Box-Jenkins ARIMA approach to predicting net FDI inflows in Zimbabwe

Nyoni, Thabani (2018): Box-Jenkins ARIMA approach to predicting net FDI inflows in Zimbabwe.

Abstract

This study attempts to model and forecast net FDI inflows in Zimbabwe over the next 2 decades. Spanning from 1980 – 2017, annual time series data for net FDI inflows in Zimbabwe was used. The ADF test indicates that FDI data is I (1). The study identifies the minimum AIC value and subsequently presents ARIMA (1, 1, 1) model as the optimal model to forecast FDI in Zimbabwe. The ADF test also indicates that the residuals of the ARIMA (1, 1, 1) model are I (0), thus confirming its adequacy. A diagnosis of the inverse roots of AR/MA polynomials confirms that our estimated model is stable. The predicted net FDI inflows over the next 2 decades show a relatively poor and unimpressive growth trend. Amongst the main policy prescriptions, the study recommends that policy makers in Zimbabwe ought to come up with investor – friendly policies in order to attract the much needed FDI.

• Item Type: MPRA Paper
• Language: English
• Keywords: AR, ARIMA, ARMA, Foreign Direct Investment (FDI), forecasting, MA, Zimbabwe
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; G - Financial Economics > G1 - General Financial Markets

References

1. Abdul, H. S & A-Samarrai, H (1998). A seminar on foreign direct investment justification and notification, Baghdad, http://www.ijbms.com/Vol5/3/8-abhijit-biswas.pdf

2. Abdullah, L (2012). ARIMA model for gold bullion prices forecasting, International Journal of Advances in Applied Sciences, 1 (4): 153 – 158.

3. Alnaa, S. E & Ahiakpor, F (2011). ARIMA (autoregressive integrated moving average) approach to predicting inflation in Ghana, Journal of Economics and International Finance, 3 (5): 328 – 336.

4. Azam, M (2010). An empirical analysis of the impacts of exports and foreign direct investment on economic growth in South Asia, Interdisciplinary Journal of Contemporary Research in Business, 2 (7): 249 – 258.

5. Bayai, I & Nyangara, D (2013). An analysis of determinants of private investment in Zimbabwe for the period 2009 – 2011, International Journal of Economics and Management Sciences, 2 (6): 11 – 42.

6. Biswas, A (2015). Forecasting net Foreign Direct Investment inflows in India: Box – Jenkins ARIMA Model, International of Management and Business Studies, 5 (3): 49 – 58.

7. Borensztein, E., Gregorio, J. D & Lee, J. W (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45: 115 – 135, https://doi.org/10.1016/S0022-1996(97)00033-0

8. Box, G. E. P & Jenkins, G. M (1970). Time Series Analysis, Forecasting and Control, Holden Day.

9. Box, G. E. P & Jenkins, G. M (1974). Time Series Analysis, Forecasting and Control, Holden Day.

10. Box, G. E. P & Jenkins, G. M (1976). Time Series Analysis: Forecasting and Control, Revised Edition, Holden Day.

11. Chingarande, A., Maduva, B., Karambakuwa, R. T., Denhere, W., Tafirei, F., Zivanai, O., Muchingami, L & Mudavanhu, V (2012). The impacts of interest rates on foreign direct investment: a case study of the Zimbabwean economy (February 2009 – June 2011), International Journal of Management Sciences and Business Research, 1 (5): 1 – 24.

12. Dailami, M & Walton, M (1992). Private investment, government policy and foreign capital: a study of the Zimbabwe experience, World Bank, Washington DC.

13. Dhingra, V. S., Bulsara, H. P & Ghandhi, S (2015). Forecasting foreign institutional investment flows towards India using ARIMA modeling, Management, 75 (2015): 13 – 26.

14. Dritsaki, C (2015). Forecasting real GDP rate through econometric models: an empirical study from Greece, Journal of International Business and Economics, 3 (1): 13 – 19.

15. Dunning, J. H (1981). International production and multinational enterprise, George Allen & Unwin, London.

16. Dunning, J. H (2001). Theories of foreign direct investment: multinational enterprises and the global economy, Cheltenham, pp: 52 – 76.

17. Firebaugh, G (1992). Growth effects of foreign domestic investment, American Journal of Sociology, pp: 105 – 130, http://dx.doi.org/10.1086/229970

18. Fry, M (1999). Some lessons for South Asia from developing country experience with foreign direct investment, The World Bank, Washington DC.

19. Gwenhamo, F (2009). Foreign direct investment in Zimbabwe: The role of institutional factors, University of Cape Town, Working Paper No. 144.

20. Huwiler, M & Kaufmann, D (2013). Combining disaggregate forecasts for inflation: The SNB’s ARIMA model, Swiss National Bank Economic Studies, No. 7.

21. Jenkins, C (1998). Private investment, government policy and foreign capital: a study of the Zimbabwe experience, Journal of African Economies, 7 (1): 34 – 61.

22. Jere, S., Kasense, B & Chilyabanyama, O (2017). Forecasting foreign direct investment to Zambia: a time series analysis, Scientific Research Publishing – Open Journal of Statistics, 7 (2017): 122 – 131.

23. Khan, S (2007). Aid flow to Bangladesh and the question of accountability of CSOs at national level to the people they serve, http://www.unnayan.org/news/files/CSO.pdf

24. Lombardo, R & Flaherty, J (2000). Modeling new private housing starts in Australia, Pacific – Rim Real Estate Society Conference, University of Technology Sydney.

25. Mafusire, A (2004). An empirical analysis of the export – FDI growth nexus in Zimbabwe, Botswana Journal of Economics, 2: 19 – 102.

26. Mello, D. L. R (1999). Foreign direct investment led growth: evidence from times and panel data, Oxford Economic Papers, 51 (1): 133 – 151, http://dx.doi.org/10.1093/oep/51.1.133

27. Meyler, A., Kenny, G & Quin, T (1998). Bayesian VAR models for forecasting Irish inflation, Central Bank of Ireland, Technical Paper 4.

28. Moyo, T (2013). The impact of foreign direct investment on economic growth: The case of Zimbabwe (2009 – 2012), International Journal of Economics, Finance and Management Sciences, 1 (6): 323 – 329.

29. Muzurura, J (2016a). Determinants of foreign direct investment (FDI) in Zimbabwe: what factors matter? Research in Business and Economics Journal, 11 (2016): 1 – 19.

30. Muzurura, J (2016b). Is public corruption the main cause of low foreign direct investment in Zimbabwe? British Journal of Economics, Finance and Management Sciences, 13 (1): 1 – 18.

31. Nyoni, T & Bonga, W. G (2017). An Empirical Analysis of the Determinants of Private Investment in Zimbabwe, Dynamic Research Journals Journal of Economics and Finance (DRJ – JEF), 2 (4): 38 – 54.

32. Nyoni, T (2017). The Curse of Corruption in Zimbabwe, International Journal of Advanced Research and Publications, 1 (5): 285 – 291.

33. Nyoni, T (2018). A Critical Diagnosis of the Success/Failure of Economic Policies in Zimbabwe During the Banana (1980 – 1987) and the Mugabe (1988 – 2017) Administrations: Learning the Hard Way, Dynamic Research Journals Journal of Business and Management (DRJ – JBM), 1 (2): 27 – 33.

34. Pradhan, R., Saha, D & Gupta, V (2011). Determinants of FDI in SAARC countries: an investigation using panel VAR model, Information Management and Business Review, 3 (2): 117 – 126.

35. Prasanna, P. W. L (2015). Modeling and forecasting Foreign Direct Investment (FDI) into SAARC for the period of 2013 – 2037 with ARIMA, International Journal of Business and Social Science, 6 (2): 264 – 272.

36. Quader, S. M (2009). Foreign direct investment in Bangladesh: an empirical analysis on its determinants and impacts, Munich RePEc Archive (MPRA), Paper No. 26134.

37. Romer, P (1993). Idea gaps and object gaps in economic development, Journal of Monetary Economics, 32 (3): 543 – 573.

38. Shahini, L & Haderi, S (2013). Short – term GDP forecast: One quarter to one year ahead, European Scientific Journal, 9 (34): 198 – 208.

39. Sikwila, M. N (2014). Foreign direct investment: does it matter? A case for Zimbabwe, Research in Business and Economics Journal, 10 (2014): 1 – 12.

40. UNCTAD (2014). Foreign direct investments in Africa, United Nations, New York & Geneva.

41. Vernon, R (1966). International investment and international trade in the Product Cycle, Quarterly Journal of Economics, 80: 190 – 207.

42. Wang, P (2009). Financial Econometrics, 2nd Edition, Routledge – Francis & Taylor Group, New York.

43. World Bank (2015). Foreign direct investment in Africa, World Bank, Washington DC.

44. Zhang, G. P (2003). Time Series Forecasting using a hybrid ARIMA and neural network model, Neurocomputing, 50 (2003): 159 – 175.

45. Zhang, H (2013). Modeling and forecasting regional GDP in Sweden using autoregressive models, Working Paper, Hogskolan Dalana University, Sweden.