Name: Syed Hashim Muzaffar
Course: ECON3807A (Introduction to Econometrics)
Assignment: Research Project Proposal.
Instructor: Dr. Ahmed Aziz.
Q1. A short literature review related to your topic (try to find out an empirical economic
research topic that can be tested empirically using econometric tools).
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Data source and relevant variables from the data,
And a functional form of the regression you want to estimate.
Ans: “Relationship between economic growth and foreign direct investment (FDI)”.
FDI refers to investments made in domestic firms or assets by foreign corporations,
such as constructing factories, acquiring already existing enterprises, or purchasing
stocks and bond. Information on FDI inflows and economic growth rates over time and
many nations to experimentally test this theory.
Calculating the causal effect of FDI on economic growth using econometric methods like regression analysis. Controlling for additional variables that could have an impact on economic development, such as shifts in domestic investment, shifts in the labour force and human capital, shifts in institutional quality, and shifts in trade policy, can
be utilized or another strategy for examining the link between FDI and economic expansion entail investigating how FDI affects particular industries or areas within a nation.
For instance, how FDI in the manufacturing sector influences regional economic development.
By identifying various routes via which FDI could have favorable or unfavorable effects on economic growth, this could assist create a more comprehensive understanding of the link between FDI and economic growth.
Data Sources:
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World Bank's World Development Indicators (WDI)
United Nations Conference on Trade and Development (UNCTAD)
Database on FDI International Monetary Fund (IMF)
International Financial Statistics (IFS) National statistical agencies, such as the
US Bureau of Economic Analysis or Eurostat Relevant
Variables:
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FDI inflows: This variable measures the amount of foreign investment that flows
into a country's economy from other countries. It can be measured in terms of total inflows or by sector, source country, or other characteristics.
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Economic growth: This variable measures the change in a country's gross domestic product (GDP) over time, which is often used as an indicator of economic
growth. It can be measured in terms of real GDP, per capita GDP, or sectoral
GDP.
Control variables: Other variables that may affect economic growth and be relevant to include in the analysis are: investment (domestic and foreign), human
capital (measured by education levels or labor force participation rates), inflation,
trade openness, natural resources, political stability, and quality of institutions.
The functional form of the regression for testing the relationship between foreign direct
investment (FDI) and economic growth can take different forms depending on the specific research question, data, and assumptions. Here are a few examples of possible
functional forms of the regression:
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Linear regression: The simplest functional form would be a linear regression of
economic growth on FDI inflows, controlling for relevant variables. For example,
the regression equation could be:
Economic growth = α + βFDI + control variables + error term
where α is the intercept, β is the coefficient of FDI inflows, and the control variables include variables such as investment, human capital, inflation, trade openness, natural resources, political stability, and quality of institutions.
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Non-linear regression: The relationship between FDI inflows and economic
growth may not be linear, but instead may exhibit a non-linear pattern. In this
case, a non-linear regression model could be used, such as a polynomial or logarithmic function. For example:
Economic growth = α + β1FDI + β2FDI^2 + control variables + error term
Or
Economic growth = α + β1ln(FDI) + control variables + error term
where β1 and β2 are coefficients of FDI and FDI squared, or ln(FDI), respectively.