Topic factors affecting gross private domestics investment of united state from 2001 to 2023

Trang 1 NATIONAL ECONOMICS UNIVERSITY Faculty of Economics ---  --- ASSIGNMENT SUBJECT: ECONOMETRICS Topic: Factors affecting Gross Private Domestics Investment of United State from 2

NATIONAL ECONOMICS UNIVERSITY

Faculty of Economics

-  -

ASSIGNMENT SUBJECT: ECONOMETRICS

Topic: Factors affecting Gross Private Domestics Investment of

United State from 2001 to 2023

Group: 11 Instructor: Bui Duong Hai

Ha Noi, 2023

No Student ID Name Contribution Tỷ lệ %

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

Point Topic -

Section References Data Outcome Annalysis Presentation

9 - 10

7 - 8

5 - 6

3 - 4

0 - 2

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

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?

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

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

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+ 𝛽2𝐹𝐷𝐼 + 𝛽3𝑇𝐴𝑋 + 𝛽4𝐼 + 𝛽5𝑈 + 𝛽6𝑅𝐸𝐶𝐸𝑆𝑆 + 𝑒 Sample Regression Model

𝐺𝑃𝐷𝐼 ̂ = 𝛽 ̂ + 𝛽1 ̂𝐹𝐷𝐼 + 𝛽2 ̂𝑇𝐴𝑋 + 𝛽3 ̂𝐼 + 𝛽4 ̂𝑈 + 𝛽5 ̂𝑅𝐸𝐶𝐸𝑆𝑆6

Table 1: The variables in researched models

sign

Dependent variable

Gross Private Domestic Investment

GPDI Billions of Dollars

Independent variables

H1 Foreign Direct Investment FDI Millions of Dollars +

H2 Tax receipts of Federal

Government

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

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: H 0 : The variable distributes in normality

H 1 : The variable does not distribute in normality

If p-value (Jarque-Bera test) < 5% → Reject H 0: 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

GPDI

685102.6 1.000000 -

FDI

1.12E+09 2.03E+12 0.950729 1.000000 0.0000 -

TAX

431481.4 7.17E+08 286008.5 0.974754 0.940206 1.000000 0.0000 0.0000 -

I

21.09654 -444093.2 -25.45207 2.764204 0.015330 -0.187255 -0.028625 1.000000 0.8860 0.0772 0.7888 -

U

-806.7569 -759135.1 -449.7584 -1.842383 3.956563 -0.490011 -0.267549 -0.422796 -0.557103 1.000000 0.0000 0.0108 0.0000 0.0000 -

RECESS

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

-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+ 𝛽1𝐹𝐷𝐼 + 𝛽2𝑇𝐴𝑋 + 𝛽3𝐼 + 𝛽4𝑈 + 𝛽5𝑅𝐸𝐶𝐸𝑆𝑆+ 𝑒 Sample regression model:

𝐺𝑃𝐷𝐼̂ = 𝛽̂ + 𝛽0 ̂𝐹𝐷𝐼 + 𝛽1 ̂𝑇𝐴𝑋 + 𝛽2 ̂𝐼 + 𝛽3 ̂𝑈 + 𝛽4 ̂𝑅𝐸𝐶𝐸𝑆𝑆 5

Table 4: Estimated results

C 1001.735 1168.543 375.732 0.624 -0.334 1.14979 0.862 0.913

RECESS -105.023 -84.721 -118.059 -0.039 -0.026 -0.1498 -0.035 -0.042

***

RMSE 103.589 109.842 109.828 129.489 193.621 126.428 132.37 134.019

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

RESET

White heter

[1] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Non-normally distributed random

errors

0.984 103.589 2.864

[2] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Normally distributed random errors

0.982 109.842 3.193

[3] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Non-normally distributed random

errors

0.982 109.828 2.987

[4] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Non-normally distributed random

errors

0.971 129.489 3.314

[5] Auto

correlation

order 1

No omitted variable

Heterosk edasticit

y

Auto correlation order 2

Normally distributed random errors

0.947 193.621 5.235

[6] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Normally distributed random errors

0.974 126.428 3.368

[7] Auto

correlation

order 1

No omitted variable

Homoske dasticity

Auto correlation order 2

Non-normally distributed random

errors

0.969 133.483 3.3197