Chapter No.4 3.10 Econometric model

Chapter No.4

3.10    Econometric model

In the function equation shows the specific regression form that is following.

                      FDI =βo+β1GDP+β2M+β3X+β4CPI+µ

3.11    Estimation procedure

OLS is used in this study. OLS is used by the advanced E-views software. Null hypotheses is that determinant of FDI have significant impact on foreign direct investment.                   

4.    Empirical result

 FDI = 2.60E+09 +0.415GDP -0.23IMP +0.3869X +0.41CPI +09µ

Dependent Variable: FDI
Method: Least Squares
Date: 19/01/14   Time: 01:21
Sample(adjusted): 1975 2012
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	2.60E+09	8.27E+08	2.973214	0.0051
GDP	0.415470	0.453280	4.154329	0.0002
IMP	-0.233828	0.053034	4.409007	0.0001
EX	0.386929	0.135265	-1.822244	0.0792
CPI	0.412265	0.303486	1.360880	0.0123
MA(1)	0.135176	8694.358	1.57E-05	1.0000
R-squared	0.881511	Mean dependent var		1.03E+10
Adjusted R-squared	0.943684	S.D. dependent var		4.01E+09
S.E. of regression	1.11E+09	Akaike info criterion		44.60416
Sum squared resid	4.29E+19	Schwarz criterion		44.81527
Log likelihood	-887.0831	F-statistic		119.0074
Durbin-Watson stat	1.904093	Prob(F-statistic)		0.000000

4.1   Interpretation

The empirical result shows the constant coefficient with FDI is positive relationship. It is significant on t value and probability value of one percent. The coefficient size 0.415 which show the one unit increase in GDP will bring 0.415 increases in FDI. The coefficient of import 0.23 is statistically significant, 0.23 unit decrease in FDI lead to one unit decrease in import. One unit increase in export the result will 0.38 increase in FDI variable that is a statistical insignificant on the t value and p value. The coefficient of consumer price is 0.41 increases in FDI due to one unit increase in consumer price so that is insignificant.