furthermore, the policy maker should take an initiative to control the property price in order to mitigate any bubble in asset price. It is also recommended to adding more reliable independent variables for example household income, household consumption, and interest rate on housing loan, so that the future researcher can secure a better outcome.

Keyword: GDP, house price index, household debt, population, interest rate, inflation, multiple regression, OECD countrie