Bayesian Modes in Analyzing Impact of Foreign Direct Investlnent on Macroeconomic in Yemen

Abstract

Abstract - ' » This thesis has paid attention to the importance of studying Bayesian approach so as to analyze the impact of foreign direct investment on macro-economy in the Yemen Republic. V A forecasting model has been constructed. The thesis has included studying the statistical theory of Bayesian Theory, then practical application has been followed through using economic data. This is what makes it a distinctive study other than others in this field, as it included an applied and analytical study for the correlations ofmacro variables by using Bayesian approach. . Studying correlations between these variables enable us identify the nature of correlated relations and thus making forecasting; 'particularly there are so many methods to forecast and estimate parameters of linear regression like the method of OLS and Maximum Likelihood. All of them are concerned with reaching a model through which we can forecast the status of phenomenon under study in future. an The importance of this study appears in designing ‘effective and sustainable models so as to develop economic policies which can help attract foreign direct investments and also studying the efficiency of predictive models to obtain models that could assist decision-makers. The theoretical study of Bayesian approaches has been made in an applied manner from which we can benefit in analyzing economic data. A model of prediction has been elicited for the impact of foreign direct investment on the macro-economy. The predictive capacity of the model has been tested in comparison with the model which we have obtained through using the OLS method, concluding that the model estimated by Bayesian Approach is most efficient than the model estimated by OLS mode, as the Theil's Inequality Coefficient of estimation. » ' This is what confirms the predictive capacity of the model being estimated by Bayesian Approach as a modern method in prediction against the model estimated by OLS mode. It has been concluded that the estimated» model has a high significance and that independent variables in the model were significant, as the value of (Fc?526.52). ln addition, the parameters of the model have been tested in a different way represented in creating the value of significant probability to accept null hypothesis which assumes that the parameters of partial group of independent variables equals zero. The result was that the value of probability is [),(H,,/y)=6..9U7E_7, This value confirmsthe significance of the estimated model and it is reliable. The economic results related to the impact of foreign direct investment have been interpreted on macro economy andcoiicluding that the model is significant. This is, independent variables (budget deficit, the cost of foreign direct investment, volume of employment‘ in the mvestment sector, investment expenses allocated in the state’s budget and agricultural production) have significant impact on dependent variable (the GDP) and has a high explanation capacity. In addition, foreign direct investment represented in investment cost of foreign direct investment has significant impact on a group of productive ‘sectors and positive for all exports, imports, agriculture production, extraction industry, manufacturing industry, volume of employment in the investment sector, and it appeared minus and insignificant‘ with GDP rate only