IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v17y2024i10p451-d1492844.html
   My bibliography  Save this article

Forecasting Foreign Direct Investment Inflow to Bangladesh: Using an Autoregressive Integrated Moving Average and a Machine Learning-Based Random Forest Approach

Author

Listed:
  • Md. Monirul Islam

    (Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh
    Commonwealth Scientific and Industrial Research Organisation—CSIRO, Waite Campus, Adelaide, SA 5064, Australia)

  • Arifa Jannat

    (Institute of Agribusiness and Development Studies (IADS), Bangladesh Agricultural University, Mymensingh 2202, Bangladesh
    School of Agriculture, Food and Wine, University of Adelaide, Urrbrae, SA 5064, Australia)

  • Kentaka Aruga

    (Graduate School of Humanities and Social Sciences, Saitama University, 255 Shimo-Okubo, Sakura-ku, Saitama 338-8570, Japan)

  • Md Mamunur Rashid

    (Senior Lecturer—ICT, School of Engineering & Technology, CQUniversity Australia, 120 Spencer Street, Melbourne, VIC 3000, Australia)

Abstract

This study focuses on the challenge of accurately forecasting foreign direct investment (FDI) inflows to Bangladesh, which are crucial for the country’s sustainable economic growth. Although Bangladesh has strong potential as an investment destination, recent FDI inflows have sharply declined due to global economic uncertainties and the impact of the COVID-19 pandemic. There is a clear gap in applying advanced forecasting models, particularly the autoregressive integrated moving average (ARIMA) model and machine learning techniques like random forest (RF), to predict FDI inflows in Bangladesh. This study aims to analyze and forecast FDI inflows in Bangladesh by employing a hybrid approach that integrates the ARIMA model and the RF algorithm. This study covers the period from 1986 to 2022. The analysis reveals that net FDI inflow in Bangladesh is integrated into the first order, and the ARIMA (3,1,2) model is identified as the most suitable based on the Akaike Information Criterion (AIC). Diagnostic tests confirm its consistency and appropriateness for forecasting net FDI inflows in the country. This study’s findings indicate a decreasing trend in net FDI inflows over the forecasted period, with an average of USD 1664 million, similar to recent values. The results from the RF model also support these findings, projecting average net FDI values of USD 1588.99 million. To achieve the aims of Vision 2041, which include eradicating extreme poverty and becoming a high-economic nation, an increasing trend of FDI inflow is crucial. The current forecasting trends provide insights into the potential trajectory of FDI inflows in Bangladesh, highlighting the importance of attracting higher FDI to accomplish their economic goals. Additionally, strengthening bilateral investment agreements and leveraging technology transfer through FDI will also be essential for fostering sustainable economic growth.

Suggested Citation

  • Md. Monirul Islam & Arifa Jannat & Kentaka Aruga & Md Mamunur Rashid, 2024. "Forecasting Foreign Direct Investment Inflow to Bangladesh: Using an Autoregressive Integrated Moving Average and a Machine Learning-Based Random Forest Approach," JRFM, MDPI, vol. 17(10), pages 1-20, October.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:10:p:451-:d:1492844
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/17/10/451/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/17/10/451/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    2. Benedict Huruma Peter Mwakabungu & Jignesh Kauangal, 2023. "An empirical analysis of the relationship between FDI and economic growth in Tanzania," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2204606-220, December.
    3. Chuku, Chuku & Simpasa, Anthony & Oduor, Jacob, 2019. "Intelligent forecasting of economic growth for developing economies," International Economics, Elsevier, vol. 159(C), pages 74-93.
    4. Abas Omar Mohamed, 2022. "Modeling and Forecasting Somali Economic Growth Using ARIMA Models," Forecasting, MDPI, vol. 4(4), pages 1-13, November.
    5. Parisa Samimi & Hashem Salarzadeh Jenatabadi, 2014. "Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities," PLOS ONE, Public Library of Science, vol. 9(4), pages 1-7, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nahapetyan Yervand, 2019. "The benefits of the Velvet Revolution in Armenia: Estimation of the short-term economic gains using deep neural networks," Central European Economic Journal, Sciendo, vol. 6(53), pages 286-303, January.
    2. Jaewon Jung, 2023. "Multinational Firms and Economic Integration: The Role of Global Uncertainty," Sustainability, MDPI, vol. 15(3), pages 1-18, February.
    3. Maria Cipollina & Giorgia Giovannetti & Filomena Pietrovito & Alberto F. Pozzolo, 2012. "FDI and Growth: What Cross-country Industry Data Say," The World Economy, Wiley Blackwell, vol. 35(11), pages 1599-1629, November.
    4. Oladunjoye, Opeyemi Nathaniel & Areyemi, Victor Olaife, 2021. "Tourism, Globalization and Economic Growth in Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 9(2), April.
    5. Yuping Deng & Helian Xu, 2015. "International Direct Investment and Transboundary Pollution: An Empirical Analysis of Complex Networks," Sustainability, MDPI, vol. 7(4), pages 1-25, April.
    6. Teixeira, Aurora A.C. & Tavares-Lehmann, Ana Teresa, 2014. "Human capital intensity in technology-based firms located in Portugal: Does foreign ownership matter?," Research Policy, Elsevier, vol. 43(4), pages 737-748.
    7. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    8. Jan I. Haaland & Ian Wooton & Giulia Faggio, 2002. "Multinational Firms: Easy Come, Easy Go?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(1), pages 3-26, February.
    9. Dzikowski Piotr, 2016. "The Importance of Vertical Linkages for the Innovation Activity of Medium-High and High Technology Industries in Poland," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 51(1), pages 90-103, September.
    10. Alvaro Pereira & João Jalles & Martin Andresen, 2012. "Structural change and foreign direct investment: globalization and regional economic integration," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 11(1), pages 35-82, April.
    11. Oumarou Zallé & Idrissa M. Ouédraogo, 2021. "Spillover effects of corruption and democracy on territorial attractiveness of foreign direct investment in sub‐Saharan Africa," African Development Review, African Development Bank, vol. 33(4), pages 756-769, December.
    12. Massimiliano Mazzanti & Valeria Costantini & Susanna Mancinelli & Massimilano Corradini, 2011. "Environmental and Innovation Performance in a Dynamic Impure Public Good Framework," Working Papers 201117, University of Ferrara, Department of Economics.
    13. Bastian Gawellek & Jingjing Lyu & Bernd Süssmuth, 2016. "Did Chinese Outward Activity Attenuate or Aggravate the Great Recession in Developing Countries?," CESifo Working Paper Series 5735, CESifo.
    14. Madani, Dorsati H., 2001. "South-South regional integration and industrial growth : the case of the Andean Pact," Policy Research Working Paper Series 2614, The World Bank.
    15. Jin, Shaosheng & Guo, Haiyue & Delgado, Michael S. & Wang, H. Holly, 2017. "Benefit or damage? The productivity effects of FDI in the Chinese food industry," Food Policy, Elsevier, vol. 68(C), pages 1-9.
    16. Cui Zhang & Xiongjin Feng & Yanzhen Wang, 2022. "Technology Spillovers among Innovation Agents from the Perspective of Network Connectedness," Mathematics, MDPI, vol. 10(16), pages 1-17, August.
    17. Olivier N. Godart & Holger Görg, 2016. "Suppliers of multinationals and the forced linkage effect: Evidence from firm level data," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 15, pages 277-288, World Scientific Publishing Co. Pte. Ltd..
    18. Lin, Benxi & Du, Ruiying & Dong, Zekuan & Jin, Shaosheng & Liu, Weipin, 2020. "The impact of foreign direct investment on the productivity of the Chinese forest products industry," Forest Policy and Economics, Elsevier, vol. 111(C).
    19. Koen de Backer, 2002. "Does foreign direct investment crowd out domestic entrepreneurship?," Economics Working Papers 618, Department of Economics and Business, Universitat Pompeu Fabra.
    20. Cristina JUDE & Grégory LEVIEUGE, 2013. "Growth Effect of FDI in Developing Economies: the Role of Institutional Quality," LEO Working Papers / DR LEO 2251, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:17:y:2024:i:10:p:451-:d:1492844. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.