An Analytical Study of Impact of Macroeconomic Variables on Economic Growth and Trade Balance

The present paper is an endeavour to highlight the impacts of Gross Capital Formation and Trade Balance on GDP at factor cost of India. An attempt is also made to study the impacts of exchange rate, inflation rate (WPI) and interest rate on GDP of India. The study is purely based on secondary data the analysis of which was made through the application of Karl Pearson's coefficient of Correlation and Multi Regression OLS model (Ordinary Least Square). The study found that the Gross Capital Formation is the most important predictor of GDP with R square value of .979 and coefficient of correlation of .989. The study also found that exchange rate is the most important predictor of GDP at factor cost, Gross Capital Formation and Trade Balance among the other predictors used in study with R square values of .708, .583 and .513 respectively and coefficient of correlation of .841, .764 and .716 respectively. Though, the exchange rate is a significant factor for all outcome variables yet its impact on GDP has been greater than other two outcomes. It was further indicated through the results that if three selected independent factors remain constant, then there are other factors which are explaining GDP, Gross Capital Formation and Trade Balance up to -9513.513, -5083.572 and 7787.460 units.