Time Series Analysis and Forecasting

Submitted by: Ali Haider Kanzah Baig Muhammad Hassan Razak Zain Ali Chaudhry Zubair Gulraiz

February 3

2012
Foreign direct investment, net inflows (bop, current us)
Submitted to: Miss Azmat Nafees

Assignment Cover Sheet

An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly.If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a Janarate attachment.)Please check your Course Information Booklet for assignment submission locations. Name: Muhammad Hassan Razzaq

Student ID

Email: aquantic1617@yahoo.com

Course code and title: SQA 403 - Time Series Analysis and Forecasting

Program: BBA III

Section:

Course Instructor: Assistant Professor Azmat N. Janjua

Teaching Associate: Ayesha Karim

Assignment number: 1

Due date: 4

th

february 2012

Assignment topic as stated in Course Information Booklet:

Foreign direct investment, net inflows (bop, current us)

I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date:

Date received from student

Assessment/grade

Assessed by:

Recorded

Dispatched (if applicable)

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

Page 1

Assignment Cover Sheet

An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly.If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a Janarate attachment.)Please check your Course Information Booklet for assignment submission locations. Name: Kanzah Baig

Student ID

Email: kanzah_baig@23@hotmail.com

Course code and title: SQA 403 - Time Series Analysis and Forecasting

Program: BBA III

Section:

Course Instructor: Assistant Professor Azmat N. Janjua

Teaching Associate: Ayesha Karim

Assignment number: 1

Due date: 4

th

february 2012

Assignment topic as stated in Course Information Booklet:

Foreign direct investment, net inflows (bop, current us)

I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date:

Date received from student

Assessment/grade

Assessed by:

Recorded

Dispatched (if applicable)

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

Page 2

Assignment Cover Sheet

An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly.If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a Janarate attachment.)Please check your Course Information Booklet for assignment submission locations. Name: Ali Haider

Student ID

Email: alihaiderbhutta@hotmail.com

Course code and title: SQA 403 - Time Series Analysis and Forecasting

Program: BBA III

Section:

Course Instructor: Assistant Professor Azmat N. Janjua

Teaching Associate: Ayesha Karim

Assignment number: 1

Due date: 4

th

february 2012

Assignment topic as stated in Course Information Booklet:

Foreign direct investment, net inflows (bop, current us)

I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date:

Date received from student

Assessment/grade

Assessed by:

Recorded

Dispatched (if applicable)

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

Page 3

Assignment Cover Sheet

An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly.If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a Janarate attachment.)Please check your Course Information Booklet for assignment submission locations. Name: Zubair Gulraiz

Student ID

Email: zg_xyz@hotmail.com

Course code and title: SQA 403 - Time Series Analysis and Forecasting

Program: BBA III

Section:

Course Instructor: Assistant Professor Azmat N. Janjua

Teaching Associate: Ayesha Karim

Assignment number: 1

Due date: 4

th

february 2012

Assignment topic as stated in Course Information Booklet:

Foreign direct investment, net inflows (bop, current us)

I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date:

Date received from student

Assessment/grade

Assessed by:

Recorded

Dispatched (if applicable)

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

Page 4

Assignment Cover Sheet

An Assignment cover sheet needs to be included with each assignment. Please complete all details clearly.If you are submitting the assignment on paper, please staple this sheet to the front of each assignment. If you are submitting the assignment online, please ensure this cover sheet is included at the start of your document. (This is preferable to a Janarate attachment.)Please check your Course Information Booklet for assignment submission locations. Name: Zain Ali Chaudry

Student ID

Email: zain_ali_ch@hotmail.com

Course code and title: SQA 403 - Time Series Analysis and Forecasting

Program: BBA III

Section:

Course Instructor: Assistant Professor Azmat N. Janjua

Teaching Associate: Ayesha Karim

Assignment number: 1

Due date: 4

th

february 2012

Assignment topic as stated in Course Information Booklet:

Foreign direct investment, net inflows (bop, current us)

I declare that the work contained in this assignment is my own, except where acknowledgement of sources is made.I authorise the University to test any work submitted by me, using text comparison software, for instances of plagiarism. I understand this will involve the University or its contractor copying my work and storing it on a database to be used in future to test work submitted by others. Note: The attachment of this statement on any electronically submitted assignments will be deemed to have the same authority as a signed statement. Signed: Date:

Date received from student

Assessment/grade

Assessed by:

Recorded

Dispatched (if applicable)

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

Page 5

Foreign direct investment, net inflows (bop, current us)

Variable: foreign direct investment, net inflows (bop, current us) Country: Pakistan. Time period: - 1987-2006. Change from: - Scientific Unit to Thousands

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Time Series Plot of Foreign direct investment, net

4000000
Foreign direct investment, net

3000000

2000000

1000000

0 2 4 6 8 10 12 Time 14 16 18 20

While applying simple time series plot we come to know that it is non-seasonal data by looking at a graph trends shown above. If we glanced at the above graph, the first 8 years showing a very small increase in forign direct investment, after 10th year there is a decrease till 12th year after that there is minute increase in 15th and 16th year, 17th year shows a decreasing trend but after that from year17th till 20th there is a sharp increase in foreign direct investment. If we do compare this trend with our Pakistani economy, we come to know that changes inforeign direct investment result in changes in the interest rate as well. Policies of pakistan have an important influence on foreign investment decisions. pakistan can adopt policies of stimulating foreign investment or they can restrict foreign participation in their economies in various ways. its policies and policy pronouncements affect the perception of political risk by transnational corporations and thereby the amount of investment of these companies. In addition, policies
Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz Page 7

can be instrumental in channeling investment flows toward sectors considered to be of particular importance to the countrys development Pakistan was basically an agricultural economy upon its independence in 1947. Its industrial capacity was negligible for processing locally produced agricultural raw material. This made it imperative for succeeding governments to improve the countrys manufacturing capacity. In order to achieve this objective, however, changing types of industrial policies have been implemented in different times with a changing focus on either the private sector or the public sector. Pakistan began to implement a more liberal foreign investment policy as part of its overall economic reform program. Accordingly, a new industrial policy package was introduced in 1989 based on the recognition of the primacy of the private sector. A number of policy and regulatory measures were taken to improve the business environment in general and attract FDI in particular till 1994. In November 1997, the government issued the New Investment Policy which includes major policy initiatives.

The government has also enacted an extensive set of investment incentives including credit facilities, fiscal incentives, and visa policy to the foreign investers, which boosted up FDI in pakistan from 2004 till2007. The government should need to focus on the major points which can help to attrect foreign direct investment. These points are political stability; law and order; economic strength; government economic policies; government bureaucracy; local business environment; infrastructure; quality of labor force; quality of life; and welcoming attitude.

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Q 1: fit a linear equation to the time series. Using this equation, determine the trend estimate for 2015? (4 marks)

Linear equation

= a + bX

Yt = -317966 + 102545*t

317966 is the intercept and it will be the value that will be there as the initial value in the equation to which the product of slope (THE RATE OF CHANGE IN Y W.R.T WITH RESPECT TO THE CHANGE IN X) and X will be added.
Trend Estimate For 2015: Y29= -317966 + 102545*29

= 2655839
One unit change in t, there will be an increase of 102545 which will result in one unit change in t. The trend estimated value of Foreign direct investment for the year 2015 is 2655839.

Trend Analysis Plot for Foreign direct investment, net

Linear Trend Model Yt = -317966 + 102545*t

Foreign direct investment, net

4000000

Variable Actual Fits Accuracy Measures MAPE 8.59796E+01 MAD 4.56386E+05 MSD 5.05454E+11

3000000

2000000

1000000

0 2 4 6 8 10 12 time 14 16 18 20

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Q2: fit an exponential equation (=aB) to the time series, and then use the equation to determine trend estimate for 2015? (4 marks)

Exponential equation Yt = 146524 * (1.1248**t)

= A * B^X

146524 is the intercept and it will be the value that will be there as the initial value in the exponential equation to which B^X will be multiplied. 1.1248 means that there will be 12.4 % increase in the value. Trend Estimate for 2015

Y29 = 146524 * (1.1248**29)

=4437033.306

The forign diect investment of Pakistan has increased by 12.4% every year, we found in y with change in x. The estimated forign direct investment of Pakistan for 2015 is 4437033.306.
Trend Analysis Plot for Foreign direct investment, net
Growth Curve Model Yt = 146524 * (1.1248**t)

Foreign direct investment, net

4000000

Variable Actual Fits Accuracy Measures MAPE 3.62075E+01 MAD 3.29964E+05 MSD 4.63690E+11

3000000

2000000

1000000

0 2 4 6 8 10 12 Time 14 16 18 20

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Q3: fit a 2nd degree polynomial equation to the time series. Use this equation to determine trend estimate for 2015? (4 marks)

Quadratic equation

= A + BX + CX Yt = 723055 - 181370*t + 13520*t**2

723055 is the intercept and it will be a value that will be there as the initial value in the polynomial equation to which the product of slope B and X and the product of slope C and X^2 will be added.

Trend Estimate for 2015

Y29 = 723055 - 181370*(29) + 13520*(29) ** 2

=17353105
One unit change in t will change t. The estimated forign direct investment of Pakistan for 2015 is

Trend Analysis Plot for Foreign direct investment, net

Quadratic Trend Model Yt = 723055 - 181370*t + 13520*t**2

Foreign direct investment, net

4000000

Variable Actual Fits Accuracy Measures MAPE 8.30874E+01 MAD 4.24198E+05 MSD 3.45007E+11

3000000

2000000

1000000

0 2 4 6 8 10 12 Time 14 16 18 20

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Q4: Construct the graph of the time series along with the equation fitted in parts (a), (b) and (c). Which equation best fits the data? (3 marks)

According to the above three graphs we got to know that quadratic equation best fits the data Because its standard estimate of error is 3.45007 which is less than other two graphs So, the model whose standard of estimation of error will be less is considered as the best model.

Best model of these three is the quadratic model which has standard error of 3.45007, after that exponential equation having standard error of 4.636 and lastly its linear equation model with standard error of 5.054.

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Appendix Q1:
Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Foreign direct investment 129378 186492 210600 245263 258414 336480 348557 421025 722632 921976 716253 506000 532000 308000 383000 823000 534000 1118000 2201000 4273000 t -215422 -112877 -10332 92213 194757 297302 399847 502392 604936 707481 810026 912571 1015115 1117660 1220205 1322750 1425294 1527839 1630384 1732929

Q2: Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Foreign direct investment 129378 186492 210600 245263 258414 336480 348557 421025 722632 921976 716253 506000 532000 t 164815 185389 208532 234564 263846 296782 333831 375504 422380 475107 534417 601130 676172 Page 13

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

2000 2001 2002 2003 2004 2005 2006

308000 383000 823000 534000 1118000 2201000 4273000

760581 855527 962326 1082456 1217584 1369579 1540549

Q3:

Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Foreign direct investment 129378 186492 210600 245263 258414 336480 348557 421025 722632 921976 716253 506000 532000 308000 383000 823000 534000 1118000 2201000 4273000

t 555205 414394 300622 213890 154198 121545 115932 137358 185824 261329 363874 493458 650082 833745 1044448 1282190 1546972 1838794 2157654 2503555

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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Reference http://www.adb.org/Documents/EDRC/Reports/ER066.pdf

Ali Haider, Kanzah Baig, Muhamaad Hassan Razak, Zain Ali Chaudry, Zubair Gulraiz

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