FDI GDP
FDI
FDI
FDI GDP
Hausman
OLS
FDI GDP
FDI
FDI
20 FDI
v
TABLE OF CONTENTS
C0PYRIuBT N0TICES ................................................................................................................................................ i
ACKN0WLEBuENENTS .......................................................................................................................................... ii
ABSTRACT .................................................................................................................................................................... iii
TABLE 0F C0NTENTS ............................................................................................................................................... v
LIST 0F TABLES ......................................................................................................................................................... vi
LIST 0F FIu0RES ...................................................................................................................................................... vii
CBAPTER 1: Intiouuction ....................................................................................................................................... 1
1.1 Notivation anu Reseaich Questions ..................................................................................................... 1
1.2 Scope anu Limitation ................................................................................................................................... 2
1.S Significance of the Stuuy ............................................................................................................................ S
1.4 0iganization of the Papei ......................................................................................................................... 4
CBAPTER 2: LITERAT0RE REvIEW .................................................................................................................. S
2.1 Intiouuction .................................................................................................................................................... S
2.2 Pievious stuuy ................................................................................................................................................ S
CBAPTER S: Economic Backgiounu In Cambouia, vietnam anu Laos ................................................ 9
S.1 Benefits anu Bisauvantages of FBI ........................................................................................................ 9
S.2 FBI in Cambouia, vietnam anu Laos ................................................................................................... 1u
Figuie 1: Foieign Biiect Investment, net inflows (% of uBP) .............................................................. 11
S.2.1 FBI in Cambouia ...................................................................................................................................... 11
S.2.2 FBI in vietnam .......................................................................................................................................... 12
S.2.S FBI in Laos .................................................................................................................................................. 1S
S.S uBP in Cambouia, vietnam anu Laos ................................................................................................. 14
CBAPTER 4: BATA ANB RESEARCB NETB0B0L0uY ............................................................................. 1S
4.1 Bata ................................................................................................................................................................... 1S
4.2 Reseaich Nethouology anu Besign Appiopiiateness ................................................................. 17
4.2.1 Nouel with net inwaiu FBI ................................................................................................................. 19
4.2.2 Compaie Nouel with inwaiu FBI anu with FBI stock ............................................................. 2u
4.2.S Nouel with Chinese FBI ........................................................................................................................ 21
CBAPTER S: ENPIRICAL FINBINuS ................................................................................................................. 22
S.1 Panel Bata Testing ...................................................................................................................................... 22
S.2 Nouel with Total Inwaiu FBI ................................................................................................................. 22
S.S Compaie Nouel with inwaiu FBI anu FBI stock ........................................................................... 26
S.4 Nouel with Chinese FBI ........................................................................................................................... 28
CBAPTER 6: C0NCL0SI0N ANB REC0NNENBATI0N ............................................................................ S1
Bibliogiaphy ............................................................................................................................................................... S2
Appenuices ................................................................................................................................................................. SS
vi
LIST OF TABLES
Figure Title Page
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vii
LIST OF FIGURES
Figure Title
Page
Figure 1: Foreign Direct Investment, net inflows (% of GDP) 11
Figure 2: GDP growth (annual %) 14
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1
CHAPTER 1: Introduction
1.1 Motivation and Research Questions
Economic development is a main concentration of every developing nation to get rid
of poverty and to move to development in the society. Annual economic development
can be easily recognized by GDP (Gross Domestic Products), which can be defined
as a measurement of one nation's total economic activity. More precisely, GDP
represents the monetary value of all products and services produced in one country
over a period of time. The commonly known equation is GDP =
Household Consumption + Government Expenditures + Investment + (Exports
Imports).
Apart from common factors of GDP, many scholars have more concentration on other
determinants that take part into the economic growth. Foreign Direct Investment
(FDI) has been also recognized to be one of the most significantly indispensable
economic growth drivers especially in the developing countries. Therefore, the
relationship of FDI and GDP representing to the economic growth indicator is a
popular researching economic study.
By studying the FDIGDP relationship within different individual countries or within
multiple countries, different researchers make different conclusion whether it is
positive or negative relationship, whether it is shortterm or longterm relationship,
etc. Different finding results are commonly come from selecting different explanatory
variables such as policy effectiveness and current economic development of one
country, level of productivity, drawbacks of negative Balance of Payment from profit
and capital repatriation, etc. From different previously available studies, there is no
universal conclusion on the same direction of FDI on GDP. Therefore, it is another
great yield of this current research paper to study the relationship FDIGDP within
crosscountries of Indochina countries namely Cambodia, Vietnam, and Laos. Due to
2
shortage of currently available data of these three countries, the main result of
regression would be into panel data analysis.
This research paper is based on two main economic growth theories including
neoclassical theory and endogenous theory of growth. Based on these two theories,
the study aims to form hypotheses as follows.
H1: There is a positive and statistically significant relationship between net
inward FDI and GDP in the panel data.
H2: There is a contemporaneous relationship between net inward FDI and
GDP in the panel data.
H3: There is a positive and statistically significant relationship between
FDI and GDP in the panel data regardless to different types of data of FDI
H4: There is a positive and statistically significant relationship between
FDI from China and GDP to crosscheck the result with H
1
.
1.2 Scope and Limitation
This paper aims to examine the relationship between Foreign Direct Investment (FDI)
and Gross Domestic Product (GDP) as a measurement of economic growth within
three countries including Cambodia, Laos, and Vietnam together from 1993 to 2012
by using crosscountry panel data analysis. Different data of FDI will be used such as
total inward FDI, total FDI stock, and FDI flowing from China into these three
countries to examine the impacts of different types of FDI on local economic growth.
Specifically, the paper aims to address four main objectives as follows:
Investigate whether the real relationship of net inward FDI and GDP is
positive.
Investigate whether there is contemporaneous relationship between net
inward FDI and GDP in the panel data.
Investigate whether the relationship of FDI and GDP remains the same
when different types of FDI substitute into a explanatory variable.
Ensure that the relationship FDIGDP remains although FDI from China
S
replaces the independent variable FDI.
The claim from previous studies about results of the negative or positive relationships
of FDI and GDP are based on whether inward FDI or FDI stock is chosen. Therefore,
this paper aims to confirm all types of FDI data namely inward FDI and FDI stock
while amount of inward FDI from China into these 3 countries would be backtesting.
By using three different tests, the results from the Hausman Testing confirm that
Fixedeffect estimator is appropriate. Therefore, the fixed effect testing is further used
to give the result of the equation.
By using hypothesis of FDI leading to GDP as theoretical framework, the research
concludes that there is positive effect of FDI on local GDP growth, and the effect
holds for all types of FDI including inward FDI, FDI stock, and FDI from China in
these countries. It proves that FDI is a key economic growth determinant for these
three countries as a whole, which allows these countries to enjoy the economy
prosperity within the twenty years.
However, within panel data regression in Eview7 program, due to only three
countries selected into study, this paper can only have maximum of two independent
variables on the right hand side of equation. It is also worth to note that the trusted
data of FDI and GDP of Cambodia, Vietnam, and Laos is available only from 1993
to 2012. The reasons are that Cambodia suffers civil war and social instability until
early 1990s and these three countries are among least developed and developing
countries. Such a limitation on number of independent variables and period of data,
the implications and analysis would cautiously and selectively apply.
1.3 Significance of the Study
Firstly, by using panel data regression, the current paper aims to extend knowledge
to existing literature by including study of the relationship between FDI and GDP of
4
Indochina countries. Secondly, the findings and implications from this paper can
offer an overview of the historical data and lead to a basic guideline for policymakers
for any more effective policy. Third, the paper provides a justification of whether the
Indochina countries should attract more inflow FDI based on finding results.
1.4 Organization of the Paper
This paper will organize as following. Chapter 2 will present literature review of
related methodology and topic such as the two main theories of the neoclassical
theory, endogenous theory of growth and other empirical findings of previous papers.
Afterwards, economic background in the three countries will present in Chapter 3,
data and research methodology will discuss in Chapter 4. Findings will list in Chapter
5 while Chapter 6 is conclusion.
S
CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
The inward FDI is welcomed by many developing countries due to economic
development contribution in various images. In the short run, great number of people
would be hired for the MNCs production. The spillover of technology, the human
resource via trainings and working standards, the financial maturity, and others would
influence on better productivity and innovation for the local to contribute positive
longrun economy development. However, there would not be always a positive side
of inflow of FDI into every country. For further understanding about this issue,
empirical studies on previous researches would be listed down.
Exogenous growth model are also known as the Solow growth model or the Neo
classical model, created by Robert Solow, Nobel Prize Winner in 1987 for this model.
It explains that growth of FDI improves the productivity quality and quantity, the
capital flow, and the technological improvement, which ultimately accrues the
economical output in long run. Nevertheless, the exogenous model fails to explain
reasons and process of technological development through FDI. This is called
endogenous growth theory. In the endogenous growth theory, impact of FDI on the
economic growth is adduced by knowledge spillover in four ways (Blomstrom and
Kokko, 1998). The domestic firms update higher and newer technologies following
the foreign subsidiaries. Attractive career offers from the domestic firms to absorb
key human resources from the MNCs and the training courses also go to other local
staffs. This result is also confirmed by using fixed effects estimator with country
specific time trends and mean group estimates. On average, FDI also has a significant
longrun impact on GDP in spite of any level of development.
2.2 Previous study
Lim GuechHeang and Pahlaj Moolio (2013) study relationship between GDP and FDI
in Cambodia over 19 years from 1993 to 2011. They use simple regression analysis,
6
Augmented DickeyFuller test, DurbinWatson test, BreuschGodfrey Serial
Correlation LM test, BreuschPaganGodfrey test, and JarqueBera test. Result is
shown that there is a positive relationship of FDI and GDP in Cambodia, which
mainly contributes to employment for the local people, capital accumulation, and
export. However, Cambodia has not thrived the fullest of FDI benefits and
technology spillover.
Net Seila (2011) analyzes the effect of FDI on the economic growth of three
countries, namely Cambodia, Vietnam, and Thailand from 1987 until 2008 by using
panel data and time series. Result gives that FDI contributes productivity. From his
pooled estimation, there is a longrun effect of FDI growth. Specifically, FDI has
crowdingin effect on domestic investment in Vietnam and Thailand yet only neutral
effect in Cambodia. Based on his examination on FDI data by General Statistical
Offices of Vietnam, FDI in Vietnam contributes to more industrialization
development, export, job opportunities, and government income, boost more R&D
activities, and gives massive advantages to stateowning and domestic firms.
A study of FDI and economic growth by Nguyen Phi Lan (2006) by using 61
Vietnamese provinces in panel data testing from 1996 to 2003 shows the result of a
positive and statistically significant effect of FDI on the economic growth while the
economic growth of Vietnam is an important reason for more FDI inflows into
Vietnam too.
Henrik Hansen and John Rand (2006) study causal relationship between FDI and
economic growth of 31 developing countries from three continents over the time
19702000 as their sample. Using a mean group estimator and a model specification
that is aligned with the standard neoclassical growth model, they conclude that there
is a strong causal link from FDI to GDP matching well with the expected impact in a
standard Solow growth model. Theories of exogenous growth and endogenous
growth are often used in previous research papers to explain FDIGDP relation.
7
Likewise, NairReichert and Weinhold (2001) test causality for crosscountry panels
by using data of 24 countries from 1971 to 1995. Based on mixed fixed and random
(MFR) coefficient approach, they find out that FDI generally has significance on
growth although it varies result in different countries.
Although all previously mentioned researches indicate the positive GDPFDI
relationship, Carkovic and Levine (2002) study the inward FDI impact on the
economic growth by controlling for other determinants and potential biases induced
by endogeneity, countryspecific effects, and the inclusion of initial income in OLS
and panel estimator testing. Result shows that exogenous FDI does not influence on
the economic growth. The coefficient of FDI is not stable in the panel data, varying
from 323 (when controlling for initial income, schooling, and inflation) to 34 (when
controlling for initial income, schooling, and financial development). The coefficient
on FDI is still unstable when their regressions are limited to have the same number of
observations. Their conclusion claims that previous macroeconomic studies that find
a positive relationship of FDI and the growth, do not fully control for endogeneity,
countryspecific effects, and the inclusion of lagged dependent variables.
Another research studies relationship of FDI and economic growth in 15 East Asian
countries covering three main levels of income group from 19902009 based on time
series. As a result, there is no necessity of FDI to boost economic growth and the
positive impact of FDI on the economic growth only if the countries had a certain
economic conditions (Polpat Kotrajaras, 2010).
De Mello (1999) studies impact of FDI to growth in 32 countries including 17 non
OECD countries based on timeseries and panel data estimations. By using fixed
effects regressions and countryspecific intercepts, he finds out that there is no
causation of FDI to growth in his nonOECD sample, and there would be a negative
shortrun impact of FDI on GDP based on the mean group estimator. Foreign
enterprises not only demand standardized working output, but also have particular
8
working deadline to accomplish.
These previous research papers can be concluded that many countries have the
positive causality of FDI and GDP, whereas negative impact of FDI and GDP also
can be found in some countries, mainly based on their selected variables and testing
methods
9
CHAPTER 3: Economic Background in Cambodia, Vietnam and Laos
3.1 Benefits and Disadvantages of FDI
FDI is one of the poverty eradication mechanisms by offering mutual benefits to
MNCs (Multinational Corporations) and host countries. FDI is defined as net inflows
of foreign investment into other countries; it includes equity capital, reinvestment of
earnings, other longterm capital and shortterm capital as shown in the balance of
payments (Henrik Hansen and John Rand, 2006). With the existence of FDI, the
MNCs have benefited from cheap labor wage and friendly incentives from host
countries. Those incentives include free renting of a certain property, tax free, and so
forth. For decades, FDI has been one of the means of generating more employment,
higher wage opportunities, more internationalized working opportunities and
environment, better domestic productivity, greater human capacity development, and
technology spillover. In long term, increasing FDI growth rate can provide more
baronial benefits to the host FDI countries by accumulating domestic salary standard,
making more efficient domestic product, and narrowing foreigndomestic product
quality and foreign exchange rate gaps.
However, potential disadvantages of inward FDI are significantly noticed. The
Marxist and dependency stances regard FDI as exploitation of the foreign investors
over developing countries. The domestic firms, for instance, may likely experience
unpleasant effects from competing against the foreign MNCs for talent employment
by offering higher salary, better working environment and technology, and more
preference of employees towards international company brands and benefits.
Therefore, the domestic firms are highly likely crowded out by the MNCs with a
great financial loss and chance of bankruptcy. Completely different from expectation
1u
of greater employment from the higher FDI, due to efficient machines, the MNCs
probably hire few numbers of highly educated people with a great amount of salary.
Consequently, it enlarges the gap of wage between highly educated and less educated
people. FDI in some developing and poor countries, in SubSaharan Africa for
instance, also experiences Balance of Payment (BOP) deficits, and sadly, most of the
time, the final profits go back to original MNCs countries while FDI recipient
countries also suffer national loss of tax revenue due to some ineffective FDI
attraction policies and corruption between authority and the MNCs.
3.2 FDI in Cambodia, Vietnam and Laos
Thus, it is not a universal agreement whether there is always a positive relationship of
FDI and GDP in every country. It is important for this current paper to study
uncertainty of FDIeconomic growth by emphasizing the relationship of FDI and
GDP in three developing countries including Cambodia, Laos, and Vietnam as a
whole. Regionally, these countries are developing and neighboring countries in
Southeast Asia and used to be under the colony of France in 19th century, named as
French Indochina. They are also members of ASEAN community (The Association
of South East Asia Nation). They, however, share different economic level and
population.
From the figure 1, net inflow FDI of these three countries has similar pattern, which
FDI (in term of GDP percentage) increased for several years from 1993 until 1996
and again from 2003 until 2007. Therefore, this can conclude that net inflows of FDI
within these countries become the only one hotspot rather individual countries in the
eyes of investors. Simply it means that one country has increased or decreased FDI,
the other have also gained more or less FDI at the same time.
11
Figure 1: Foreign Direct Investment, net inflows (% of GDP)
3.2.1 FDI in Cambodia
Cambodia suffered political unrest and Pol Pot Regime from 1970 to 1979, and only
until the late1980s did the country begin to stabilize again. After political and
economic stabilization, this country had 7% of annual GDP growth rate for over these
20 years despite the fact of booming FDI growth (28 times of growing amount of FDI
in 2012 and of in 1993). It shows limitation of gaining full benefits of FDI in this
country. According to a report of USAID, Cambodia and the U.S. signed a Bilateral
Textile Agreement (BTA) in 1999 for labor standard promotion. According to the
report from the U.S. embassy in Vietnam, the BTA can shortly refers to commitment
of the partner countries to produce specific goods to export into the U.S. market with
changeable tariffs assessed by satisfaction on the products into the U.S. As a result, it
offered employment for over 250,000, mostly rural women, $1.6 billion export in
2003, equal to 73 percent of Cambodian total export and 40 percent of GDP. The U.S.
and Cambodia signed a bilateral Trade and Investment Framework Agreement
(TIFA) in 2006 and discussed about a promising bilateral investment treaty (BIT) in
2012. From 1994 to 2012, the inward FDI approved by the ministry invested on
tourism (50 percent), industry (24 percent), service (19 percent), and agriculture (7
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percent). CDC (council for development of Cambodia), which has right to review and
permit projects in Cambodia, issued the Report 20092012 that 176 investment
projects were approved with the investment capital of USD 2,511,763,171 million
and employment to 217,265 people in 2012. Economic growth in Cambodia gained
74 percent from FDI from 1998 to 2006. According to CDRI report 2010, the largest
amount of FDI in Cambodia was originally companies from China, which mostly
focused on garment industry and consequently offered a great amount of
employment. Cambodia experienced a remarkable poverty reduction and a huge
employment for the local people. Kubny and Voss (2013) surveyed on 27 Chinese
manufacturers in Cambodia and discovered that 98% of 26,439 employees were
Cambodian. However, jobs in high positions were for Chinese while typical and low
skilled jobs were given to Cambodian employees.
3.2.2 FDI in Vietnam
Vietnam shows a global remark as one of the fastest economic growing countries in
the Southeast Asia region with annual average GDP growth rate of 7 percent after its
economic reform in 1986 with a great success of FDI attraction (Nguyen Ngoc Anh
and Nguyen Thang, 2007). Vietnam became the third biggest inward FDI recipient in
ASEAN after Singapore and Malaysia (Mirza and Giroud, 2004). This great success
is owing to newly marketeconomy hotspot, stable economic and political condition
with governments commitment, cheap and largely available national mineral
resources, young and quite educated human resource, potential domestic market and
export for EU and US markets. After wars and social unrest, in 1986, the Vietnamese
government declared policy "Doi Moi" to reform their economy into "a socialist
oriented market". The investment in Vietnam in 2005 flew into manufacturing
(50.11%), real estate (9.45%), construction (7.81%), hotels and restaurants (7.78%),
transport (7.04%). The U.S. Government put its policy to improve postVietnamwar
bilateral relationships with "trade normalization" (Steve Parker, 2013). With
Vietnamese commitment on trade and investment reform for the BTA of the U.S., the
tariffs on the Vietnam's products dropped from an average of 40 percent to an average
1S
of three percent. Ha Quang Tuyen, head of the National Account System under the
General Statistics Office (GSO) mentioned that FDI firms contribute about 20 percent
of GDP in 2013, whereas only 2 percent in 1992. Exports by FDI enterprises made up
from about 64 percent in 2012 to 66.87 percent in 2013, based on a MPI report.
Haughton and Nguyen (2002) mentions that after the effectiveness of the BTA in
2001, the BTA accumulates 30 percent more of FDI into Vietnam for the first year,
and continues doubling the inflow. It also contributes 0.6 percent of the annual GDP.
The BTA encourages Vietnam to be more openeconomy and eliminate obstacles to
FDI. After the open access to the US market, this earns more confidence and
attraction of FDI in Vietnam (Varamini Hossein and Vu Anh, 2007).
3.2.3 FDI in Laos
After French colony and war in Indochina until 1986, the economy of Laos (The Lao
Peoples Democratic Republic) reformed into a free market system under great
assistances from the U.S. Nowadays, Laos still remains one of the poorest countries
and one of the five communist countries in the world, based on a statement of the
USAID. Laos is regarded as one of the most world's challenging countries for
business startup with up to oneyear license permission. With the objective to assist
economy of Laos, the U.S. also offers the BTA. Based on the same report of 2007,
Laos has had Unilateral Trade agreements with 39 countries and bilateral
investment treaties with more than 25 countries (Phonethavong, 2012). The NSEDP
20062010 by the Committee for Planning and Investment, published in October
2006, states that within the current situation of Laos (insufficient and limited human
and capital resource), the foreign investment is a major driver of the economic
development despite of exploitation of the natural resource and environment. For
example, FDI on rubber help eliminate rural poverty (Oliver Schoenweger and Alfons
llenberg, 2009). About 80 percent of the total FDI invest in medium or long term
into sector of resource, specifically mining, hydropower, and agriculture ( Oliver
Schoenweger & Alfons llenberg , 2009).
14
3.3 GDP in Cambodia, Vietnam and Laos
Figure 2 shows the annual GDP growth rate in percentage of the three countries,
which have similar growing rate of 7 percent despite the currently different economic
level. It is also worth for noting that annual rates of GDP growth of Vietnam and
Laos fluctuate less than of Cambodia, based on figure 2. Volatility of the GDP of
Cambodia is remarkably high while the data GDP of Vietnam and Laos is generally
between 6 to 8 percent.
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Previous empirical studies show various results of the relationship of FDI and GDP
mainly as positive and negative based on different regions and historically available
data. Since these three selected countries have never been selected into studying the
causality of FDI and GDP, this paper attempts to extend another yield into economic
research resource.
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1S
CHAPTER 4: DATA AND RESEARCH METHODOLOGY
There is a common problem to collect and analyze data from developing and/or least
developed countries. Because the selected countries are developing countries in the
Southeast Asia, the data periods of which are fewer than 30 years. Consequently,
testing each countrys data individually to determine the relationship of FDI and GDP
with at least 30 observations is unfeasible. Thus, to quantify the economic analysis of
at least 30 observations, these three selected countries data is combined together to
form a panel data.
Reasons of selecting only 20 years are because of the limitation of data available
from these countries due to wars and recovery of economic circumstances.
Specifically, Cambodia has recovered herself economically from early 1990s only,
and thus, GDP records are available only from 1993 onward.
4.1 Data
The study covers data of FDI and GDP of three countries: Cambodia, Laos, and
Vietnam over 20 years (from 1993 to 2012). GDP functions as indicator of economic
development. The data of GDP, the net inward FDI, and trade was gathered from
World Bank database under Southeast Asia region classification. For a quite stable
study (reduce shortrun fluctuation) and due to data availability, the annual data was
utilized in this analysis. GDP (in current USD) functions as a dependent variable
while net inflow FDI (BoP in current USD) is explanatory variable and TRADE is a
controlled variable in our panel data analysis.
Secondly, the FDI stock data from UNCTAD is also utilized for the panel data testing
in order to compare if there is different result between the FDI stock and the net
inward FDI. The same GDP data from the World Bank would be used. The FDI stock
refers to the total value of capital, reserved, and retained profits plus indebted net of
the international company in a foreign country.
16
Thirdly, the FDI net inflow data from China into these three countries would replace
over the variable FDI for the third panel data testing; however, the data availability
only starts from 1993 due to shortage of data of inward FDI into Cambodia again
while the other two countries already had earlier year data of Chinese FDI. The FDI
data is extracted from China Statistical Year Book 19932013. The main reason of
testing the relationship of Chinese FDI and GDP within these countries is to confirm
that the three different tests would modify altogether the same results for more
reliability. ueneially, the peicent of Chinese FBI ovei total FBI is about uS
peicent. 0nly uuiing some eaily 2uuus, the peicent is about 1u peicent. Thus,
the result of relationship of Chinese FDI and total GDP might be not significant.
In spite of the fact that the three countries are developing countries, their gaps of
GDP (in current $) and of FDI (in current $) are very high. Cambodia and Laos have
similar economic volume development while Vietnam has much higher economic
growth than the other two countries. As can be seen from the Figure 3 below, average
GDP of Vietnam in USD of period 19932012 is more than nine times of the average
GDP of Cambodia and more than 17 times of the average GDP of Laos.
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17
Similaily, the aveiage FBI of vietnam within the peiiou 199S2u12 is laigei than
of Cambouia 8.68 times anu of Laos 28.42 times. Theiefoie, to avoiu spaise uata
anu test in Eviews, all the uata woulu be put into logaiithm foi moie spaise uata.
The vaiiables log(uBP) anu log(FBI) aie moie lineai than the vaiiables uBP anu
FBI, which panel uata iesult of log(uBP) anu log(FBI) as vaiiables woulu be
moie piefeiieu.
Aftei the fiist equation, the panel uata analysis woulu substitute the net inwaiu
FBI by new inuepenuent vaiiables 'FBIstock' anu 'FBIchina' which iefei to total
FBI stock anu Chinese FBI flow into these thiee countiies. It is impoitant to note
that some uata net inflow FBI fiom China into these thiee countiies is missing
foi seveial yeais in each countiy. This might impact on accuiate iesults of the
panel uata iegiession equations.
4.2 Research Methodology and Design Appropriateness
The combining data of these three countries is tested by Eview under the panel data
method analysis such as Fixedeffect (FEestimator also known as within
estimator) and Randomeffect (REestimator) estimator. The FEestimator in the
panel data analysis emphasizes that there is a correlation of independent variables. In
contrast, a REestimator refers to differences in error of variances, observing "multi
dimensional data" over the period of time and over individuals. In other words, a
randomeffect analysis model assumes that there is heterogeneity in effects or the
observed variables effect can vary across studies and sample size.
The difference of the FEestimator and the REestimator is that the FEestimator
allows correlation between unobserved effects with regressor while the REestimator
does not. It is essential to assume that "idiosyncratic errors must be homoskedastic
and uncorrelated across time (Baltagi, 2005). If the assumption is rejected, the FE
estimator will be the alternative although it will be "an inefficient and biased
estimator". Technically speaking, they are time series and crosssectional data. In the
econometric testing, the Hausman test in the panel data is used to differentiate and to
18
select the best method between the FE and the RE models. The RE estimator is
assumed into null hypothesis and alternative hypothesis is the FE estimator (Hausman
1978). The Hasuman test can only activate on Random effect estimation by observing
on results of P value. Thus, The Random effect testing is always the first test,
followed by Hausman Test. If P value of Hausman test result is less than 5%, null
hypothesis of the REestimator is rejected and FEestimator as alternative hypothesis
is accepted into further testing, and vice versa.
In some cases of equations and available data of variables, the Random effect
estimator cannot execute the result nor any further testing, so Pooled estimation
would be the final regression calculation to provide the result.
In Eviews 7 program, number of cross sections (N) must be more than number of
coefficients (x) in Randomeffect analysis. Therefore, because only three countries
(N=3) are selected into model analysis, the number of independent variables would
be no more than two for Randomeffect test (x<N=3). This is the reason why only
variable TRADE is included with two main variables GDP and FDI into study of
the relationship.
The objective of this study is to observe relationship of FDI and GDP and the other
factors that affect on the economic growth of the Indochina countries, rather to
explain individualcountry difference; thus, the FE testing is more preferred to results
that are more reliable.
The main panel data regression model is
log(GDP
t
)= ! + "
1
logX
t
+"
2
dummy + "
3
log(trade
t
)+
t
(1)
where log(GDP) is the dependent variable of GDP, logX is the independent variable
of FDI, log(trade) is a controlling variable of TRADE, !, "
1
, "
2,
and "
3
are
coefficients, t refers to time, and
t
refers to error in the analysis.
19
The parameter "
2
captures other controlling variables that affect growth. In this study,
2 dummy variables are entrance of WTO of the chosen countries and Asian Financial
Crisis during 19971998. Cambodia, Vietnam, and Laos became the member of WTO
in year 2004, 2007, and 2013 respectively. Thus, dummy value will be given 0 before
these countries become WTO member and 1 when and after they become the WTO
members. The dummy of Asian financial crisis has value of 1 for all countries in
1997 and 1998 while the other years have dummy value of 0.
Each equation would have different four main results based on value of dummy 0 and
1. For dummy WTO, it is indispensable to note that due to current available data of
FDI from 1993 to 2012 while Laos has become member of WTO from 2013 only, so
when dummy value is 0, there are 45 observations with three crosscountries. When
dummy value is 1, the whole data of Laos would be unqualified, and thus, only two
crosscountries under study with only 14 observations under study. Therefore, when
dummy value is 1, the result is excluded. For dummy Asian financial CRISIS, the
valid result when dummy value is 0, simply without year 1997 and 1998 for Asian
financial crisis time, which might affect unusual economic conditions over the
selected countries for regression. Thus, from now on, only two main dummy values
are valid when dummy WTO and CRISIS =0.
4.2.1 Model with net inward FDI
Only panel data method is measured with mainly three variables (GDP, FDI, and
trade) of these three countries from 1993 to 2012. The panel data regression model is
log(GDP
t
)= ! + "
1
log(FDI
t
)+"
2
dummy + "
3
log(trade)+
t
(2)
where log(GDP)is the dependent variable, log(FDI) is the independent variable, !,
"
1
, "
2
and "
3
are coefficients, t refers to time, and
t
refers to error in the analysis.
The "
1
and "
3
enhance the impact of FDI and TRADE towards the economic growth,
so the parameters "
1
and "
3
are expected to be positive.
2u
Using FDI as an independent variable FDI
t
, it is assumed there is a contemporaneous
relationship between FDI and GDP. Likewise, this equation is to study whether these
two main factors exist over the period of time. Upon completion of the
contemporaneous analysis one lagged FDI logFDI(1) will be applied to cross
check whether the results are consistent with prior test.
log(GDP
t
)= ! + "
1
log(FDI
t1
)+"
2
dummy + "
3
log(trade
t
)+
t
(3)
By using onelagged FDI as an independent variable instead of FDI, it is assumed that
FDI takes time to impact on GDP. Given the endogeneity of the independent variable
on the right side due to the contemporaneousness, lagged independent variable is
introduced on the right side.
It is vitally indispensable to scrutiny whether the relationship between FDI and GDP
is from the contemporaneous relationship or beyond the contemporaneous
relationship (lagged FDI). Therefore, another regression is applied:
log(GDP
t
)= ! + "
1
log(FDI
t
)+ "
2
log(FDI
t1
)+"
3
dummy +
t
(4)
Where log(GDP) is the dependent variable, log(FDI) and log(FDI
t1
) are the
independent variables, !, "
1
, "
2
and "
3
are coefficients, t refers to time, and
t
refers to
error in the analysis.
4.2.2 Compare Model with inward FDI and with FDI stock
From previous research studies, it is claimed that relationship of FDIGDP findings
can be changed when different data of FDI is selected whether it is net inward FDI or
FDI stock. Therefore, it is essential to clarify which types of FDI data is into analysis.
Comparison of regression model between FDI stock and inward FDI will simply
explain by following equations:
log(GDP
t
)= ! + "
1
log(FDI
t
) +"
2
dummy +
t
(51)
log(GDP
t
)= ! + "
1
log(FDIstock
t
)+ "
2
dummy +
t
(52)
21
log(GDP
t
)= ! + "
1
log(FDI
t
) +"
2
log(FDIstock
t
)+ "
3
dummy +
t
(6)
where log(GDP) is the dependent variable, log(FDIstock) and log(FDI) are the
independent variables of net FDI stock and net inward FDI, !, "
1
,and "
2
are
coefficients, t refers to time, and
t
refers to error in the analysis.
4.2.3 Model with Chinese FDI
The independent variable FDI from equation (1) will be substituted by a new
variable of Chinese FDI flowing into these three countries so that this new equation
(4) will be a backup testing the result of equation (1) and (2). In other words,
relationship of the FDI of China and GDP is tested whether it has the identical
direction to the relationship of the total FDIGDP. The panel data regression equation
turns to
log(GDP
t
)= ! + "
1
log(FDIchina
t
)+ "
2
dummy +
t
(7)
log(GDP
t
)= ! + "
1
log(FDIchina
t
)+ "
2
log(Trade
t
) + "
3
dummy +
t
(8)
where log(GDP) is the dependent variable, log(FDIchina) is the independent variable
of net inflow of FDI from China into selected countries, !, "
1
,and "
2
are coefficients,
t refers to time, and
t
refers to error in the analysis.
22
CHAPTER 5: EMPIRICAL FINDINGS
5.1 Panel Data Testing
First, the only way to differentiate the choice between REestimation and FE
estimation, the Random Effect estimator must be first tested by letting log(GDP
t
) be
the dependent variable, and log(FDI
t
) and log(trade
t
) be independent and controlling
variables. Then, the qualification between Random Effect and the Fixed Effect
estimator would be determined by Pvalue of the Hausman Testing. If the probability
of the Hausman test result is less than 5%, null hypothesis of Random Effect
estimation is rejected, and alternative hypothesis of Fixed Effect test is accepted, and
vice versa. As mentioned earlier, due to more accurate results from the Fixed Effect
estimation, the Fixed Effect testing is more expected to be qualified for regression
calculation. Inevitably, for particular regression tests, pooled estimation is used
whenever condition of Random effect testing is invalid.
5.2 Model with Total Inward FDI
In this part, we first examine whether there is a contemporaneous impact of FDI on
GDP, for which the results are reported in table 1, and then we check whether FDI
has longterm effect on GDP, beyond the contemporaneous impact, with the results
reported in Tables 23.
"#$%& '( JH;2C#;29> K&H4%; 9A 17L #>D "KM7J
uv: LCCCu IF WTO=0 ll C8lSlS=0
Variable Coefficient Prob. Coefficient Prob.
C 5.380908 0 5.900162 0
LOGFDI 0.068097 0.0145 0.069745 0.0083
LOGTRADE 0.708897 0 0.684277 0
Rsquared 0.990121 0.992762
Data testing into result: (table 1)
2S
log(GDP
t
)= 5.380908+ 0.068097log(FDI
t
)+ 0.708897log(trade
t
)+
t
for D: WTO=0
log(GDP
t
)= 5.900162+ 0.069745 log(FDI
t
)+ 0.684277 log(trade
t
)+
t
for D: Crisis
With 3 crosssection countries from year 1993 to 2012, there are total 45 unbalanced
observations for the case of dummy of WTO value 0. There are total 53 unbalanced
observations for the case of dummy of Asian Crisis value 0. For both dummies, the
Rsquared of 99% means that 99% in dependent variable is explained by independent
variable. From the Fixedeffect testing in table 1, FDI has the probability less than
5%, indicating that FDI has a significant relationship with GDP. The coefficient of
0.068 in logFDI implies that 1% increases in logFDI will lead to a 6.8% increase in
logGDP holding other variables constant.
For both cases of dummies, the results prove that there is positive and significant
impact of net inward FDI on the economy within selective countries.
"#$%& )( JH;2C#;29> K&H4%; 9A GM6'GN617L #>D GN6"KM7J
uv: LCCCu IF WTO=0 ll C8lSlS=0 WlLhouL dummy
Variable Coefficient Prob. Coefficient Prob. Coefficient Prob.
C 4.531573 0 5.332076 0 3.141396 0
LAG1LOGFDI 0.04915 0.0577 0.079954 0.0011 0.063627 0.0038
LOGTRADE 0.762703 0 0.700432 0 0.72239 0
Rsquared 0.991508 0.994544 0.993673
From Table 2, the equations of regression result for onelagged FDI are
case D: WTO log(GDP
t
)= 4.531573+ 0.04915log(FDI
t1
)+ 0.762703log(trade
t
)+
t
(P value of FDI
t1
=5.77% >5%)
case D: Crisis log(GDP
t
)= 5.332076 + 0.079954log(FDI
t1
)+ 0.700432log(trade
t
)+
t
case no dummy log(GDP
t
)= 3.141396+ 0.063log(FDI
t1
)+ 0.72239log(trade
t
)+
t
Based on table 3 and table 4, with 3 crosssection countries from year 1993 to 2012,
there are total 42 unbalanced observations for the case of dummy of WTO value 0.
There are total 50 unbalanced observations for the case of dummy of Asian Crisis
value 0. For both dummies, the Rsquare still remains more than 99%.
24
For onelagged FDI as independent variable, there are two different scenarios based
on dummies. For WTO dummy, Fixed effect result shows P value of the FDI(1) is
more than 5%, which means that the variable is not significant. However, for case of
crisis dummy, FDI(1) is consistent with GDP. The different result might happen
because of different number of observations compatible with the dummies. Despite
the fact that two different dummies provide different significant and insignificant P
values, from the total 56 unbalanced observations without any dummy variables
conditions (table 2), it might be concluded that onelagged FDI still has significant
relationship with GDP. This conclusion will be clarified by next equation of log(FDI)
and lag1logFDI. The Rsquared of 99% means that 99% in dependent variable is
explained by independent variable.
From the explanation based on table 1 and 2, the result can conclude that H
1
hypothesis has confirmed to be true.
The study of the relationship between FDI and GDP whether it is from the
contemporaneous relationship or beyond the contemporaneous relationship (lagged
FDI) can only in case of dummy crisis =0 while the dummy WTO =0 can be studied
by pooled estimation only. The regression result:
Table 3: Estimation Result of LOGFDI and LAG1LOGFDI
899%&D
JH;2C#;29> !"#$% $''$()
uv: LCCCu IF WTO=0 ll C8lSlS=0
Variable Coefficient Prob. Coefficient Prob.
C 9.178466 0 12.83522 0
LOGFDI 0.394628 0.0094 0.22482 0.0263
LAG1LOGFDI 0.301467 0.0421 0.290689 0.0056
Rsquared 0.823352 0.934261
Pooled estimation result of dummy WTO=0
log(GDP
t
)= 9.178466 + 0.394628 log(FDI
t
)+ 0.301467log(FDI
t1
) +
t
(table 3)
With 3 crosssection countries from year 1993 to 2012, there are total 42 unbalanced
2S
observations for the case of dummy of WTO value 0 while the Rsquare is more than
82%.
With 3 crosssection countries from year 1993 to 2012, there are total 42 unbalanced
observations for the case of dummy of WTO value 0. while the Rsquare is more than
82%. It means that 82% of dependent variable can be explained by independent
variable. From the Fixedeffect testing in table 3, FDI has the probability less than
5%, indicating that FDI has a significant relationship with GDP.
Fixed effect estimation result of dummy crisis=0 (table 3)
log(GDP
t
)= 12.83522+ 0.22482log(FDI
t
)+ 0.290689log(FDI
t1
) +
t
With 3 crosssection countries from year 1993 to 2012, there are total 51 balanced
observations for the case of dummy of Asian Crisis value 0. For both dummies, the
Rsquare still remains more than 93%, which again refers to 93% of dependent
variable can be explained by FDI and onelagged FDI as independent variables.
Different dummies offer different types of tests for calculation yet quite similar
results. For the dummy of WTO, only pooled estimation is suitable for the analysis
while more reliable testing of fixed estimation works on crisis dummy. The positive
coefficients and Pvalues of FDI and onelagged FDI (P<5%) for the both dummies
regressions prove that the independent variables FDI and onelagged FDI are
positively significant to GDP. Therefore, this can conclude that FDI has
contemporaneous relationship with GDP and also needs a particular period of time to
take effect on the economy. However, there might be limited number of observations
for the current result. More available data of variables can provide more accurate
result of this relationship in the future.
The hypothesis H
2
matches the finding result of the empirical study that there is
contemporaneous correlation of GDP and FDI.
26
5.3 Compare Model with inward FDI and FDI stock
Literature has shown different results for the effect of inward FDI and FDI stock on
local economy growth. So here we are going to check whether these two types of FDI
have different economic impacts in these three countries in our sample. Our findings
for inward FDI and FDI stocks are reported in Tables 46 respectively.
The Random effect estimator testing is first used to test the equation (5) and equation
(6) which have log(GDP) as dependent variable and independent variables as
log(FDI) and log(FDIstock). The Hausman test shows result of p smaller than 5
percent, which means Fixedeffect estimator is appropriate for the both equations.
Table 4: Estimation result of LOGFDI
!"#$% $''$() !"#$% $''$()
uv: LCCCu IF WTO=0 ll C8lSlS=0
Variable Coefficient Prob. Coefficient Prob.
C 15.65231 0 13.23919 0
LOGFDI 0.357966 0 0.491279 0
Rsquared 0.893861 0.918883
The regression model between FDI stock and inward FDI will simply explain by
following equation results:
Fixed effect estimation result of dummy WTO=0
log(GDP
t
)= 15.65231+ 0.357966log(FDI
t
) +
t
(table 4) (51)
log(GDP
t
)= 19.13735+ 0.458946log(FDIstock
t
)+
t
(table 5)
(52)
With 3 crosssection countries from year 1993 to 2012, there are total 45 unbalanced
observations for the case of dummy of WTO value 0 while the Rsquare is more than
89% for equation (51) and more than 93% for equation (52). It means that variable
inward FDI can explain 89% of variable GDP and 93% of variable FDI stock variable
GDP. Within the positive coefficient of independent variables, it can conclude there
is positive relationship of inward FDI and GDP and of FDI stock and GDP. The P
value is less than 5% (P<5%), so it means that there is significant correlation of
inward FDI/FDI stock and GDP.
27
Table 5: Estimation result of LOGFDISTOCK
!"#$% $''$() !"#$% $''$()
uv: LCCCu IF WTO=0 ll C8lSlS=0
Variable Coefficient Prob. Coefficient Prob.
C 19.13735 0 18.38014 0
LOGFDISTOCK 0.458946 0 0.33016 0
Rsquared 0.936325 0.934101
Fixed effect estimation result of dummy crisis=0
log(GDP
t
)= 13.23919+ 0.491279log(FDI
t
) +
t
(table 4) (51)
log(GDP
t
)= 18.58014+ 0.55016log(FDIstock
t
)+
t
(table 5) (52)
With 3 crosssection countries from year 1993 to 2012, there are total 54 balanced
observations for the case of dummy of crisis value 0 while the Rsquare is more than
91% for equation (51) and more than 95% for equation (52).
From both dummies, P values for all independent variables are less than 5%, so it is
significant relationship. Positive coefficients of the independent variables can draw
conclusion of positive relationship of GDP and FDI(inward) and FDI(stock).
It is notable that numbers of observations of crisis dummy are more than of WTO
dummy, and the coefficients of the independent variables also have higher value. The
FDI stocks coefficient values are higher than the net inward FDIs for both dummies.
Table 6:Estimation Result of LOGFDI and LOGFDISTOCK
899%&D JH;2C#;29> !"#$% $''$()
uv: LCCCu IF WTO=0 ll C8lSlS=0
Variable Coefficient Prob. Coefficient Prob.
C 16.03733 0 13.33336 0
LOGFDI 0.192416 0.0012 0.223828 0
LCClulS1CCk 0.373026 0 0.401644 0
Rsquared 0.951252 0.969883
estimation result: (table 6)
dummy WTO=0
log(GDP
t
)= 16.03733+ 0. 192416log(FDI
t
)+ 0. 373026log(FDIstock
t
) +
t
(6)
dummy crisis=0
28
log(GDP
t
)= 15.33556+ 0.223828log(FDI
t
)+ 0.401644log(FDIstock
t
) +
t
(6)
From table 6, under pooled estimation regression, with 3 crosssection countries from
year 1993 to 2012, there are total 45 unbalanced observations for the case of dummy
of WTO value 0 and the Rsquare is more than 95%. For dummy crisis, under fixed
effect estimation, there are total 54 balanced observations and the Rsquare is more
than 96%. All coefficients are positive and P values of the independent variables are
less than 5%; thus, the relationship of FDI(inward), FDI(stock) and GDP is confirmed
to be positive and statistically significant.
From the whole equations of the (5) and (6) regardless of dummies, it can conclude
that the relationship of FDI and GDP for the selected countries is stably positive and
significant for both types of FDI data. This can conclude that the hypothesis H
3
is
true.
5.4 Model with Chinese FDI
China is one of the most important FDI sources for the three countries in our sample.
So here we would like to examine whether the FDI from China has similar impacts on
local economic growth in these three countries. The findings are similar in that FDI
from China positively contributes to local economic growth. The findings are
reported in Tables 79.
The same methodology is used to calculate the equation by starting from Random
effect testing, and using Hausman Test to clarify qualified effect estimator whether
Random or Fixed effect will be further put into calculation. In some cases, when
Random Effect is not be able to test the equation, pooled estimation will be used for
the analysis.
"#$%& .( JH;2C#;29> K&H4%; 9A GN617LBOLPM
29
8andom LffecL 8andom LffecL
uv: loggdp ll W1C=0 ll C8lSlS=0
varlable CoefflclenL rob. CoefflclenL rob.
C 21.04123 0 20.94209 0
LCClulCPlnA 0.111033 0.0692 0.140668 0.0338
8squared 0.088667 0.080003
The regression has the following results: (table 7)
Random effect estimation result
when dummy WTO log(GDP
t
)= 21.04123+ 0.111033log(FDIchina
t
)+
t
when dummy CRISIS log(GDP
t
)= 20.94209+ 0.140668log(FDIchina
t
)+
t
With 3 crosssection countries from year 1993 to 2012, there are total 39 unbalanced
observations for dummy WTO and total 48 observations for dummy CRISIS while
the Rsquares are just about 8% for both dummies. With P value more than 5%
(P>5%) and positive coefficients, there is not significant and positive relation of FDI
from China and the economic growth.
In case of dummy WTO=0, the Random effect cannot perform any result from the
equation, so pooled estimation substitutes into the analysis.
"#$%& /( JH;2C#;29> K&H4%; 9A GN617LBOLPM #>D GN6"KM7J
llxed LffecL llxed LffecL
uv: loggdp ll W1C=0 ll C8lSlS=0
varlable CoefflclenL rob. CoefflclenL rob.
C 4.794819 0 3.01348 0
LCClulCPlnA 0.011847 0.4397 0.019883 0.1484
LCC18AuL 0.783608 0 0.769884 0
8squared 0.99131 0.993931
Su
Random effect result when dummy WTO=0 (table 8)
log(GDP
t
)= 4.794819+ 0.011847log(FDIchina
t
)+ 0.783608log(Trade
t
) +
t
(8)
log(GDP
t
)= 3.01348+ 0.019883log(FDIchina
t
)+ 0.769884log(inward FDI
t
)+
t
(9)
With 3 crosssection countries from year 1993 to 2012, there are total 39 unbalanced
observations for dummy WTO and 47 unbalanced observations for dummy CRISIS
while the Rsquares are more than 99% for both dummies. When variable Trade is
included in the equation (8), P value of Chinese FDI is still no longer valid. This
result might happen due to some missing data of Chinese FDI into these three
countries and most of years have percent of Chinese FDI on total FDI fewer than 5%,
which means Chinese FDI contributes too little effect on GDP comparing to the effect
of total FDI on GDP.
Therefore, the hypothesis H
4
is different from the finding of empirical study for the
20 years study. It is remarkable that the percentage of Chinese FDI on total inward
FDI for most of years of these three countries is fewer than 5%; therefore, the effect
of Chinese FDI on the total economic growth might be too impactful. Therefore, by
using Chinese FDI to reflect effect of total inward FDI on the economy is not a very
good way based on small percent of Chinese FDI comparing to total inward FDI.
The whole findings confirm the theory of economic growth and previous research
papers of individual countries. Firstly, the results show there is positive and
significant relationship of FDI and GDP, which applies to the Neoclassical model that
FDI accrues the longterm economical output. These findings agree with the earlier
research papers of Net Seila, partly with Vietnamese FDIGDP relationship study of
Nguyen Phi Lan, partly with FDIGDP relationship in Cambodia studied by Lim
GuechHeang and Pahlaj Moolio, and other literature reviews.
S1
CHAPTER 6: CONCLUSION AND RECOMMENDATION
The main objective of this paper is to scrutinize what roles FDI has on the economic
growth of Indochina countries namely: Cambodia, Vietnam, and Laos. Panel data
testing was applied to assess whether FDI and Trade have a positive or negative
connection. Based on various testing, findings from the panel data regression prove
that there is a significantly positive relationship of FDI and GDP within these three
countries. The positive and significant elasticity from FDI concludes that FDI is a key
factor of GDP growth.
To confirm the credibility of conclusion drawn from the earlier research study on the
FDIGDP relationship, different types of the FDI were incorporated into
consideration and calculation. The testing on total net inflow FDI and FDI stock into
these countries has provided the same result. Based on onelagged net inward FDI
data analysis result, the conclusion can precisely state that FDI and GDP of these
countries are contemporaneous and it may take some period of time for FDI to boost
the whole economy. However, the inward FDI from China into these three countries
cannot be a significant impact on the total economic growth based on the result of
econometric analysis.
Prior studies about relationship of FDI and GDP for these two decades over the
selected countries, it is agreeable that FDI has contributed remarkably to the
economic growth and poverty reduction. The current paper recommends that more
FDI is highly encouraged into these countries to contribute GDP prosperity further,
yet it is also advisable to examine the negative impacts of FDI too.
This paper did not focus on longterm effects of FDI of these countries in the future
and any other possible relationships of FDI and other important variables including
productivity, and domestic firms. Therefore, new studies should focus on the long
term economic growth in terms of human resource and productivity development,
technological spillover, and FDIpolicy effectiveness.
S2
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SS
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SS
Appendices
Total net inward FDI of Cambodia, Vietnam, and Laos from 1993 to 2012
GDP and FDI convert into log(GDP) and log(FDI)
S6
Net FDI stock and Chinese FDI in Cambodia, Vietnam, and Laos
Year
Chinese FDI FDISTOCK
Cambodia Vietnam Laos Cambodia Vietnam Laos
1993 NA 11610000 NA 125000000 2020000000 57150000
1994 NA NA 50000 194000000 3960000000 116000000
1995 1310000 28300000 NA 356000000 5740000000 211000000
1996 7440000 1450000 150000 942000000 8140000000 371000000
1997 5450000 1540000 390000 956000000 10400000000 458000000
1998 2900000 14140000 1120000 1200000000 12000000000 503000000
1999 2480000 130000 NA 1430000000 13400000000 554000000
2000 1940000 560000 3070000 1580000000 14700000000 588000000
2001 9300000 1480000 1040000 1730000000 16000000000 612000000
2002 13740000 2510000 5150000 1870000000 17400000000 617000000
2003 12520000 3380000000 400000 1960000000 18900000000 636000000
2004 20690000 3120000000 4250000 2090000000 20500000000 653000000
2005 2760000 2150000000 4210000 2470000000 22500000000 681000000
2006 2120000 2140000000 6870000 2950000000 24900000000 868000000
2007 6340000 730000 3000000 3820000000 31600000000 1190000000
2008 2920000 2070000 6700000 4640000000 41100000000 1420000000
2009 13370000 4420000 2430000 5180000000 48700000000 1610000000
2010 10350000 20790000 9450000 5960000000 56700000000 1890000000
2011 17370000 8880000 5880000 6850000000 64200000000 2190000000
2012 16600000 2870000 2000000 8410000000 72500000000 2480000000
S7
log(GDP
t
)= ! + "
1
log(FDI
t
)+"
2
dummy + "
3
log(trade)+
t
(2)
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary ChiSq. Statistic ChiSq. d.f. Prob.
Crosssection
random 18.524683 2 0.0001
Fixed effect
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 20
Crosssections included: 3
Total panel (unbalanced) observations: 45
Variable Coefficient Std. Error tStatistic Prob.
C 5.380908 0.673932 7.984354 0
LOGFDI 0.068097 0.026651 2.555149 0.0145
LOGTRADE 0.708897 0.035909 19.74166 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.990121 Mean dependent var 22.53962
Adjusted Rsquared 0.989133 S.D. dependent var 1.217516
S.E. of regression 0.126922 Akaike info criterion 1.186043
Sum squared resid 0.644372 Schwarz criterion 0.985302
Log likelihood 31.68596 HannanQuinn criter. 1.111209
Fstatistic 1002.198 DurbinWatson stat 0.484014
Prob(Fstatistic) 0
Dummy crisis =0
Hausman Test
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary ChiSq. ChiSq. Prob.
S8
Statistic d.f.
Crosssection random 62.589427 2 0
Fixed effect
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 18
Crosssections included: 3
Total panel (unbalanced) observations: 53
Variable Coefficient Std. Error tStatistic Prob.
C 5.900162 0.470514 12.53982 0
LOGFDI 0.069745 0.025322 2.754342 0.0083
LOGTRADE 0.684277 0.030892 22.1505 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.992762 Mean dependent var 22.94192
Adjusted Rsquared 0.992159 S.D. dependent var 1.386225
S.E. of regression 0.122751 Akaike info criterion 1.267733
Sum squared resid 0.723252 Schwarz criterion 1.081856
Log likelihood 38.59492 HannanQuinn criter. 1.196254
Fstatistic 1645.914 DurbinWatson stat 0.537168
Prob(Fstatistic) 0
log(GDP
t
)= ! + "
1
log(FDI
t1
)+"
2
dummy + "
3
log(trade
t
)+
t
(3)
Dummy WTO=0
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
S9
Crosssection random 74.885826 2 0
Fixed effect
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 19
Crosssections included: 3
Total panel (unbalanced) observations: 42
Variable Coefficient Std. Error tStatistic Prob.
C 4.531573 0.709528 6.386741 0
LAG1LOGFDI 0.04915 0.025091 1.958863 0.0577
LOGTRADE 0.762703 0.036465 20.91589 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.991508 Mean dependent var 22.57908
Adjusted Rsquared 0.990589 S.D. dependent var 1.224154
S.E. of regression 0.118753 Akaike info criterion 1.312203
Sum squared resid 0.521782 Schwarz criterion 1.105338
Log likelihood 32.55627 HannanQuinn criter. 1.236379
Fstatistic 1079.953 DurbinWatson stat 0.486485
Prob(Fstatistic) 0
Dummy crisis=0
Hausman test
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 74.885826 2 0
Fixed effect
Dependent Variable: LOGGDP
4u
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 17
Crosssections included: 3
Total panel (unbalanced) observations: 50
Variable Coefficient Std. Error tStatistic Prob.
C 5.332076 0.463674 11.49962 0
LAG1LOGFDI 0.079954 0.022955 3.48312 0.0011
LOGTRADE 0.700432 0.029729 23.56085 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.994544 Mean dependent var 22.9992
Adjusted Rsquared 0.994059 S.D. dependent var 1.386702
S.E. of regression 0.106882 Akaike info criterion 1.539541
Sum squared resid 0.51407 Schwarz criterion 1.348339
Log likelihood 43.48853 HannanQuinn criter. 1.46673
Fstatistic 2050.766 DurbinWatson stat 0.548614
Prob(Fstatistic) 0
log(GDP
t
)= ! + "
1
log(FDI
t
)+ "
2
log(FDI
t1
)+"
3
dummy +
t
(4)
dummy WTO
pooled estimation
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 19
Crosssections included: 3
Total panel (unbalanced) observations: 42
Variable Coefficient Std. Error tStatistic Prob.
C 9.178466 0.99729 9.203405 0
LOGFDI 0.394628 0.14451 2.730801 0.0094
LAG1LOGFDI 0.301467 0.143469 2.101264 0.0421
Rsquared 0.823352 Mean dependent var 22.57908
41
Adjusted Rsquared 0.814293 S.D. dependent var 1.224154
S.E. of regression 0.527534 Akaike info criterion 1.627541
Sum squared resid 10.85338 Schwarz criterion 1.75166
Log likelihood 31.17836 HannanQuinn criter. 1.673035
Fstatistic 90.88894 DurbinWatson stat 0.251644
Prob(Fstatistic) 0
Dummy crisis
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 74.885826 2 0
Fixed effect
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 17
Crosssections included: 3
Total panel (balanced) observations: 51
Variable Coefficient Std. Error tStatistic Prob.
C 12.83522 1.061045 12.09677 0
LOGFDI 0.22482 0.097941 2.295454 0.0263
LAG1LOGFDI 0.290689 0.099894 2.90998 0.0056
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.934261 Mean dependent var 23.00638
Adjusted Rsquared 0.928545 S.D. dependent var 1.37372
S.E. of regression 0.36721 Akaike info criterion 0.927128
Sum squared resid 6.202785 Schwarz criterion 1.116523
Log likelihood 18.64177 HannanQuinn criter. 0.999502
42
Fstatistic 163.4354 DurbinWatson stat 0.370418
Prob(Fstatistic) 0
log(GDP
t
)= ! + "
1
log(FDI
t
) +"
2
dummy +
t
(5)
dummy WTO
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq.
Statistic
ChiSq.
d.f. Prob.
Crosssection random 15.982927 1 0.0001
FIXED EFFECT
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 20
Crosssections included: 3
Total panel (unbalanced) observations: 45
Variable Coefficient
Std.
Error tStatistic Prob.
C 15.65231 1.386768 11.2869 0
LOGFDI 0.357966 0.072006 4.971304 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.893861 Mean dependent var 22.53962
Adjusted R
squared 0.886095 S.D. dependent var 1.217516
S.E. of regression 0.410909
Akaike info
criterion 1.143798
Sum squared 6.9227 Schwarz criterion 1.30439
4S
resid
Log likelihood 21.73546
HannanQuinn
criter. 1.203665
Fstatistic 115.0958 DurbinWatson stat 0.245338
Prob(Fstatistic) 0
DUMMY CRISIS
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 32.367104 2 0
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 18
Crosssections included: 3
Total panel (balanced) observations: 54
Variable Coefficient Std. Error tStatistic Prob.
C 13.23919 1.061153 12.47623 0
LOGFDI 0.491279 0.053614 9.163198 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.918883 Mean dependent var 22.94976
Adjusted Rsquared 0.914016 S.D. dependent var 1.374292
S.E. of regression 0.402984 Akaike info criterion 1.091345
Sum squared resid 8.119789 Schwarz criterion 1.238677
Log likelihood 25.46632 HannanQuinn criter. 1.148166
Fstatistic 188.7983 DurbinWatson stat 0.457948
Prob(Fstatistic) 0
44
log(GDP
t
)= ! + "
1
log(FDIstock
t
)+ "
2
dummy +
t
(6)
DUMMY WTO
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 17.116181 1 0
FIXED EFFECT
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 20
Crosssections included: 3
Total panel (unbalanced) observations: 45
Variable Coefficient
Std.
Error tStatistic Prob.
C 19.13735 0.413695 46.25961 0
LOGFDISTOCK 0.458946 0.055437 8.278729 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.936325 Mean dependent var 22.53962
Adjusted R
squared 0.931666 S.D. dependent var 1.217516
S.E. of regression 0.318268
Akaike info
criterion 0.632842
Sum squared
resid 4.15308 Schwarz criterion 0.793435
4S
Log likelihood 10.23896
HannanQuinn
criter. 0.69271
Fstatistic 200.9653 DurbinWatson stat 0.182328
Prob(Fstatistic) 0
DUMMY CRISIS
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 17.116181 1 0
FIXED EFFECT
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 18
Crosssections included: 3
Total panel (balanced) observations: 54
Variable Coefficient Std. Error tStatistic Prob.
C 18.58014 0.3224 57.63079 0
LOGFDISTOCK 0.55016 0.040258 13.66576 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.954101 Mean dependent var 22.94976
Adjusted Rsquared 0.951347 S.D. dependent var 1.374292
S.E. of regression 0.303134 Akaike info criterion 0.521901
Sum squared resid 4.594499 Schwarz criterion 0.669233
Log likelihood 10.09132 HannanQuinn criter. 0.578721
Fstatistic 346.4484 DurbinWatson stat 0.297251
Prob(Fstatistic) 0
Dummy WTO
46
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
Test Summary
ChiSq. Statistic
ChiSq.
d.f. Prob.
Crosssection random 16.846615 2 0.0002
Fixed effect result
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF WTO=0
Periods included: 20
Crosssections included: 3
Total panel (unbalanced) observations: 45
Variable
Coefficien
t
Std.
Error tStatistic Prob.
C 16.05735 0.953329 16.84345 0
LOGFDI 0.192416 0.054981 3.499693 0.0012
LOGFDISTOCK 0.375026 0.05465 6.862294 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.951252 Mean dependent var 22.53962
Adjusted Rsquared 0.946377 S.D. dependent var 1.217516
S.E. of regression 0.281936 Akaike info criterion 0.410168
Sum squared resid 3.179522 Schwarz criterion 0.610908
Log likelihood 4.228772 HannanQuinn criter. 0.485002
Fstatistic 195.1352 DurbinWatson stat 0.34484
Prob(Fstatistic) 0
Dummy crisis
Correlated Random Effects  Hausman Test
Equation: Untitled
Test crosssection random effects
47
Test Summary ChiSq. Statistic ChiSq. d.f. Prob.
Crosssection
random 35.993425 2 0
Fixed effect
Dependent Variable: LOGGDP
Method: Panel Least Squares
Sample: 1993 2012 IF CRISIS=0
Periods included: 18
Crosssections included: 3
Total panel (balanced) observations: 54
Variable Coefficient
Std.
Error tStatistic Prob.
C 15.33556 0.692511 22.14487 0
LOGFDI 0.223828 0.044171 5.06732 0
LOGFDISTOCK 0.401644 0.044092 9.109162 0
Effects Specification
Crosssection fixed (dummy variables)
Rsquared 0.969883 Mean dependent var 22.94976
Adjusted R
squared 0.967425 S.D. dependent var 1.374292
S.E. of regression 0.248041
Akaike info
criterion 0.137576
Sum squared
resid 3.014693 Schwarz criterion 0.321741
Log likelihood 1.285442
HannanQuinn
criter. 0.208602
Fstatistic 394.4992 DurbinWatson stat 0.604068
Prob(Fstatistic) 0
log(GDP
t
)= ! + "
1
log(FDIchina)+ "
2
dummy +
t
(7)
case: dummy W1C =0
8andom effecL resulL
uependenL varlable: LCCCu
MeLhod: anel LCLS (CrosssecLlon random effecLs)
48
uaLe: 03/13/14 1lme: 16:07
erlods lncluded: 20
CrosssecLlons lncluded: 3
1oLal panel (unbalanced) observaLlons: 39
Swamy and Arora esLlmaLor of componenL varlances
varlable CoefflclenL SLd. Lrror LSLaLlsLlc rob.
C 21.04123 1.393793 13.0964 0
LCClulCPlnA 0.111033 0.03933 1.871803 0.0692
LffecLs SpeclflcaLlon
S.u. 8ho
CrosssecLlon random
1.866909 0.9337
ldlosyncraLlc random
0.489203 0.0643
WelghLed SLaLlsLlcs
8squared 0.088667 Mean dependenL var 1.630673
Ad[usLed 8squared 0.064036 S.u. dependenL var 0.342746
S.L. of regresslon 0.482621 Sum squared resld 8.618148
lsLaLlsLlc 3.399869 uurblnWaLson sLaL 0.212
rob(lsLaLlsLlc) 0.063609
CorrelaLed 8andom LffecLs  Pausman 1esL
LquaLlon: unLlLled
1esL crosssecLlon random effecLs
1esL Summary
ChlSq.
SLaLlsLlc ChlSq. d.f. rob.
CrosssecLlon random 0.01107 1 0.9162
case: dummy C8lSlS
uependenL varlable: LCCCu
MeLhod: anel LCLS (CrosssecLlon random effecLs)
erlods lncluded: 18
CrosssecLlons lncluded: 3
1oLal panel (unbalanced) observaLlons: 48
Swamy and Arora esLlmaLor of componenL varlances
varlable CoefflclenL SLd. Lrror LSLaLlsLlc rob.
C 20.94209 1.380024 13.23429 0
LCClulCPlnA 0.140668 0.071078 1.97903 0.0338
LffecLs SpeclflcaLlon
S.u. 8ho
CrosssecLlon random
2.01833 0.9172
ldlosyncraLlc random
0.606411 0.0828
WelghLed SLaLlsLlcs
49
8squared 0.080003 Mean dependenL var 1.727604
Ad[usLed 8squared 0.060003 S.u. dependenL var 0.614369
S.L. of regresslon 0.600038 Sum squared resld 16.36211
lsLaLlsLlc 4.000273 uurblnWaLson sLaL 0.162878
rob(lsLaLlsLlc) 0.031417
unwelghLed SLaLlsLlcs
8squared 0.003233 Mean dependenL var 23.10363
Sum squared resld 83.84284 uurblnWaLson sLaL 0.070643
CorrelaLed 8andom LffecLs  Pausman 1esL
LquaLlon: unLlLled
1esL crosssecLlon random effecLs
1esL Summary
ChlSq.
SLaLlsLlc ChlSq. d.f. rob.
CrosssecLlon random 0.0383 1 0.8448
log(GDP
t
)= ! + "
1
log(FDIchina)+ "
2
log(Trade) + "
3
dummy +
t
(8)
case: dummy W1C
CorrelaLed 8andom LffecLs  Pausman 1esL
1esL crosssecLlon random effecLs
1esL Summary
ChlSq.
SLaLlsLlc ChlSq. d.f. rob.
CrosssecLlon random 23.607376 2 0
llxed effecL resulL
uependenL varlable: LCCCu
MeLhod: anel LeasL Squares
Sample: 1993 2012 ll W1C=0
erlods lncluded: 20
CrosssecLlons lncluded: 3
1oLal panel (unbalanced) observaLlons: 39
varlable CoefflclenL SLd. Lrror LSLaLlsLlc rob.
C 4.794819 0.723706 6.607108 0
LCClulCPlnA 0.011847 0.013132 0.781892 0.4397
LCC18AuL 0.783608 0.033342 23.42133 0
LffecLs SpeclflcaLlon
CrosssecLlon flxed (dummy
varlables)
8squared 0.99131 Mean dependenL var 22.66393
Su
Ad[usLed 8squared 0.990288 S.u. dependenL var 1.216703
S.L. of regresslon 0.119908 Akalke lnfo crlLerlon 1.28497
Sum squared resld 0.488832 Schwarz crlLerlon

1.071693
Log llkellhood 30.03691 PannanCulnn crlLer.

1.208448
lsLaLlsLlc 969.6237 uurblnWaLson sLaL 0.482143
rob(lsLaLlsLlc) 0
case: dummy C8lSlS
CorrelaLed 8andom LffecLs  Pausman 1esL
LquaLlon: unLlLled
1esL crosssecLlon random effecLs
1esL Summary
ChlSq.
SLaLlsLlc ChlSq. d.f. rob.
CrosssecLlon random 73.329066 2 0
llxed effecL resulL
uependenL varlable: LCCCu
MeLhod: anel LeasL Squares
Sample: 1993 2012 ll C8lSlS=0
erlods lncluded: 18
CrosssecLlons lncluded: 3
1oLal panel (unbalanced) observaLlons: 47
varlable CoefflclenL SLd. Lrror LSLaLlsLlc rob.
C 3.01348 0.300203 10.02684 0
LCClulCPlnA 0.019883 0.013303 1.472427 0.1484
LCC18AuL 0.769884 0.021967 33.04649 0
LffecLs SpeclflcaLlon
CrosssecLlon flxed (dummy
varlables)
8squared 0.993931 Mean dependenL var 23.09809
Ad[usLed 8squared 0.993333 S.u. dependenL var 1.36331
S.L. of regresslon 0.111134 Akalke lnfo crlLerlon 1.43332
Sum squared resld 0.318913 Schwarz crlLerlon

1.238693
Log llkellhood 39.20471 PannanCulnn crlLer.

1.381433
lsLaLlsLlc 1719.476 uurblnWaLson sLaL 0.343438
rob(lsLaLlsLlc) 0
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