Modeling economic system using fuzzy cognitive maps

Macro-economic planning and policy decisions on various economic parameters do drive national economic activities leading to economic and social growth. These undergo dynamic changes on account of their mutual inter-relations and interactions and also due to factors internal and external to the economy. The objective of this work is to attempt and model major chosen economic variables using fuzzy cognitive map to decipher the development paradigm of the national economic system with respect to their mutual influences. Using the data of the Indian state, the study concluded that policy makers in developing nations must take steps to increase government spending, strengthen the local currency, reduce liabilities, increase fiscal deficit (within acceptable limits) and boost tax revenue in decreasing order of priority for early achievement of the desired objectives of higher GDP growth rate and social development. Moreover, the developed model inferred the possibility of GDP growth rate being influenced by under-reporting of services output in earlier years as compared to the later part of the study period. The methodology suggested and the results of the work do add to knowledge facilitating its use by policy makers and economic planners.