Economic_Dynamic_Analysis

This project aims to delve into the intricate relationships between Foreign Direct Investment (FDI), government debt, and Gross Domestic Product (GDP) using a detailed empirical analysis.

By employing sophisticated statistical techniques such as stationarity testing, cointegration analysis, and time series modeling, the study will uncover the underlying dynamics and long-term trends among these key economic indicators. The analysis will also include inflation adjustments to provide more accurate insights. Through comprehensive data exploration, advanced modeling, and collaborative efforts, the project seeks to inform economic policy and decision-making by highlighting how FDI and government debt impact GDP growth.

Key Steps in this Analysis:

1. Data Preparation
2. EDA (Exploratory Data Analysis)
   1. Descriptive Statistics
   2. Time Series Plots
   3. Correlation Analysis and Heatmap
   4. Composition of government expenditure over time
   5. Trends in FDI, Government Debt, GDP
3. Stationarity testing -> Augmented Dicky Fuller test
4. Cointegration Analysis
   1. Vector Error Correction Model (VECM)
   2. Impluse responses
   3. Johansen test
5. Granger Casuality test

Conclusion from the Analysis:

Short Run: A positive shock to government debt (i.e., an increase in government debt) has a negative effect on FDI. This means that if government debt suddenly increases, it will likely lead to a decrease in foreign investment in the short term.

Long Run: The negative effect of government debt on FDI fades away over time. This means that as time passes, the initial negative impact of government debt on FDI will decrease and eventually disappear.

In conclusion, an increase in government debt initially discourages foreign investment, but this negative impact diminishes over time, eventually stabilizing and allowing foreign investment to recover.