The Analysis of Transitions in Economic Performance Using Covariate Dependent Statistical Models

The GDP or GNP as a measure of economic performance of a country changes continuously. We can identify the factors that precede its ups and downs. For such forecasting, the use of Markov models are not new, but in this paper, an attempt is made to propose a covariate-dependent Markov model to identify the factors that contribute to the estimation of transition probabilities. The proposed model is employed to estimate the transition probabilities, the factors that contribute to transitions in economic performance, and other relevant characteristics. The cross-country data have been employed for the period 1980–2000 for fitting the model. This can provide a useful model for forecasting the economic performance in both developing and developed countries.