LATENT CONTENT MODEL OF ECONOMIC GROWTH

Abstract

Purpose: This paper aimed to establish a latent content (LC) model of economic growth that integrates both economic and non-economic variables.
 Methodology: The study used a cross-sectional survey research design. The checklist questionnaires were used to collect primary data. The sample size of the study was 2011 individuals, randomly sampled from Mwanza and Kagera regions in Tanzania. Cronbach’Alpha and principal component analysis (PCA) were used to test reliability and validity of questionnaires respectively. The study used both linear and non-linear modelling data analytics methods to examine assumptions of the LC model of economic growth. Clearly, the study used automatic linear modelling, stochastic structural-factor frontier analysis, and structural equation modelling to test the linearity assumption of the LC model. Moreover, the probit model and neural network analysis were used to examine the non- linearity assumption of the LC model.
 Findings: The study evidenced that the LC model was significantly determined by capital, psychological well-being (PWB), and labour. However, the labour was found significant negatively impacts economic growth. The subjective well-being (SWB) indicators were found insignificantly impacting the economic growth, however they have indirect impacts. Furthermore, the study confirmed that non-economic variables had less probabilistic power than economic variables. The paper concluded that an optimal economic growth (GDP) was direct related to capital, psychological wellbeing and inversely proportional to labour. However, the effectiveness of capital and labour were due to mediation effects of subjective well-being and psychological well-being respectively.
 Unique contribution to theory, practice and policy: The LC model of economic growth introduces a modern theory of economic growth, that its adoption will affect the traditional economic theories, practices and policy settings. The model was found empirically valid, hence, the paper recommended the adoption of the LC model in pre-and post micro and macro-economic policy and strategy designs/planning. The adoption of the model will increase the probability of an individual of getting a high economic growth (output) as well as the strengthening of psychosocial resources. However, this study suggested further study by using longitudinal data to attest the LC model as the current study only limited on the cross-sectional data.