# Bottom-Up Model

## 1.1 Introduction

The term Bottom-Up Model has been defined in many ways. It has also been politicized by many philosophers from all walks of life. The only challenge is that about 99% of the people who have tried to shade light on this concept have gotten it wrong. But the good thing about this aspect is that there is a universally agreed upon definition of this term and this forms my backdrop and motivation to provide a general guideline on Bottom-Up Model. First, I wish to define simple terms that build up my argument for the case of Bottom-Up Model in the Kenyan context. More details about a model can be found in our topic on Theoretical Foundation in our Accountingnest.com website

## 1.2 Definitions

What is a model?

A model is a theory (i.e., Model=Theory) and (i.e., Theory=Model)

Or if you like it we can define the term model in different ways as follows;

Definition 1: A theory is a rational or reasoning or logical type of abstract thinking about a phenomenon, or the results of such thinking (Wikipedia)

Definition 2: A theory is a formal statement of the rules on which a subject of study is based or of ideas that are suggested to explain a fact or event or, more generally, an opinion or explanation (Cambridge Dictionary)

Definition 3: A theory is the logical, reasonable, realistic or practical way of relating of two or more characteristics or traits of the subject matter under investigation in the Natural and Physical Phenomenon environment (Source: Accountingnest.com website, 2021)

What….!!! Am I confusing you the more? No, not at all, I said a model is a theory.

Okay, then a model can be defined as follows;

Definition 1: A MODEL is a rational or reasoning or logical type of abstract thinking about a phenomenon, or the results of such thinking (Wikipedia)-And can be represented by a graph, table or a diagram

Definition 2: A MODEL is a formal statement of the rules on which a subject of study is based or of ideas that are suggested to explain a fact or event or, more generally, an opinion or explanation (Cambridge Dictionary)-And can be represented by a graph, table or a diagram

Definition 3: A MODEL is the logical, reasonable, realistic or practical way of relating of two or more characteristics or traits of the subject matter under investigation in the Natural and Physical Phenomenon environment (Source: Accountingnest.com website, 2021)- And can be represented by a graph, table or a diagram

So, when you are talking of a model, you are referring to a theory and the vice versa is true. A theory is a model and it is practical

What does a Model Entail?

A model entails or consists of TWO or MORE variables which have logical or plausible or practical relationship. In other words, the two or more variable under consideration must have a logical or practical link. This then implies that if two or more variables under consideration are illogical  or is not practical to connect their relationship or association, then it means it is not logical or rather not practical. Hence, this is not a model. May be something else for it cannot work (i.e., not practical) in the natural phenomenon.

### 1.2.1 Example of a Model

1. A dog biting man=A dog bite
2. A mosquito biting a man= A mosquito Bite (i.e., Malaria)
3. Price change led to demand change=Demand Model/theory of demand

### 1.2.2 Example of what is not a model

1. Man biting a dog =A man bite
2. Man biting a mosquito= A man Bite (i.e., Not Malaria)
3. Demand change led to Price change=Not Demand Model/theory of demand

## 1.3 Assumptions of a Model

1. The model is made up of More than one variable
2. There exists Logical relationship between or amongst the variables
3. Variables are measurable-If you cannot measure them, then it does not exist
4. A model is contextual for it to function (i.e., to be practical/plausible)

### 1.3.1 Is a model Practical? Or Theoretical?

The answer is a big capital YES. It is both practical and theoretical So, if a supposition or suggestion does not work or it is not practical, then it means it is not a model. Such that in a certain context, a well-known model may have worked so well. But it may backfire in another context. Where it has worked, well and good.it is a model and where it has not worked, then it is obviously that it is not a model. Forget about it, simple.

## What Is A Bottom-Up Economic Model?

### 2.1 Introduction

Now, how do we define Bottom-Up Economic Model? Before I answer this Big Question, I beg to caution you that my definition is in line with the general definition I indicated earlier on I this article and also, I have contextualized the definition to a case study like Kenya where this matter is highly contested.

### 2.2 Definitions

Answer: A Bottom-Up Economic Model is;

Definition 1: A Bottom-Up Economic Model is a rational or reasoning or logical type of abstract thinking about a phenomenon, or the results of such thinking

Definition 2: A Bottom-Up Economic Model is a formal statement of the rules on which a subject of study is based or of ideas that are suggested to explain a fact or event or, more generally, an opinion or explanation (Cambridge Dictionary)

Definition 3: A Bottom-Up Economic Model is the logical, reasonable, realistic or practical way of relating of two or more characteristics or traits of the subject matter under investigation in the Natural and Physical Phenomenon environment (Source: Accountingnest.com website, 2021)

What….!!! Am I confusing you? No, not at all, I said a Bottom-Up Economic Model is a theory.

Okay, then a Bottom-Up Economic Model can be defined as follows;

A Bottom-Up Economic Model is the logical, reasonable, realistic or practical way of relating of two or more characteristics or traits of the subject matter under investigation in the Natural and Physical Phenomenon environment (Source: Accountingnest.com website, 2021)- And can be represented by a graph, table or a diagram.

So, when you are talking of a Bottom-Up Economic Model, you are referring to a Bottom-Up Economic theory and the vice versa is true. A Bottom-Up Economic theory is a model and it is practical.

What does a Bottom-Up Economic Model Entail?

A Bottom-Up Economic Model entails or consists of TWO or MORE variables which have logical or plausible or practical relationship. In other words, the two or more variable under consideration must have a logical or practical link. This then implies that if two or more variables under consideration has not logic or is not practical to connect their relationship or association, then it means it is not logical or rather not practical. Hence, this is not a model. May be something else for it cannot work (i.e., not practical) in the natural phenomenon.

## 2.3 Assumptions of the Bottom-Up Economic Model

1. The model is made up of More than one variable (Government fund, Community-Based SME operations, value addition activity, government based marketing, Tax revolving funding, FDI and Capital Formation)
2. There exists Logical relationship between or amongst the variables
3. Variables are measurable-If you cannot measure them, then it does not exist
4. A model is contextual for it to function (i.e., to be practical/plausible-Kenyan case)

The following diagram is a representation of the Bottom-Up Economic Model which portrays possible and practical linkages between and amongst the critical variables for consideration for the government to succeed in capital formation which translate to wealth creation in a nation.

## 3.1 Operational Definition of Variables

Capital Formation (CF):  is the process of adding new or replacing old capital goods which are used for production. The monetary value of the cumulated capital goods should always be net of depreciation.

NB: Capital goods represent a higher level of asset tangibility which directly associated with increased national income. Such that, the higher the level of tangibility, the higher the rate of income generation (Holding other factors constant). This viewpoint is underpinned by Dividend Irrelevance Theory (of Modigliani and Miller) who argued that dividend policy does not influence firm value or performance hence it was termed as irrelevant factor. But in addition, their debate was further anchored on the logic that firms with capability to generate income would result to increased financial performance and not increased dividend payout ratio through increased cash dividends to shareholders (Mbuva, et al. 2017). Capital formation is measured using Gross Capital Formation (% of GDP)

Government Seed Money (GSM): is an hustler fund which the current president of Kenya Dr Ruto has promised to support sectors such as the Boda Boda and small retailers. It is a Sh50 billion annual kitty that will be channeled towards supporting micro, small and medium, enterprises (MSMEs) with one condition, that the loanees will be operating under Chamas, Saccos and Cooperatives.

Community Based (MSME)-Operations (CBO) are activities carried out by the SMEs which are income generating and have been financed using the Government seed money. They are activities under the full surveillance of the central government.

Tax Revolving Fund (TRF)is a fund or cumulated cash flows generated from the business operations of SMEs through low taxation rate charged plus the principal amount and or gotten from DFI investment related activities.

Value Addition Activity (VAA) is SME activity which is proven by the government and is associated with fostering the individual wealth of the SME owners. The value addition activities are the basis within which the government purpose to fund the respective SMEs. Absence of this variable, means no government funding.

Government Market Identification (GMI)is the process or activity of promoting sale of products from the SME operations.

Foreign Direct Investment (DFI) is investment activities that a foreign country commits herself in undertaking such as financing the Bottom-Up Economic model through purchasing the intellectual property thereof or directly financing the SME operations.

## Bottom-Up Economic Model-Mathematical Approach

CF=f(GSM, CBO, TRF, VAA, GMI, DFI)

NB: Holding other factors Ceteris Paribas

## 4.1 Suggested Methodology

STEP1: Formation of Cooperative societies and CHAMAS

STEP 2: Identification of SMEs with new or continuing Viable Business ideas at the county level

STEP 3: Funding of the qualifying SMEs

STEP 4: Incubation Process, if necessary, (especially for Micro Business)

STEP 5: Marketing of the SME products, either locally or internationally or both

STEP 6: Repayment of Principle plus interest

STEP 7: Capital Cumulation (and/or Cash Flow)

STEP 8A: Cash Flow Plough Back to Central Government

OR

STEP 8B: Further Financing or Re-Financing of the SME projects

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.