Post on 23-Jan-2023
A STUDY ON
THE DETERMINANT FOR FAMILY TAKAFUL CONSUMPTION
NURUL NADIA BINTI HARUN
2009804722
BACHELOR OF BUSINESS ADMINISTRATION (HONS) FINANCE
FACULTY OF BUSINESS MANAGEMENT
MARA UNIVERSITY OF TECHNOLOGY
KELANTAN
PROPOSAL
DECLARATION OF ORIGINAL WORK
BACHELOR OF BUSINESS ADMINISTRATION (HONS) FINANCE
FACULTY OF BUSINESS MANAGEMENT
UNIVERSITI TEKNOLOGI MARA KELANTANG
KAMPUS KOTA BHARU
I, NURUL NADIA BINTI HARUN, (I/C NUMBER: 880920-03-5432)
Hereby declares that:
This work has not previously been accepted insubstance for any degree, locally or overseas, andis not being concurrently submitted for this degreeor any other degrees.
This project paper is the result of my independentwork and investigation except where it is otherwisestated.
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All verbatim extract have been distinguish byquotation marks and source of my information havebeen specifically acknowledgement.
Signature: ____________________ Date:_________________
LETTER OF TRANSMITTAL
Bachelor in Business Administration (Hons) Finance
Universiti Teknologi Mara (UiTM) Kampus kota bharu,
Kota Bharu,, Kelantan.April 2011
Associate Prof. Safri Bin Ya
The Head of Programme,
Bachelor of Business Administration (Hons) Finance,
Faculty of Business Management
University Teknologi MARA UiTM;
Kota Bharu, Kelantan.
Dear Sir,
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SUBMISSION OF PROJECT PAPER
Attached is the project paper titled ‘A study on the
determinant for Family Takaful consumption.’ To fulfill
the requirement needed by the Faculty of Business
Management, Universiti Teknologi MARA
Your kindness in accepting the unbounded thesis is very
much appreciated.
Thank you.
Yours sincerely,
…………………………………………….
NURUL NADIA BINTI HARUN
2009804722
Bachelor of Business Administration (Hons) Finance
ABSTRACT
This study attempts to determine the determinants
for Family Takaful consumption, whether population,
interest rate and GDP related to the demand for Family
Takaful. This study uses 10 data that is collected from
annual report of Etiqa Takaful 1997 to 2006. The data
collected was then tested on the multiple regression
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1.1 Background of study
The development of Takaful industry
The development of the Takaful industry in Malaysia in
the early 1980s was inspired by the prevailing needs of
the Muslim public for a Shariah-compliant alternative
to conventional insurance, as well as to complement the
operation of the Islamic bank that was established in
1983. It was, to a large extent, triggered by the
decree issued by the Malaysian National Fatwa Committee
which ruled that life insurance in its present form is
a void contract due to the presence of the elements of
Gharar (uncertainty), Riba’ (usury) and Maisir
(gambling). A Special Task Force was established by the
Government in 1982 to study the viability of the
setting up of an Islamic insurance company following
the recommendations of the Task Force, the Takaful Act
was enacted in 1984 and the first Takaful operator was
incorporated in Malaysia in November 1984. The Takaful
industry in Malaysia has consistently registered strong
growth in the last 20 years. It has proven to be
resilient in the face of intense competition from the
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more advanced insurance industry. The industry has
recorded average annual growth rates of 57.9% and 44%
in assets and net contributions respectively since
1986.
Overview of Takaful
Takaful is a system of Islamic insurance based on the
principle of mutual cooperation (ta’awun) and donation
(tabarru’), where the risk is shared collectively and
voluntarily by the group of participants. It is derived
from an Arabic word meaning ‘joint guarantee’ or
‘guaranteeing each other’ (Mahmood, 2008). It is an
arrangement by a group of people with common interests
to guarantee or protect each other from certain defined
misfortunes such as premature death, disability and
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property damages (Obaidulllah, 2005). Under Takaful
schemes, participants mutually agree to guarantee and
to protect each other against a defined loss or damage,
by jointly providing financial assistance to any
members suffering from a loss.
As a concept, insurance does not contradict the Islamic
principles since it is essentially a system of mutual
help. However, the operation of conventional insurance
involves the elements of uncertainty (gharar) and
gambling (maysir) in the contract of insurance, and
usury (riba) in its investment activities, which do not
conform to the requirements of Shariah. Gharar, may
exist with regard to the scope of coverage, terms of
the contract and source of the claim payments. Maysir,
may arise from any speculative element present in a
contract, such as an unequal exchange of the amount of
money. Riba, or excessive profit, may arise from
financial interest received from the investment of
funds collected from the participants. Avoidance of
these elements is essential in an insurance system
acceptable by the Syariah, and this is where Takaful
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differs with the conventional insurance. Takaful
arrangement embraces the elements of mutual
cooperation, shared responsibility, mutual protection,
and joint indemnity (Central Bank of Malaysia, Takaful
Industry Review, 2005).
Takaful is a system of Islamic insurance based on the
principle of mutual cooperation (ta’awun) and donation
(tabarru’), where the risk is shared collectively and
voluntarily by the group of participants. In a Takaful
transaction, the party called the participant (insured),
who pays a particular amount of money known as
contribution (premium) to another, who is known as
Takaful operator (insurer) with a mutual agreement that,
the operator is under a legal responsibility to provide
the participant with a financial security against
unexpected loss or damage caused to the subject matter
of the policy should one occurs within the agreed
period of the policy. Takaful is designed to provide
protection against individual and businesses.
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According to The Banker (2001), the Islamic insurance
sector or Takaful has expanded in many major markets and
in Muslim dominated countries around the world. Among
the Top 25 companies in the world, ranked by The
Banker, Brunei’s Takaful IBB Bd is first followed by
SCA’s of Iran Insurance Company and Malaysia’s Syarikat
Takaful Malaysia Berhad with Shariah compliant assets
worth US31.5 billion, US1.5 billion and US824.8 million
respectively, while the GCC companies, is led by Saudi
Arabia’s Company for Cooperative Insurance. The impact
of Islamization has not only been felt where Islam is
practiced, but also in countries where the Muslim
population has increased tremendously and this is
particularly true in the Western world, Europe and
North America.
This study is to investigate on what could be the main
determinant for the demand of Family Takaful products.
Nowadays, people are very concern about choosing the
products that we have in the market.
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What is Family Takaful?
Family Takaful provides people with both a protection
policy and long-term savings for peace of mind. The
people or the beneficiary will be provided with
financial benefits if they suffer a tragedy. At the
same time, they will enjoy an investment return because
part of their contribution will be deposited in an
account for the purpose of savings. They have a choice
of maturity periods and there is no forfeiture in the
event of cancellation. They are also entitled to
personal tax relief when participate in family Takaful.
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Takaful Operator
in Malaysia
Shareholders/ Parent
Company
Year of
Incorpo
ration
1 CIMB Aviva
Takaful Berhad
CIMB Group and Aviva
plc
2006
2 Etiqa Takaful
Sdn Bhd
Maybank Fortis 2007
3 Hong Leong Tokio
Marine Takaful
Berhad
- Hong Leong Group
- Tokio Marine &
Nichido Fire
Insurance Co.,
Ltd
2006
4 HSBC Amanah
Takaful Malaysia
Sdn Bhd
- HSBC Insurance (
Asia Pasific)
- Jerneh Asia
Berhad
- Employees
Provident Board
2006
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of Malaysia
(EPF)
5 MAA Takaful
Berhad
MAA Holding Berhad
Solidarity
2006
6 Prudential BSN
Malaysia Berhad
- Prudential plc
and BSN
2006
7 Syarikat Takaful
Malaysia Berhad
BIMB Holdings Bhd 1985
8 Takaful Ikhlas
Sdn Bhd
MNRB Holdings Bhd 2003
Table 1: Takaful Operators Registered under the Takaful Act 1984
1.2 Problem Statement
Nowadays, life insurance is very important for every
people. Sometimes in life it is not possible to avoid
the losses. Thorsten Beck and Ian Webb ( Life insurance
has become an increasingly important part of the
financial sector over the past 40 years, providing a
range of financial services for consumers and becoming
a major source of investment in the capital market. But
what drives the large variation in life insurance
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consumption across countries remains unclear. For
example people may become ill. They may die of illness
or accidents or their homes or other property may
undergo damage or theft. So in all these cases and they
have to face the loss of income or savings. So
insurance is a manner of financially insuring that if
such an incident comes about then the loss does not
affect the present well being of the person. Insurance
plays an important role in sharing the risks of people
in an affordable form. It helps the people to quickly
recover from damages and losses.
Recognizes the importance of insurance to the user,
Islamic Insurance was introduced to satisfy Muslim
needs for insurance products. Conventional Insurance
Company nowadays also offers Islamic Insurance
products. This shows that, the demand for Islamic
Insurance (Takaful) is high.
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In 2007, monthly per capita income in Malaysia is about
RM1900. Approximately 60 percent of the Malaysian
Muslims earn income above RM2000 a month (Department of
Statistics Malaysia, 2007). With the income level
higher than the country’s per capita level, majority of
the Malaysian Muslims may have the financial capacity
to purchase Takaful. Therefore, more aggressive
marketing techniques should be employed by the Takaful
operators to increase penetration rate of Takaful among
the Malaysian Muslim.
Thus, this research is conducted to know the
determinant of Takaful consumption in Malaysia based on
five factors, population, interest rate and Gross
Domestic Product (GDP)
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1.3 Research Objective
The objective of conducting this research is wanted to
know about the determinant of Takaful products
consumption. Nowadays, we can see that many company
trying to enter the market by introducing different
product and have their own advantage. There are several
objective of doing this research
1.3.1 To determine whether population, interest rate
and Gross Domestic Product (GDP) have significant
relationship with the Takaful consumption.
1.3.2 To identify the most important variable
towards the Family Takaful consumption.
1.4 Scope of study
Focus of this study is on the determinant for the
Takaful consumption. The determinant for Family Takaful
consumption that researcher wants to study is
population, interest rate and GDP. This study will used
data on DataStream at Uitm’s library and from17
Department of Statistic Malaysia. The data for the
demand for Family Takaful was taken from the annual
report of Etiqa Takaful net contribution and then it
would be analyse by using SPSS program as statistical
software. This study will use the data from the year
1997 to 2006.
1.5 Significance
1.5.1 To the researcher.
This research earns the researcher a lot of valuable
knowledge while on others to do your work. After
doing this research, the researcher can compare
those products that Takaful based company offered so
that they do not make mistake in their future time.
1.5.2 To the future researcher
Hopefully this research will be an example or
guidance or reference for them to do better study in
the future. Meaning that, they will have more input
for their research. Find a lot of information and
input from books, journal, article or internet
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because when we have many input our research will be
more valuable.
1.5.3 To Takaful industry
Takaful company will definitely use this research as
their guidance to find customer. They can use this
research to make further research about the most
important reason to the demand for Family Takaful.
1.6 Limitation
1.6.1 Time constraint
Do not have enough time to do this research because
of doing practical training and need to concentrate
on two things in one time. The researcher needs to
focus on completing this research because it will be
valuable for others. The studies conducted are
accomplished within a short period. In the short
time period it will not be able to obtain more
information for completing the research. Time period
also become a constraint for the researcher to get
more accurate and reliable data.
1.6.2 Lack of information
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The information for this study is taken from all
sources including via internet but there are small
number of researcher who do related research. There
are small numbers of literature to be reviewed
because most of the journal not specifically related
to this study.
1.6.3 Lack of expertise
Need to learn to use the statistical software
because of lack of expertise to use DataStream and
SPSS program.
1.7 Definition of term
GDP: Gross Domestic Product
INT: Interest rate
POP: Population
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2.1.1 Population
(Zuriah Abd Rahman), another indicator for Takaful
vibrant growth in the future is the size of the Muslim
market. Experts’ estimate on the number of Muslims in
1999 was 1.2 billion representing between 19.2 to 22
percent of the world’s population and growing at 2.9
percent per year, (2.3 percent growth rate for total
world population), provided by the Council on American-
Islamic Relations in 1999. According to another
estimate, Muslims have grown by more than 235 percent
the last 50 years and now stands at 1.6 billion.
Population size and demographic consideration is
certainly of vital concern for an enterprise before
embarking on a new venture, because the larger the
population, the larger is the potential market size and
the social structure also plays an important role in
dictating demand.
Again research in the area of changes in social
structure also points to a positive relationship, which
shows that the older the population and the lower the
inflation rate, the more people will choose life
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insurance over other forms of savings (Beenstock et.
al, 1986; Brown and Kim,1993)
Contribution per worker reflects Takaful density within
the labor force. These people are the segment of
population with higher ability to purchase insurance,
and who normally have better education and higher
degree of insurance awareness. They are also more
likely to have greater demand to protect their
dependents through life insurance against financial
difficulties arising from their premature death (Hwang
and Gao, 2003).
In Malaysia, about 53 percent of the population
comprise of Muslims, to whom Takaful plans are mainly
targeted for. In 2007, monthly per capita income in
Malaysia is about RM1900. Approximately 60 percent of
the Malaysian Muslims earn income above RM2000 a month
(Department of Statistics Malaysia, 2007). With the
income level higher than the country’s per capita
level, majority of the Malaysian Muslims may have the
financial capacity to purchase Takaful. Therefore, more
aggressive marketing techniques should be employed by
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the Takaful operators to increase penetration rate of
Takaful among the Malaysian Muslim.
2.1.2 Interest Rate
Interest rate is expected to have a positive
relationship with Takaful consumption. Higher real
interest rate increases investment returns of the
insurer, thus the insured may enjoy higher benefit from
the policies through higher cash values or dividends.
Similar to the study by Beck and Webb (2003) and
Outreville (1996), this study uses the lending rate to
proxy the long-term interest rate of the country.
(Black and Skipper, 2000)Theories suggest that the
higher the interest rate, the more return can be earned
by the insurers which in turn can increase the value of
a life policy. But some consumers may prefer to invest
in short-term financial instruments during high
interest rate period, which provide higher returns than
the long-term investment in insurance policies.
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On the other hand, while the real interest rate does
not support the expected negative relationship, the
positive coefficient exhibited by the variable is
consistent with the findings of Beck and Webb (2003).
Adopting a conservative interpretation, the result for
the log-linear model suggests that a 1% increase in
aggregate per capita income is associated with an
increase of approximately 8:6% in Family Takaful sales.
Cargill and Troxel (1979) examine two kinds of interest
rates in their study: the competing yield on other
savings products and the return earned by life
insurers. The findings on the competing yield are
inconsistent. However, the competing yield tends to be
negatively related to life insurance savings. A higher
interest rate on alternative savings products tends to
cause insurance products to become less attractive as a
savings instrument. The yield on newly issued AAA
utility bonds is used to represent all the competing
rates of return on alternative savings products.
Cargill and Troxel (1979) include the current and
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twelve-quarter distributed lag variables of competing
yields in their study. The lag variables are included
to reflect the delayed reactions of savers towards new
information regarding interest rates on savings because
changes in interest rates are assumed to produce a
lagged response. Likewise, the findings on the return
earned by life insurers are mixed. However, the return
earned by life insurers is frequently positively
related to life insurance savings. Life insurers
earning a higher rate of return tend to attract
individuals to purchase insurance from them. The yield
on industrial bonds placed privately with a
representative group of life insurance companies is
used as a proxy for the return earned by life insurers.
It is the “new money” rate of return earned by the life
insurers, not the average rate of return on the
invested funds. Similar to the competing yield, the
current and twelve-quarter distributed lags of the
return earned by life insurers are included in the
models to investigate the immediate and lagged
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responses of changes in interest rates on life
insurance demand.
Outreville (1996) has shown that interest rates such as
the real interest rate and the lending rate are not a
determining factor affecting the demand for life
insurance. The real interest rate is obtained by
subtracting the anticipated inflation from the current
bank discount rate. On the other hand, Rubayah and
Zaidi (2000) investigate three types of interest rates
in their study: the personal savings rate, short-term
interest rate and current interest rate. The personal
savings rate and short-term interest rate are found to
influence significantly and negatively the demand for
life insurance, while the current interest rate is
found to have no significant effect on life insurance
demand. The personal savings rate refers to the
interest rate offered by banks on normal savings, the
short-term interest rate refers to the interest rate on
three-month Treasury Bills, and the current interest
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rate refers to the base lending rate on bank
borrowings.
Real interest rates have not been systematically
included in all studies. For example, Browne and Kim
(1993) neglect the influence of this variable on life
insurance demand. Outreville (1996) finds the
correlation of real interest rates with life insurance
demand to be almost insignificant. One theoretical
justification for this outcome is that high real
interest rates may decrease the cost of insurance, thus
stimulating its demand. On the other hand, they may
cause consumers to reduce their number of purchases
given the anticipation of higher returns. Beck and Webb
(2003) appear to detect a positive relationship using
average lending rates. However, it can be noted that
lending rates contain a credit risk premium that varies
from one country to another, depending on its credit
default experience. We use the yield on government
bonds (which are virtually free from credit risk) less
the country's rate of inflation to measure real
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interest rates. In some cases, such as Iceland and
Turkey, where bond markets are nonexistent, bond yields
are replaced by money market rates.
2.1.3 GDP
(Thorsten Beck and Ian Webb), We use real GDP per
capita as well as an indicator of permanent income,
calculated as the predicted value from a regression of
the log of each country’s real GDP per capita on the
time trend. Outreville (1996) finds a significant
positive relationship between financial development and
life insurance penetration. We use the total claims of
deposit money banks on domestic nonfinancial sectors as
a share of GDP as an indicator of banking sector
development.
Outreville (1996) relates the income variable in his
study as the real disposable income per capita. GDP is
used as the basis for the disposable personal income.
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The income variable is expressed in linear form and in
logarithmic form. (This study use the data on GDP)
Rubayah and Zaidi (2000) examine two types of income
variable in their study, namely GDP and income per
capita. Income per capita is defined as the GDP divided
by the size of the population. In the initial stage,
both the GDP and income per capita are found to have a
positive relationship with the demand for life
insurance but are not significant. It is only when
stepwise regression analysis is applied in the later
stage that GDP appears to have a significant positive
relationship with the demand for life insurance but
income per capita has been aborted. This is because
income per capita contains the element of GDP and
therefore multicollinearity exists because the two
income variables are highly correlated. (This study
also use the data on GDP)
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chapter3:Research
Methodology
3.0 Research methodology
3.1 Research Design
The research design for this study is use secondary
data that taken from DataStream and data from
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Department of Statistic Malaysia. The data is divided
into two categories namely a) dependent variable: net
contribution of Family Takaful, b) independent
variable: population rate, interest rate and Gross
Domestic Product.
3.2 Theoretical Framework
Independent Variable
Dependent Variable
Figure 1: Theoretical framework
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PopulationInterest RateGDP
3.3 Hypothesis
Ho : There is no significant relationship between
population and demand of Takaful products
H1 : There is a significant relationship between
population and demand of Takaful products
Ho : There is no significant relationship between interest
rate and demand of Takaful products
H1 : There is a significant relationship between interest
rate and demand of Takaful products
Ho : There is no significant relationship between GDP and
demand of Takaful products
H1 : There is a significant relationship between GDP and
demand of Takaful products
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3.4 Data collection
The data for this research is collect from DataStream,
Department of Statistic and annual report of Etiqa
Takaful (net contribution of Family Takaful). For the
purpose of this research, the researcher used the
secondary data to complete this study. Data for the
demand Family Takaful is collected from Etiqa Takaful
Berhad, researcher only obtained this data because there
is less data from other company. Data for interest rate
is collected from World Bank. Other data is collected
from Datastream at UiTM’s Library
3.4.1 Secondary Data.
Secondary data is defined as the data collected for some
purposes other than the problem in hand (Malhotra, 1999).
In this research, the researcher has used both internal
and external secondary data searching methods in
obtaining the information. 35
3.4.1.1 External sources
The external secondary data are from books, journals,
report and via internet. Many data were taken from
internet because there are limited sources of data from
books, journal and report.
3.4.1.2 Journals/Articles/Report
The researcher has used and referred to journals,
articles and reports to complete the literature review.
The information gathered has helped the researcher to
find out the determinants that might contribute to this
study and help to develop the blueprint of this study as
well as to complete this research.
3.4.1.3 Internet
The researcher has surfed the internet and websites in
order to find more information and to gather the
electronic journals or articles that can help the
researcher to do the research well. The researcher has
surfed yahoo, emerald insight and Google to find the
information required. Through internet also, the36
researcher can find all the information needed. The
researcher also gets data from internet, for example data
of net contribution for family Takaful that get from
Etiqa Takaful Berhad.
3.5 Data Analysis
3.5.1 Multiple Regression Model
Multiple regressions are a statistical technique that
allows us to predict someone’s score on one variable on
the basis of their scores on several other variables. An
example might help. When using multiple regressions in
psychology, many researchers use the term independent
variables to identify those variables that they think
will influence some other dependent variable. The program
that will be used to analyze the data is called SPSS
(Statistical Program for Social Science). SPSS is one of
the most widely available and powerful program to
summarize data and also determine whether there are
significant differences between groups, examine
relationships among variables. For this study, the data
will be analyzed by using the multiple regressions.
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General form for Multiple Regression Actual (true) Model
Y = B0 + B1x1 + B2x2 + …+ Bnxn + e
Y is the dependent variable
B0 is the actual constant
B1 is the actual coefficient
e is the error term
3.5.2 R, R Square
R is a measure of the correlation between the observed
value and the predicted value of the criterion variable.
R Square (R2), coefficient of determination is the square
of this measure of correlation and indicates the
proportion of the variance in the criterion variable
which is accounted for by our model.
3.5.3 t-statistic
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The t statistic is a measure of how extreme a statistical
estimate is. You compute this statistic by subtracting
the hypothesized value from the statistical estimate and
then dividing by the estimated standard error. In many,
but not all situation, the hypothesized value would be
zero.
3.5.4 Beta Value
The beta value is a measure of how strongly each
independent variable influences the dependent variable.
The beta is measured in units of standard deviation.
3.5.5 Durbin Watson
Durbin – Watson is the measurement of the correctness of
the model used in the study. Besides that, it also
indicates the strength of the model used. It is measured
through the range from 1.5 and 2.5, which is normally
considered as the best value, as it confirmed that there
is no auto – correlation problem in the model. To
determine the value of d L and d U; it can be refer to the
Durbin Watson correlation table.
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