Econometric research work: “Research of dependence of investments on the disposal income and gross capital formation on example of 5 countries with the highest HDI (according to Klein model)”

“RESEARCH OF DEPENDENCE OF INVESTMENTS ON THE DISPOSAL INCOME AND GROSS CAPITAL FORMATION ON EXAMPLE OF 5 COUNTRIES WITH THE HIGHEST HDI (ACCORDING TO KLEIN MODEL)”

In this research work I have constructed econometric models of this function for the analysis of the Foreign Direct Investment formerly gross domestic investments and the influence GROSS fixed Capital Formation and investments on its value.

So, during the work all parameters will be estimates and will be shown their relationships and will be made some conclusion on the base of experimental work.

The Initial form of our model that we estimate in this work is:

It = ^b о + b i ^ t + b 2^t- i + t_t

(It) is the Foreign Direct Investment, net inflows or just investment. That can be defined an investment made by a company or entity based in one country, into a company or entity based in another country.

(Vt) - is disposable income that is defined as the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.

(K_t_ J - is GROSS fixed Capital Formation, which refers to the net increase in physical assets (investment minus disposals) within the measurement period. It does not account for the consumption (depreciation) of fixed capital, and also does not include land purchases. It is a component of expenditure approach to calculating GDP.

In this study, we consider a relatively long period of time. This study is important from the point of view of the analysis of dependence in investment flows in highly strong economies with high HDI.

In this paper we study the following countries: Norway, Australia, Netherlands, Switzerland and USA. The main methods of research are methods of analysis of econometric models and simulation methods.

As a result of research we find out about, as far as are adequate econometric models, and suggests the possibility of FDI flows and its connection with income.[1]

An important step in this research is to collect relevant data on the three variables. The World Bank has long been leading a detailed and reliable statistics, it is this resource is the data source. [2]

Based on the results of research we have found out following (Figure 1):

Figure 1. Results of the research

Now when we make all tests we can make a conclusion about the adequacy of these models and about Gauss-Markov conditions, which we confirm. First of all I want to admit that R-test and F-test we passed by all models, it means approximate only from 40-50% of all variations of the dependent variables are explained by the independent variables. Only near 5% are the results of the other sources such as random error or variables not included in the model. And out R^2 is not random and specification of out models is high. [3]

However T-test show us that in all countries we have insignificant coefficients. Moreover only USA passed GQ test which means that their residuals is homoscedastic and we can use OLS technique in order to estimate parameters of the model. Also Switzerland and Australia have no autocorrelation that means we cant use OLS method as one of the Gauss-Markov Conditions was rejected. Considering adequacy we see that Norway model is not adequate and it cant make a proper predictions and for other countries we can suppose that it can because there models ae adequate. No country that pass all the test and don’t have insignificant coefficients, their residuals are homoscedastic and have positive autocorrelation that means that all Gauss-Markov conditions are confirmed and also its model is adequate and can make proper prediction with small error. [4]

It means that Kleins Investment model can’t be used for predictions of investment in this countries. And for this countries I can advise try to change variables in order to not have insignificant coefficients and estimate if they have any connection with investments. Or just to reply all the variables with insignificant coefficients. And if in result the model will not be adequate I can make a conclusion that this function cant be applied for this countries. And for those countries that are not met Gauss-Markov conditions I can advise to try to use Weighted least square method instead of OLS. [5]