Econometrics Asignment

NATIONAL ECONOMICS UNIVERSITY

Faculty of Economics
---------  -------

ASSIGNMENT
SUBJECT: ECONOMETRICS

Topic: Factors affecting Gross Private Domestics Investment of

United State from 2001 to 2023

Class: FE64
Group: 11
Instructor: Bui Duong Hai

Ha Noi, 2023
 Group members
Tỷ lệ %
No Student ID Name Contribution
đóng góp
1 11223730 Phạm Thuỳ Linh Estimate and analysis models 35%
2 11225239 Nguyễn Hà Phương Research and make hypothetical models 35%
3 11224510 Nguyễn Quỳnh Nga Study and collect data 30%

Scoring table
Topic -
Point References Data Outcome Annalysis Presentation
Section
9 - 10
7-8
5-6
3-4
0-2
 TABLE OF CONTENTS
1. Introduction ............................................................................................................. 1
1.1. Reason for choosing the topic ....................................................................................... 1
1.2. Objectives of the study .................................................................................................. 1
1.3. Research question .......................................................................................................... 1
1.4. Object and scope of the study ....................................................................................... 2
2. Overview of theory and previous research ................................................................. 2
2.1. Theory ............................................................................................................................. 2
2.2. Some referenced researchs ............................................................................................ 3
2.3. General models ............................................................................................................... 4
3. Data analysis ........................................................................................................... 5
3.1 Data .................................................................................................................................. 5
3.2 Estimated results ............................................................................................................. 6
3.2.1. Selected models ............................................................................................. 6
3.2.2. Models comparison ....................................................................................... 7
3.3. Results meaning analysis ............................................................................................. 10
4. Summary................................................................................................................ 11
* Summarize the implementation process ............................................................. 11
* Tools ................................................................................................................. 12
* Our capacity limitations .................................................................................... 12
* Reference resources ......................................................................................... 12
APPENDIX ................................................................................................................ 13
Econometrics Asignment

1. Introduction
1.1. Reason for choosing the topic
Gross Private Domestic Investment, or GPDI, is a measure of the amount of money that
domestic businesses invest within their own country. GPDI constitutes one component of GDP,
which politicians and economists use to gauge a country’s overall economic activity. The US
is one of the world's largest and most diverse economies. Thus, research on the factors that
influence GPDI can help better understand how these factors interact in a diverse and volatile
economic environment.
The period from Q1 2001 to Q2 2023 includes many important economic fluctuations such as
the financial crisis in 2008 and the impact of the COVID-19 pandemic from 2019 to present.
Following the global financial crisis in 2008-2009, GPDI in the United States initially
experienced a significant decline as businesses faced economic uncertainty. However, in the
subsequent years, there was a recovery as the economy stabilized. Throughout much of the
2010s, the US experienced a period of economic expansion. GPDI played a crucial role in this
phase as businesses invested in capital goods, technology, and infrastructure. Low-interest
rates, along with increased consumer and business confidence, contributed to this growth. The
Tax Cuts and Jobs Act, enacted in December 2017, aims to stimulate economic growth by
reducing corporate tax rates. The impact of this tax reform on GPDI was evident as some
businesses increased investment due to improved after-tax profitability. In 2020, the global
COVID-19 pandemic led to a significant economic downturn. Many businesses reduced
investment amid uncertainties, and the overall economic activity contracts. The negative impact
on GPDI was notable during the height of the pandemic. In the latter part of 2020 and into 2021,
the US began to recover from the pandemic's economic effects. GPDI rebounded as businesses
adapted to new conditions, and economic stimulus measures were implemented.
Therefore, the study can provide detailed insight into hypothetical different factors in these
events influence GPDI. Additionally, studying the factors that influenced GPDI during this
period could provide useful information to understand current trends and challenges facing the
United States in attracting and retaining domestic investment.

1.2. Objectives of the study

The main objective of the topic is to identify and analyze factors and analyze the impact of
those factors on Gross Private Domestics Investment of United State from first quarter 2001
to second quarter 2023. To achieve the above general research goal, the research aims at the
following specific goals:
Firstly, clarify the theoretical basis of factors affecting Gross Private Domestics
Investment of United State
Secondly, identify, analyze and evaluate the influence of factors affecting Gross Private
Domestics Investment of United State from first quarter 2001 to second quarter 2023.

1.3. Research question

Questions identified include:
Firstly, what theoretical content is related to the Gross Private Domestics Investment
of United State?

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Econometrics Asignment

Secondly, are there any special interactions between these factors and Gross Private
Domestics Investment of United State?

1.4. Object and scope of the study

− Research object: Factors affecting Gross Private Domestics Investment of United State
from first quarter 2001 to second quarter 2023
− Research scope: spatial scope: United State; time scope: first quarter 2001 to second
quarter 2023. The research team decided to research over 20 years to cover many different
economic periods, from the post-dot-com bubble to the great recession of 2008 and
recovery. This provides a rich and varied view of how factors influencing GPDI may
change and interact over time.
− Data and data sources:
Research data was compiled by the authors from the first quarter of 2001 to the second
quarter of 2023 with 90 observations taken from the following websites:
• Gross Private Domestic Investment (GPDI) | FRED | St. Louis Fed (stlouisfed.org)
• Rest of the World; Foreign Direct Investment in U.S.; Asset (Current Cost), Level
(ROWFDNQ027S) | FRED | St. Louis Fed (stlouisfed.org)
• Interest Rates and Price Indexes; Effective Federal Funds Rate (Percent), Level
(BOGZ1FL072052006Q) | FRED | St. Louis Fed (stlouisfed.org)
• Federal government current tax receipts (W006RC1Q027SBEA) | FRED | St. Louis
Fed (stlouisfed.org)
• Unemployment Rate: Aged 15-64: All Persons for United States
(LRUN64TTUSQ156S) | FRED | St. Louis Fed (stlouisfed.org)
• Recession: https://www.investopedia.com/articles/economics/08/past-recessions.asp

2. Overview of theory and previous research

2.1. Theory
- Theory related to research question.
The Gross Private Domestic Investment (GPDI) is a key economic indicator reflecting the
total value of capital expenditures made by businesses within a country's borders. Foreign
Direct Investment (FDI) plays a significant role in influencing GPDI, as it represents capital
flows from abroad contributing to domestic investment. A higher influx of FDI can stimulate
economic growth, bolstering GPDI through increased business activities and capital
expenditures. Conversely, domestic factors such as taxation, unemployment, and interest rates
also wield substantial influence. Tax policies directly impact the after-tax returns on
investments, shaping businesses' decisions to allocate resources toward capital projects.
Unemployment rates can impact consumer spending, affecting demand for goods and
services, thereby influencing businesses' investment decisions. Interest rates play a dual role
by affecting the cost of borrowing for investment projects and influencing the opportunity
cost of capital, both of which can impact GPDI. A holistic understanding of FDI, tax policies,
unemployment, and interest rates is essential for policymakers and businesses alike, as they
collectively shape the landscape in which private domestic investments unfold.
- Theory (briefly) about factors.

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Econometrics Asignment

Factors affecting Gross Private Domestics Investment

Firstly, impact of tax on investment behavior
In accordance with the Neoclassical Investment Model, the impact of taxes on investment
behavior is intricately tied to the after-tax cost of capital. Within this theoretical framework,
higher tax rates are perceived as elevating the cost of capital for businesses. As taxes take a
larger share of a firm's income, the post-tax income available for reinvestment diminishes.
This shift in the cost structure can result in a diminished overall attractiveness of potential
investment projects, as projects that once met profitability thresholds may now incur higher
after-tax costs.
Second, impact of unemployment rate on investment behavior
The impact of unemployment on investment behavior is intricately linked to the concept of
aggregate demand in economic theory. High levels of unemployment can exert downward
pressure on aggregate demand as individuals facing joblessness experience reduced incomes
and, consequently, decreased purchasing power. A decline in aggregate demand can lead to
diminished sales prospects for businesses so companies may reassess and potentially scale
back their investment plans. As businesses anticipate weaker market conditions, they may
delay capital expenditures and new projects, aligning their investment decisions with the
subdued economic environment.
Third, impact of foreign direct investment on investment behavior
Inflow of capital from abroad in the form of private investment is important for the growth of
developing the economy; especially at the initial stage of its economic development. Foreign
investment brings various positive impacts, playing a pivotal role in fostering technological
advancements, enhancing managerial expertise, boosting export capabilities, and contributing
to overall economic growth.
Forth, impact of interest rate on investment behavior
Due to the opportunity cost, high-interest rates may make alternative, less risky investments
more attractive than business investments. Investors may choose to allocate their funds to
interest-bearing assets rather than engaging in capital-intensive projects.

2.2. Some referenced researchs

Gashi B, Asllani Gani, Boqolli L. (2018) The effect of tax structure in economic growth. The
main goal of this paper is to analyse the effect of the tax structure in the economic growth of
Kosovo in the period 2007-2015. The study intends to evaluate the impact of specific types of
taxes on economic growth. The econometric model includes several independent variables
(types of taxes), and the dependent variable GDP. Based on data obtained through the log-log
model, the results show the impact of special taxes such as Pt, It, VAT, Wt, Ibt, Tdr.., Ct on
GDP. The results show that most of the taxes have a positive impact on GDP growth; it is also
shown that not all taxes have the same impact on economic growth. In the econometric
analysis the coefficient of R2=0,999 reflects the high degree of determination with 99.9%
forecasting accuracy.
Donny Susilo (2018) The Impact of Foreign Direct Investment on Economic Growth (a
Causal Study in the United States). This research examines the impact of Foreign Direct
Investment on Economic Growth in the United States by multiple linear regression model and
its estimation using ordinary least squares (OLS). This research classifies all the sectors into

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Econometrics Asignment

10 sectors. This research uses data for the period 2000 –2017 and suggests that not all forms
of foreign investment seem to be beneficial to host economies. Some sectors provide positive
correlation to economic growth and some provide negative effects. Nevertheless, it is
significant yet, this is because there are different characteristics between developed and
developing countries. Economic growth in the U.S is mostly driven by personal consumption.
Shrikant Panigrahi, Noor Azizan, Shahryar Sorooshian, Prabha Thoudam (2020) Effects of
Inflation, Interest, and Unemployment Rates on Economic Growth: Evidence from ASEAN
Countries. This study using secondary panel data gathered from the World Bank database to
investigate the long-run relationship between these factors and GDP growth from 1995 to
2018 in ASEAN-5 countries (Malaysia, Indonesia, Thailand, Singapore and the Philippines).
Statistical results show a strong dynamic long-run linkage between interest and inflation rates
and economic growth, but the linkage between unemployment rate and economic growth is
insignificant. Granger’s test of causality indicates that interest, unemployment and inflation
rates and economic growth are related. Policy makers should be aware of these relationships
when making decisions to facilitate economic growth and stability.

2.3. General models

Population Regression Model
𝐺𝑃𝐷𝐼 = 𝛽1 + 𝛽2 𝐹𝐷𝐼 + 𝛽3 𝑇𝐴𝑋 + 𝛽4 𝐼 + 𝛽5 𝑈 + 𝛽6 𝑅𝐸𝐶𝐸𝑆𝑆 + 𝑒
Sample Regression Model
̂ =𝛽
𝐺𝑃𝐷𝐼 ̂1 + 𝛽
̂2 𝐹𝐷𝐼 + 𝛽
̂3 𝑇𝐴𝑋 + 𝛽
̂4 𝐼 + 𝛽
̂5 𝑈 + 𝛽
̂6 𝑅𝐸𝐶𝐸𝑆𝑆

Table 1: The variables in researched models

Hypothesis Variables Code Unit Expected

sign
Dependent variable
Gross Private Domestic GPDI Billions of Dollars
Investment

Independent variables
H1 Foreign Direct Investment FDI Millions of Dollars +
H2 Tax receipts of Federal TAX Billions of Dollars +
Government
H3 Interest Rate I Percentage +
H4 Unemployment Rate U Percentage -
H5 Recession periods RECESS None -

Within this set, the recession variable signifies times when the US economy undergoes a
crisis. Include
- The Dot-Bomb Recession: Q1 2001 – Q4 2001
- The Great Recession: Q1 2007 – Q2 2010
- The COVID-19 Recession: Q1 2020 – Q4 2022

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3. Data analysis
3.1 Data
Table 2: Descriptive Statistics
GPDI FDI TAX I U RECESS
Mean 2945.379 3374873. 1735.512 1.503889 5.975212 0.333333
Median 2704.235 3036869. 1604.644 1.005000 5.484200 0.000000
Maximum 4796.162 6382525. 3131.082 5.310000 13.27682 1.000000
Minimum 1841.416 1517843. 994.7080 0.070000 3.580972 0.000000
Std. Dev. 832.3463 1434442. 537.7937 1.671904 2.000255 0.474045
Skewness 0.642714 0.481774 0.794374 1.078335 1.086995 0.707107
Kurtosis 2.478816 2.022431 3.153432 2.914121 3.804440 1.500000

Jarque-Bera 7.214853 7.065249 9.553728 17.46975 20.15009 15.93750

Probability 0.027122 0.029228 0.008422 0.000161 0.000042 0.000346

Sum 265084.1 3.04E+08 156196.1 135.3500 537.7691 30.00000

Sum Sq. Dev. 61659230 1.83E+14 25740763 248.7783 356.0907 20.00000

Observations 90 90 90 90 90 90
From this table, we can use the probability of Jarque-Bera in order to test for normality
distribution of variables.
Assume: H0: The variable distributes in normality
H1: The variable does not distribute in normality
If p-value (Jarque-Bera test) < 5% → Reject H0: The variable does not distribute in normality
Otherwise, the variable distributes in normality.
It is witnessed that all variables are not normally distributed
Table 3: Covariance and Correlation coefficients
Covariance
Correlation
Probability
GPDI FDI TAX I U RECESS
685102.6
GPDI
1.000000
-----
1.12E+09 2.03E+12

FDI 0.950729 1.000000

0.0000 -----
431481.4 7.17E+08 286008.5
0.974754 0.940206 1.000000
TAX
0.0000 0.0000 -----
21.09654 -444093.2 -25.45207 2.764204

I 0.015330 -0.187255 -0.028625 1.000000

0.8860 0.0772 0.7888 -----
-806.7569 -759135.1 -449.7584 -1.842383 3.956563

U -0.490011 -0.267549 -0.422796 -0.557103 1.000000

0.0000 0.0108 0.0000 0.0000 -----
30.79001 92385.46 42.15085 0.062370 0.099877 0.222222
RECESS 0.078911 0.137389 0.167195 0.079579 0.106516 1.000000
0.4597 0.1966 0.1152 0.4559 0.3177 -----

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Regarding of covariance and correlation coefficients, it is clear that there is a positive

relationship among GPDI and other variables, which is the same as expected. with the exception
of unemployment rate.

3.2 Estimated results

3.2.1. Selected models
− General model
Population regression model:
𝐺𝑃𝐷𝐼 = 𝛽0 + 𝛽1 𝐹𝐷𝐼 + 𝛽2 𝑇𝐴𝑋 + 𝛽3 𝐼 + 𝛽4 𝑈 + 𝛽5 𝑅𝐸𝐶𝐸𝑆𝑆 + 𝑒
Sample regression model:
̂ =𝛽
𝐺𝑃𝐷𝐼 ̂0 + 𝛽
̂1 𝐹𝐷𝐼 + 𝛽
̂2 𝑇𝐴𝑋 + 𝛽
̂3 𝐼 + 𝛽
̂4 𝑈 + 𝛽
̂5 𝑅𝐸𝐶𝐸𝑆𝑆
Table 4: Estimated results
Dep: GPDI LOG(GPDI)
[1] [2] [3] [4] [5] [6] [7] [8]
C 1001.735 1168.543 375.732 0.624 -0.334 1.14979 0.862 0.913
*** *** *** ** *** *** ***
FDI 0.0003 0.0003 0.0002
*** *** ***
LOG(FDI) 0.241 0.568 0.149 0.215 0.165
*** *** *** *** ***
TAX 0.717 0.743 0.809
*** *** ***
LOG(TAX) 0.519 0.642 0.544 0.598
*** *** *** ***
I 30.457 24.454 0.007 0.016
*** *** * ***
U -49.589 -65.684 -0.0204 -0.035 -0.0298 -0.023
*** *** *** *** *** ***
1/U 1801.312 0.839
*** ***
RECESS -105.023 -84.721 -118.059 -0.039 -0.026-0.1498 -0.035 -0.042
*** *** *** *** * *** *** ***
U*RECESS 0.019
***
F-stat (pv) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
R-sq 0.984 0.982 0.982 0.971 0.947 0.974 0.97 0.969
Adj R-sq 0.983 0.982 0.981 0.969 0.945 0.972 0.969 0.968
RMSE 103.589 109.842 109.828 129.489 193.621 126.428 132.37 134.019
MAPE 2.864 3.193 2.987 3.314 5.235 3.368 3.452 3.337
DW 0.487 0.439 0.5499 0.373 0.243 0.512 0.397 0.409
Ramsey (pv) 0.961 0.806 0.617 0.268 0.151 0.251 0.34 0.617
White (pv) 0.701 0.602 0.2298 0.0598 0.001 0.187 0.015 0.099
BG (pv) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
JB (pv) 0.041 0.152 0.004 0.026 0.699 0.554 0.049 0.014

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Econometrics Asignment

With significant level: 0.01***, 0.05**, 0.1*.

It is clear that all models have significant F-test, by that at least one variable can explain for
its overall model.
Looking at the Adjusted R square of eight models, these values are very high. The highest
belongs to model [1], which means that 98.3% of the dependent variable GPDI is explained
by the model.

3.2.2. Models comparison

Table 5: Models comparision

DW Ramsey White BG test JB R2 RMSE MAPE

RESET heter.
[1] Auto No Homoske Auto Non- 0.984 103.589 2.864
correlation omitted dasticity correlation normally
order 1 variable order 2 distributed
random
errors
[2] Auto No Homoske Auto Normally 0.982 109.842 3.193
correlation omitted dasticity correlation distributed
order 1 variable order 2 random
errors
[3] Auto No Homoske Auto Non- 0.982 109.828 2.987
correlation omitted dasticity correlation normally
order 1 variable order 2 distributed
random
errors
[4] Auto No Homoske Auto Non- 0.971 129.489 3.314
correlation omitted dasticity correlation normally
order 1 variable order 2 distributed
random
errors
[5] Auto No Heterosk Auto Normally 0.947 193.621 5.235
correlation omitted edasticit correlation distributed
order 1 variable y order 2 random
errors
[6] Auto No Homoske Auto Normally 0.974 126.428 3.368
correlation omitted dasticity correlation distributed
order 1 variable order 2 random
errors
[7] Auto No Homoske Auto Non- 0.969 133.483 3.3197
correlation omitted dasticity correlation normally
order 1 variable order 2 distributed
random
errors

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Econometrics Asignment

[8] Auto No Homoske Auto Non- 0.969 134.019 3.337

correlation omitted dasticity correlation normally
order 1 variable order 2 distributed
random
errors
The bolded part illustrates the model does not violate the hypotheses

In terms of this comparison, it is witnessed that all models have autocorrelation orders 1 and
2. Model [5] exists in Heteroskedasticity, while models [1] [3] [4] [7] [8] do not have normal
distribution of errors. Fortunately, there is no error in the functional form of any model. In
conclusion, model [2] and [6] can be considered as the models with the best estimated results
among eight models.
Nevertheless, we chose model [6]. The reason for this choice is simply because we expected
the relationship among variables is not linearity. The relationship between dependent variable
and independent variables resemble to expected sign.
- Chosen model results:
Population regression:
𝐿𝑂𝐺(𝐺𝑃𝐷𝐼) = 𝛽0 + 𝛽1 𝐿𝑂𝐺(𝐹𝐷𝐼) + 𝛽2 𝐿𝑂𝐺(𝑇𝐴𝑋) + 𝛽3 𝑈 + 𝛽4 𝑅𝐸𝐶𝐸𝑆𝑆 + 𝛽5 𝑈 ∗ 𝑅𝐸𝐶𝐸𝑆𝑆 + 𝑒
Sample regression:
̂
𝐿𝑂𝐺(𝐺𝑃𝐷𝐼) =𝛽 ̂0 + 𝛽
̂1 𝐿𝑂𝐺(𝐹𝐷𝐼) + 𝛽
̂2 𝐿𝑂𝐺(𝑇𝐴𝑋) + 𝛽
̂3 𝑈 + 𝛽
̂4 𝑅𝐸𝐶𝐸𝑆𝑆 + 𝛽
̂5 𝑈 ∗ 𝑅𝐸𝐶𝐸𝑆𝑆

This model shows that:

− The regression function is suitable because the F test has P–value = 0.000< α = 0.05
− 97.40% of the sample variation in the dependent variable GPDI in the sample is
explained by the model.
Estimated meaning of the coefficients:
𝛽0 = 1.15: when all independent variables have no effect on GPDI, the average
estimate of 𝐿𝑂𝐺(𝐺𝑃𝐷𝐼) is 1.15, by that, approximate 3.16 billion Dollars
𝛽1 = 0.149: when 𝐹𝐷𝐼 increases by 1%, ceteris paribus, on average, estimated change
of 𝐺𝑃𝐷𝐼 is 0.149%
𝛽2 = 0.642: when TAX increases by 1%, ceteris paribus, on average, estimated change
of GPDI is 0.642%
𝛽3 = -0.0298: when 𝑈 increases by 1 unit, ceteris paribus, on average, estimated change
of GPDI increases (e-0.0298-1) *100%, decreases approximately –2.94%
𝛽4 = -0.1498: in recession periods (𝑅𝐸𝐶𝐸𝑆𝑆 = 1), when all independent variables have
no effect on GPDI, the average estimate of LOG(GPDI) is lower by 0.1498
𝛽5 = 0.019: in recession periods (𝑅𝐸𝐶𝐸𝑆𝑆 = 1), when U increase by 1 unit, ceteris
paribus, on average, estimated change of 𝐿𝑂𝐺(𝐺𝑃𝐷𝐼) higher by 0.019

≫ Check for the suitability of the model

Pair of hypotheses:
H0: The regression model is not appropriate
H1: The regression model is suitable
From the EViews results, we see that P-value = 0.000 < 0.05 → Reject H0, with a significance
level of 5%, the regression model is appropriated.

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≫ Check for perfect multicollinearity

From Table 3, the correlation between dependent variable (GPDI) and independent variables
(FDI and TAX) is very high (0.951 and 0.975 respectively), the same as we expected.
Nevertheless, the correlation among independent variables should not be expected highly. If
the correlation is greater than 0.8, there may exist high multicollinearity.
For example, in our report, the correlation between FDI and TAX is 0.94 (it may exist high
multicollinearity).
Table 6: Variance Inflation Factors
Coefficient Uncentered Centered
Variable Variance VIF VIF
C 0.044565 1897.922 NA
LOG(FDI) 0.001749 16637.40 13.94594
LOG(TAX) 0.004242 9946.231 16.07134
U 1.45E-05 24.41514 2.435722
RECESS 0.001299 18.44018 12.29345
U*RECESS 3.09E-05 19.96372 14.20291
Centered VIF of LOG(FDI) and LOG(TAX) are very high (>10), there may exist high
multicollinearity between these two variables.
However, the p-value (t-stat) in all models implies that LOG(TAX) has high meaning in the
contribution of overall model. Therefore, we decided to keep both LOG(FDI) and LOG(TAX)
in our models.

≫ Ramsey test for error functional form

Test hypothesis:
H0: The original model no error functional form
H1: The original model has omitted variable
Inspection results:
Ramey RESET test for 1 fitted term
Value df Probability
t-statistic 1.156373 83 0.2508
F-statistic 1.337199 (1, 83) 0.2508
Likelihood ratio 1.438418 1 0.2304
According to this result, P–value (F-test) = 0.2508 is greater than the significance level of
0.05, which is not enough basis to reject H0, the original model has the correct functional
form and there are unbiased estimator coefficients.

≫ White test for heteroskedasticity (no cross term)

Test hypothesis:
H0: The original model has homoskedasticity
H1: The original model has heteroskedasticity
Inspection results:
White Heteroskedasticity test for no cross term
F-statistic 1.536812 Prob. F(5,84) 0.1872

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Obs*R-squared 7.542921 Prob. Chi-Square(5) 0.1833

Scaled explained SS 7.329670 Prob. Chi-Square(5) 0.1973
According to this result, P-value (F-test) = 0.1872 is greater than the significance level of
0.05, which is not enough basis to reject H0, the original model does not have
heteroscedasticity and there are efficient estimator coefficients.

≫ Check for autocorrelation

- Durbin Watson test for first order serial correlation:
DW=0.512 → 𝜌 ≈ 0.774, there is a positive serial correlation order 1
- Breusch-Godfrey test for second order serial correlation:
Test hypothesis:
H0: The model has no serial correlation order 2
H1: The model has serial correlation order 2
Inspection results:
Breusch-Godfrey Serial Correlation LM Test:
F-statistic 51.43135 Prob. F(2,82) 0.0000
Obs*R-squared 50.07848 Prob. Chi-Square(2) 0.0000
According to this result, P-value (F-test) = 0.000 is less than the significance level of 0.05
→ Reject H0, the model has serial correlation order 2.

≫ Jarque-Bera test for normally distribution of error

Test hypothesis:
H0: The model has normally distribution of error
H1: The model has no normally distribution of error
Inspection results:
Jarque- Probabilit
Mean Median Maximum Minimum Std. Dev. Skewness Kurtosis Bera y
-1.44E-15 -0.002804 0.122991 -0.101146 0.044661 0.255759 3.231009 1.181307 0.553965
According to this result, P-value (F-test) = 0.554 is greater than the significance level of 0.05,
which is not enough basis to reject H0, the original model has normally distribution of error.

≫ Compare to the expectations

From the estimated results, it is clear that when FDI and government tax increase lead to an
increase in GPDI. Besides, when unemployment rate rises or the economy is in recession
periods, which will lead to a drop of GPDI. All are similar to expectation,

3.3. Results meaning analysis

Questions answer:
- Firstly, what theoretical content is related to the Gross Private Domestics Investment of
United State?
From the above regression analysis results, it shows that all models are appropriate, however
models containing interest rates still violates the White test, so we removed variable I in

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Econometrics Asignment

some models. So there are important relationships between FDI and some factors, such as
Foreign Direct Investment, government tax receipts and unemployment rate.
It is suspected that Diminishing Return to Scale will exist when FDI and taxes increase to a
certain level, so the log-log functional form is preferred.
- Secondly, are there any special interactions between these factors and Gross Private
Domestics Investment of United State?
Comparing models [6] and [7], model [6] include the interaction of unemployment rate and
recessions, there are unbiased and almost efficient of estimator coefficients. The results are
quite surprising, it can be seen that during the economic crisis, when there was no impact of
the independent variables and when there was a change in the unemployment rate it had a
greater impact, specifically on employment. GPDI is higher than when there was no financial
crisis, thereby slightly reducing the impact of FDI on GPDI.
Possible causes are:
- Stimulus Packages: Many countries may deploy economic stimulus packages to
support businesses and people. These measures could include tax breaks, or providing
direct financial support. These measures can stimulate investment and production,
thereby increasing GDPDI. It can also be seen from the data that taxes has larger
effect on GPDI than other variables, also the correlation of FDI and tax repceipts is
quite high.
- Stock market: In some cases, the stock market can reflect strange growth amid a crisis.
This may be due to investors' expectations of economic recovery, leading to
investments in companies with growth potential.
- Flexible monetary policy: If the central bank implements flexible monetary policy and
reduces interest rates, this can stimulate spending and investment, helping to lift
economic activity and increase GDP.
It can be seen that the US has had a number of policies to limit the heavy decline in domestic
investment during periods of financial crisis.

4. Summary
The author group chose the topic "Factors affecting Gross Private Domestics Investment of
United State from the first quarter of 2001 to second quarter of 2023". Collecting data from
90 quarters in the field of United State’s macroeconomics on the Federal Reserve Economic
Data website, including 5 variables: GPDI, FDI, TAX, U, RECESS. Then use EVIEW 10
software to see the correlation between variables, estimate and select the best model for the
topic.
* Summarize the implementation process
- Give a hypothetical model
- Researching and studying US newspapers
- Making questions and hypothesis
- Collecting data and expect

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Econometrics Asignment

- Running estimation and statistics

- Analyzing data and compare with initial expectations
- Summarizing results and conclusions
- Making report and self-assessment
* Tools
Using “EViews 10” software to estimate, “Excel” and “Word” on my.sharepoint.com to
complete the assignment.
* Our capacity limitations
-Our assignment may exist some mistake because of our skill limitations.
-There are some violations in OLS assumptions and we tried to fix it by changing the
functional forms, removing or adding variables, re-estimating the standard error.
-The data does not completely efficient.
* Reference resources
We have information collected and data from economic statistics websites in US and have
chosen the website https://fred.stlouisfed.org/ to get the most accurate data.
- Printed documents
[1] Wooldridge J.M (2016), Introductory Econometrics. A modern Approach, 6th
Editon, Cengage Learning.
- Online documents
[3] U.S. Bureau of Economic Analysis, Gross Private Domestic Investment [GPDI]
(From Q1/2001 to Q2/2023) retrieved from FRED, Federal Reserve Bank of St. Louis;
https://fred.stlouisfed.org/series/ ( access date : 13/10/2023)
[4] Pratibha S.Gaikwad, Gholamreza Fathipour (2013) The Impact of Foreign Direct
Investment (FDI) on Gross Domestic Production (GDP) in Indian Economy,
Information Management and Business Review Vol. 5, No. 8, pp. 411 – 416
[5] https://www.investopedia.com/articles/economics/08/past-recessions.asp
[6] Donny Susilo (2018) The Impact of Foreign Direct Investment on Economic
Growth (a Causal Study in the United States).
[7] Shrikant Panigrahi, Noor Azizan, Shahryar Sorooshian, Prabha Thoudam (2020)
Effects of Inflation, Interest, and Unemployment Rates on Economic Growth:
Evidence from ASEAN Countries.

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Econometrics Asignment

APPENDIX

Model [6]
Representations:
Estimation Command:
LS LOG(GPDI) C LOG(FDI) LOG(TAX) U RECESS U*RECESS

Estimation Equation:
LOG(GPDI) = C(1) + C(2)*LOG(FDI) + C(3)*LOG(TAX) + C(4)*U + C(5)*RECESS +
C(6)*U*RECESS

Substituted Coefficients:
LOG(GPDI) = 1.14978960124 + 0.149019780837*LOG(FDI) +
0.642427754589*LOG(TAX) - 0.029781326913*U - 0.149763668376*RECESS +
0.0185807532201*U*RECESS

Estimation outputs:
Dependent Variable: LOG(GPDI)
Method: Least Squares
Date: 11/04/23 Time: 12:04
Sample: 2001Q1 2023Q2
Included observations: 90
Variable Coefficient Std. Error t-Statistic Prob.
C 1.149790 0.211105 5.446542 0.0000
LOG(FDI) 0.149020 0.041818 3.563555 0.0006
LOG(TAX) 0.642428 0.065131 9.863644 0.0000
U -0.029781 0.003802 -7.833050 0.0000
RECESS -0.149764 0.036041 -4.155324 0.0001
U*RECESS 0.018581 0.005561 3.341525 0.0012
R-squared 0.973582 Mean dependent var 7.950105
Adjusted R-squared 0.972010 S.D. dependent var 0.274774
S.E. of regression 0.045971 Akaike info criterion -3.257291
Sum squared resid 0.177516 Schwarz criterion -3.090637
Log likelihood 152.5781 Hannan-Quinn criter. -3.190087
F-statistic 619.1323 Durbin-Watson stat 0.512135
Prob(F-statistic) 0.000000

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