On the base of significant fluctuations of the international financial markets, the international investment position of Romania has an increasing importance in assuring the financial stability. The Romanian National Bank reserves are increasing as a result of exchanging the minimum reserves into foreign currencies made by banks and of the privatization revenues. The international reserve has been negatively influenced by the payments made in the foreign debt service account and by the foreign payment forms redeemed by the Public Finance Ministry. This paper offers to analyze the evolution and impact of the foreign investments in any form whatsoever, on the Romanian economy with the help of autoregressive econometrical models. These models shall refer to all foreign investments elements: direct investments of non-residents, portfolio investment and other categories of foreign investments as well as bank deposits or external short-term, medium and long-term credits

Boleantu, Mihai

Sipos, Ciprian

Munich RePEc Personal Archive

MPRAMunich Personal RePEc ArchiveAutoregressive models for analysis offoreign investment in RomaniaCiprian Sipos and Mihai BoleantuWest University from Timisoara (Romania), Faculty of Economicsand Business AdministrationApril 2008Online at http://mpra.ub.uni-muenchen.de/13082/MPRA Paper No. 13082, posted 31. January 2009 08:55 UTCAUTOREGRESSIVE MODELS FOR ANALYSIS OF FOREIGN INVESTMENT IN ROMANIA Şipoş CiprianWest  University  of  Timisoara,  Faculty  of  Economics  and  Business  Administration,  Pestalozzi  16,  Timişoara, 300115, Romania, E-mail: ciprian.sipos@fse.uvt.ro  tel: 0744.834.835Boleanţu MihaiWest  University  of  Timisoara,  Faculty  of  Economics  and  Business  Administration,  Pestalozzi  16,  Timişoara, 300115, Romania,E-mail: mihai.boleantu@upcmail.ro tel: 0743.652.348On the base of significant fluctuations of the international financial markets, the international investment  position  of  Romania  has  an  increasing  importance  in  assuring  the  financial  stability.  The  Romanian  National  Bank  reserves  are  increasing  as  a  result  of  exchanging  the  minimum reserves  into  foreign  currencies made by banks and of the privatization revenues. The international reserve has been negatively  influenced by the payments made in the foreign debt service account and by the foreign payment forms  redeemed by the Public Finance Ministry. This paper offers to analyze the evolution and impact of the  foreign investments in any form whatsoever, on the Romanian economy with the help of autoregressive  econometrical models. These models shall refer to all foreign investments elements: direct investments of  non-residents, portfolio investment and other categories of foreign investments as well as bank deposits or  external short-term, medium and long-term credits. Keywords: econometric analysis,  foreign investment, autoregressive modelsIntroduction The international investment position of Romania is given by foreign currency inflow and outflow caused by  governmental  operations  or  private  economic  agents.  An  important  piece  of  this  external  position represent the foreign investments in Romania. These are performed on some more elements that include direct investments of non-residents in Romania, portfolio investment and other foreign investments relating to deposits or foreign currency loans. Direct investments of non-residents in Romania represent the fundamental element of foreign investments, materializing in establishments of firms with state or private capital of integral or partial external origin, in different participating interests and other foreign liabilities. The evolution of these investment categories is vital  for  maintaining  the  Romanian  external  financial  equilibrium.  The  second  element  of  foreign investments represents the portfolio investment of equity securities, of debt securities and of money market instruments. These investment categories are materialized on the stock market or on the financial-banking one. It represents volatile elements of foreign investments since they can be easily changed into liquidities and  repatriated  by  external  operators.    Foreign  investments  can  be  accomplished  based  on  other investments like foreign loans and credits on short or long terms, on the foreign currency and deposits or on  other  liabilities  on short,  medium or  long term.  All  these  elements  provide  the  equilibrium to  the Romanian cash and currency market. Autoregressive models will be used in order to study the behavior of each element of foreign investments in Romania and to predict their future evolution, up to a degree of certainty.  From an econometrical point of  view,  the  term  ‘autoregressive’  defines  the  measure  in  which  an  economical  variable  presents  the property of self-correlation [1], meaning that its current level is significantly determined by its previous levels, corresponding to one or more periods of time behind. Autoregressive model for analysis of foreign direct investments of non-residents in RomaniaThe analysis of the first component of foreign investments in Romania is accomplished based on a data sample pattern which refers to the evolution of foreign direct  investments of non-residents in Romania during 2000-2007 ([5], [6]). These investments showed an increase in the period of analysis,  having a significant share from the value of the current account default. Even without the sums of money obtained 927from privatization, the financing based on foreign direct investments is on a slow rise than in previous years.  The  evolution  of  foreign  direct  investments  of  non-residents  in  Romania  during  2000-2007  is presented in Figure 1:  Source of data: National Bank of Romania & Romanian National Institute of StatisticsIn Figure 1 one can notice the emphasis of the rise tend starting with 2004, while in the last two years, 2006  and  2007,  the  rise  is  almost  exponential.  It  can  be  uttered  for  certain  that  the  Romania’s  EU integration has given an important boost to foreign investments, with no precedent case in the last half of century. The autoregressive  model  assumes that  the effect  of  the accelerated  rise  of  foreign  investments is  not significantly caused by direct influence of some factorial variables but it is a retroactive one, induced by informational load of the studied variable. Basically, the autoregressive effect is materialized in a more or less striking way in which its registered levels of foreign investments in the previous periods of times influence the actual level, the deviation of influences in time having different values. Generally, the bigger the  deviation,  that  is  the  displacing  behind  is  now more  emphasized,  the  weaker  the  influences.  The problem that occurs is that of determining the moment in which these become insignificant in order to be left out of the model [2]. The  increased  volatility,  and  sometimes  unpredictable,  of  the  economic  anticipations  make  these  a significant, pseudo-adaptive category which means that the formation principle can be of snowball type, the  propagation  speed  being  very  high  and  the  direction  of  evolution  contrary  to  the  theory  [3].  An important  issue is that  between different  foreign investors category there is  an important  informational asymmetry, which equivalates with different forms of the functions that formally describe their anticipation mechanisms. Estimating on distinct periods of time can attenuate this asymmetry. Yet, two great categories of  investors  can  be distinguished,  namely:  those  who want  to  invest  and  get  profit  on  long-term and speculative  investors  who go  for  advantages  for  a  short  period of  time.  Depending  on the number  of periods  with  which  the  analysis  is  deviated  behind,  there  are  more  types  of  model,  starting  with  the autoregressive model of first order – in which case the effect in time is analyzed on one past period of time – and models of superior order – two, three, etc. – in which case the effect in time is studied on k periods of time behind [4]. The autoregressive model of first order takes into consideration the linear influences of the previous level of direct foreign investments FDIt–1 on their current level FDIt. Based on the analyzed data sample,  the results of the autoregressive model of first  order   applied on direct  foreign investments in Romania are shown in Table 1: 928051015202530354045Thousand Mil. Euro2000 2001 2002 2003 2004 2005 2006 2007YearFigure 1. Evolution of direct investment of non-residents in RomaniaDirect inves tm ent of non-res identsTable 1.Dependent Variable: Foreign Direct InvestmentMethod: Least SquaresModel Equation: FDIt = β1⋅ FDIt–1Estimated Coefficient Value Std. Error t-Statistic Probabilityβ1 1,314389627 0,076063618 17,28013549 2,406E-06Multiple R 0,990102134     Mean dependent variable 18184,625R-Square 0,980302235     S.D. dependent variable 13234,813S.E. of regression 3542,620943     F-statistic 298,60308t critical 2,446911846     F critical 3,79The statistical parameters of the model show a strong autoregressive character of direct foreign investments because Multiple R and R-Square have values very close to 1. t-Statistic value is much above t critical, the same  with  F-statistic in  report  to  F  critical,  which  shows  a  model  with  a  high  degree   of  statistic significance. In such conditions, the estimated greater than one value of  β1 (Estimated Coefficient Value) shows a strong rising trend of direct foreign investments in Romania (an average rise of 1,314 times from one year to another). Autoregressive model for analysis of foreign portfolio investments in RomaniaThe second element of foreign investments in Romania is analyzed using the same data sample from 2000-2007 ([5], [6]). This category of investments had a rising trend during the analyzed period, too. Unlike the first category of foreign investments, the portfolio investments had a more linear trend, less  abrupt. The evolution of foreign portfolio investments in Romania during 2000-2007 is shown in Figure 2: Source of data: National Bank of Romania & Romanian National Institute of StatisticsThe foreign portfolio investments are the result of various categories of transactions, such as: purchase by the residents of a part of the shares in “lei” released by the World Bank on the Romanian Market; the purchase of shares of foreign banks by a part of the Romanian employees of the banks’ branches; issuing bonds by the Romanian banks onto the foreign capital markets; the redeem of the bonds issued in a foreign currency by various companies; other transactions with financial instruments expressed in foreign currency on the internal capital market. The autoregressive model of first order takes into consideration the linear influences the precedent level of foreign portfolio investments  FPIt–1 undertake over the present level of these FPIt. On the base of the data pattern analyzed, the results of the autoregressive model of first order, applied to the foreign portfolio investments in Romania, are shown in Table 2: 9290123456Thousand Mil. Euro2000 2001 2002 2003 2004 2005 2006 2007YearFigure 2. Evolution of foreign portfolio investment in RomaniaForeign portfolio inves tmentTable 2.Dependent Variable: Foreign Portfolio InvestmentMethod: Least SquaresModel Equation: FPIt = β1⋅ FPIt–1Estimated Coefficient Value Std. Error t-Statistic Probabilityβ2 1,1191819 0,0361730 30,939621 7,569E-08Multiple R 0,9968807     Mean dependent variable 3647,375R-Square 0,9937712     S.D. dependent variable 1129,374S.E. of regression 340,10079     F-statistic 957,260t critical 2,44691184     F critical 3,787043As  in  the  case  of  direct  foreign  investments,  the  statistic  parameters  of  the  model  show  a  strong autoregressive condition of the portfolio investments, that is because Multiple R and R-square have values very close to 1, and the value of t-Statistic is much over the t critical. Also, F-statistic is much higher than F-critical,  which  shows  us  a  model  of  great  statistic  significance.  We  notice  that  the  supra-unitary estimated coefficient value of  β2 (Estimated Coefficient Value is of 1,119)  is a little bit lower than the value of  β1,  situation that shows us a trend to rise, a little bit milder than in the case of direct foreign investments.  Anyways,  the  market  of  portfolio  investments  is  fully  developing,  especially  after  the integration in the European Union. Autoregressive model for analysis of other foreign investments in RomaniaThe third element of foreign investments is being analyzed based on the same data sample pattern during 2000 – 2007 ([5], [6]). It is made up of assets of the type of foreign loans and credits on short or long term, of cash and foreign currency deposits, or of other short, medium or long-term liabilities. This category of foreign  investments  also had  a  rising  tendency  during  the  period  of  time analyzed,  with  a  significant acceleration in the last two years. The evolution of other foreign investments in Romania during 2000 – 2007 is shown in Figure 3: Source of data: National Bank of Romania & Romanian National Institute of StatisticsThe net foreign financing obtained from medium and long-term loans and credits has increased due to the increase of the volume of the credits undertaken by the bank sector, the public administration, and by other sectors. The net cash inflow from credits and loans on short term has also increased in a sustained pace. The foreign short-term debt had a strong increasing development,  too.  Its  development needs attention from the perspective of financial stability for at least two reasons. The first reason is given by the fact that 930051015202530354045Thousand Mil. Euro2000 2001 2002 2003 2004 2005 2006 2007YearFigure 3. Evolution of other foreign investment in RomaniaOther foreign investm entthe foreign debts’ on short term dynamism is considerably superior to the cash flows that can be used in case of need, by the exports or the official fund of the Romanian National Bank; and the second reason is given by the very high degree of concentration of  the foreign  short  term debt  within the non-banking domain. The autoregressive model of first order takes in consideration the linear influences the precedent level of other foreign investments  OFIt–1 undergoes over the present  level of these  OFIt. On the grounds of the analyzed  data  sample,  the  results  of  the  autoregressive  model  of  first  order  applied  to  other  foreign investments in Romania are represented in Table 3:  Table 3.Dependent Variable: Other Foreign InvestmentMethod: Least SquaresModel Equation: OFIt =  β3⋅ OFIt–1Estimated Coefficient Value Std. Error t-Statistic Probabilityβ3 1,316009905 0,065905415 19,96816056 1,02387E-06Multiple R 0,992559927     Mean dependent variable 19773,750R-Square 0,985175208     S.D. dependent variable 11220,907S.E. of regression 3094,205365     F-statistic 398,72743t critical 2,446911846     F critical 3,7870435The statistical parameters of the model show a strong autoregressive character of other foreign investments, as it is in the case of the other two components of the foreign investments in Romania. Multiple R and R-Square have values very close to 1, and the value of  t-Statistic is a lot over  t-critical; the same is  F-statistic, if compared to F-critical. All these elements show us an autoregressive model with a high level of statistical significance. The supra-unitary estimated coefficient value β3 shows a strong rising tendency for other  foreign  investments  in  Romania,  similar  to  those  noticed  with  the  direct  foreign  investments  (a medium rise of 1,316 times from one year to another, the most noticeable of all three components). ConclusionsThe autoregressive model which studies the development of the foreign investments in Romania on the grounds  of  the  three  fundamental  components  –  direct  investments,  portfolio  investments,  and  other investments – have shown a few essential characteristics of these macro-economical indicators. Firstly, the increase of all components, and so, of the whole system, was strictly increasing during the period of time of the research, the portfolio investments with a linear tendency, and the direct investments, and other foreign investments  with accelerated  rise  in  the  past  two years.  Secondly,  there  is  a  autoregressive  character, extremely  powerful  demonstrated  by  all  the  components,  which  shows the  importance  of  the  rational anticipations of the market operators. One should take into account the fact that the activities the direct foreign investments aimed at in the past few  years  have  been:  industry,  commerce,  financial  intermediation  and  insurance,  telecommunication, company  servicing,  transport,  and  construction.  The  main  investing  countries  were:  Holland,  Austria, Germany,  France,  Italy,  United  Kingdom of  Great  Britain  and  Northern  Ireland,  Greece,  Cyprus,  and United States of America. Compared to the total official fund, the size of foreign debts on short term has reached almost 60 per cent [5]. In the situation in which the export is relatively dependent on the imports, and an important part of the official reserve fund is made-up of the minimum compulsory fund of banks and  of  the  country’s  income from privatizations,  the  growth  pace  of  the  foreign  debts  on  short  term experiences a significant attention. The degree of concentration of the exposure of the foreign debts on short term within non-financial companies has increased; but the number of the firms that generated such net cash flow debts is decreasing. The perspective of a continuation of capital  inflow is relatively favorable,  that  if the American market crisis does not expand. But the excess of cash flow on the international markets is still going, and the companies’ performances in Romania, who were the beneficiaries of the infusion of foreign capital, are 931substantial.  These  companies  are  more  profitable and more productive than the  rest  of  economy.  The profitableness of the capitals also records a sustained and increased dynamism. The wage efficiency of the companies with foreign capital is in a continuous rising, over the national average of economy. On the other hand, it is necessary to undertake some coherent politics on a macro-economical level in order to maintain the favorable results mentioned above. References1.   Frees  E.W.,  Data  Analysis  Using  Regression  Models,  Prentice-Hall  International,  Inc.,  New Jersey, 19962.   Greene W.H., Econometric Analysis, Fifth Edition, Prentice Hall, 20033.   Şipoş C., Modelarea comportamentului cursului de schimb al leului, Editura Universităţii de Vest, Timişoara, 20034.   Şipoş C., Preda C., Econometrie, Editura Mirton, Timişoara, 20045.   *** Annually and Monthly Reports of National Bank of Romania, 2000 – 2007 years6.   *** Romanian Statistical Yearbook and Monthly Reports of National Institute of Statistics, 2000 – 2007 years  932

English

Autoregressive models for analysis of foreign investment in Romania

Munich Personal RePEc Archive

MPRA
Munich Personal RePEc Archive
Autoregressive models for analysis of
foreign investment in Romania
Ciprian Sipos and Mihai Boleantu
West University from Timisoara (Romania), Faculty of Economics
and Business Administration
April 2008
Online at http://mpra.ub.uni-muenchen.de/13082/
MPRA Paper No. 13082, posted 31. January 2009 08:55 UTC
AUTOREGRESSIVE MODELS FOR ANALYSIS OF FOREIGN 
INVESTMENT IN ROMANIA 
Şipoş Ciprian
West  University  of  Timisoara,  Faculty  of  Economics  and  Business  Administration,  Pestalozzi  16,  
Timişoara, 300115, Romania, E-mail: ciprian.sipos@fse.uvt.ro  tel: 0744.834.835
Boleanţu Mihai
West  University  of  Timisoara,  Faculty  of  Economics  and  Business  Administration,  Pestalozzi  16,  
Timişoara, 300115, Romania,E-mail: mihai.boleantu@upcmail.ro tel: 0743.652.348
On the base of significant fluctuations of the international financial markets, the international investment  
position  of  Romania  has  an  increasing  importance  in  assuring  the  financial  stability.  The  Romanian  
National  Bank  reserves  are  increasing  as  a  result  of  exchanging  the  minimum reserves  into  foreign  
currencies made by banks and of the privatization revenues. The international reserve has been negatively  
influenced by the payments made in the foreign debt service account and by the foreign payment forms  
redeemed by the Public Finance Ministry. This paper offers to analyze the evolution and impact of the  
foreign investments in any form whatsoever, on the Romanian economy with the help of autoregressive  
econometrical models. These models shall refer to all foreign investments elements: direct investments of  
non-residents, portfolio investment and other categories of foreign investments as well as bank deposits or  
external short-term, medium and long-term credits. 
Keywords: econometric analysis,  foreign investment, autoregressive models
Introduction 
The international investment position of Romania is given by foreign currency inflow and outflow caused 
by  governmental  operations  or  private  economic  agents.  An  important  piece  of  this  external  position 
represent the foreign investments in Romania. These are performed on some more elements that include 
direct investments of non-residents in Romania, portfolio investment and other foreign investments relating 
to deposits or foreign currency loans. 
Direct investments of non-residents in Romania represent the fundamental element of foreign investments, 
materializing in establishments of firms with state or private capital of integral or partial external origin, in 
different participating interests and other foreign liabilities. The evolution of these investment categories is 
vital  for  maintaining  the  Romanian  external  financial  equilibrium.  The  second  element  of  foreign 
investments represents the portfolio investment of equity securities, of debt securities and of money market 
instruments. These investment categories are materialized on the stock market or on the financial-banking 
one. It represents volatile elements of foreign investments since they can be easily changed into liquidities 
and  repatriated  by  external  operators.    Foreign  investments  can  be  accomplished  based  on  other 
investments like foreign loans and credits on short or long terms, on the foreign currency and deposits or 
on  other  liabilities  on short,  medium or  long term.  All  these  elements  provide  the  equilibrium to  the 
Romanian cash and currency market. 
Autoregressive models will be used in order to study the behavior of each element of foreign investments in 
Romania and to predict their future evolution, up to a degree of certainty.  From an econometrical point 
of  view,  the  term  ‘autoregressive’  defines  the  measure  in  which  an  economical  variable  presents  the 
property of self-correlation [1], meaning that its current level is significantly determined by its previous 
levels, corresponding to one or more periods of time behind. 
Autoregressive model for analysis of foreign direct investments of non-residents in Romania
The analysis of the first component of foreign investments in Romania is accomplished based on a data 
sample pattern which refers to the evolution of foreign direct  investments of non-residents in Romania 
during 2000-2007 ([5], [6]). These investments showed an increase in the period of analysis,  having a 
significant share from the value of the current account default. Even without the sums of money obtained 
927
from privatization, the financing based on foreign direct investments is on a slow rise than in previous 
years.  The  evolution  of  foreign  direct  investments  of  non-residents  in  Romania  during  2000-2007  is 
presented in Figure 1:  
Source of data: National Bank of Romania & Romanian National Institute of Statistics
In Figure 1 one can notice the emphasis of the rise tend starting with 2004, while in the last two years, 
2006  and  2007,  the  rise  is  almost  exponential.  It  can  be  uttered  for  certain  that  the  Romania’s  EU 
integration has given an important boost to foreign investments, with no precedent case in the last half of 
century. 
The autoregressive  model  assumes that  the effect  of  the accelerated  rise  of  foreign  investments is  not 
significantly caused by direct influence of some factorial variables but it is a retroactive one, induced by 
informational load of the studied variable. Basically, the autoregressive effect is materialized in a more or 
less striking way in which its registered levels of foreign investments in the previous periods of times 
influence the actual level, the deviation of influences in time having different values. Generally, the bigger 
the  deviation,  that  is  the  displacing  behind  is  now more  emphasized,  the  weaker  the  influences.  The 
problem that occurs is that of determining the moment in which these become insignificant in order to be 
left out of the model [2]. 
The  increased  volatility,  and  sometimes  unpredictable,  of  the  economic  anticipations  make  these  a 
significant, pseudo-adaptive category which means that the formation principle can be of snowball type, 
the  propagation  speed  being  very  high  and  the  direction  of  evolution  contrary  to  the  theory  [3].  An 
important  issue is that  between different  foreign investors category there is  an important  informational 
asymmetry, which equivalates with different forms of the functions that formally describe their anticipation 
mechanisms. Estimating on distinct periods of time can attenuate this asymmetry. Yet, two great categories 
of  investors  can  be distinguished,  namely:  those  who want  to  invest  and  get  profit  on  long-term and 
speculative  investors  who go  for  advantages  for  a  short  period of  time.  Depending  on the number  of 
periods  with  which  the  analysis  is  deviated  behind,  there  are  more  types  of  model,  starting  with  the 
autoregressive model of first order – in which case the effect in time is analyzed on one past period of time 
– and models of superior order – two, three, etc. – in which case the effect in time is studied on k periods of 
time behind [4]. The autoregressive model of first order takes into consideration the linear influences of the 
previous level of direct foreign investments FDIt–1 on their current level FDIt. Based on the analyzed data 
sample,  the results of the autoregressive model of first  order   applied on direct  foreign investments in 
Romania are shown in Table 1: 
928
0
5
10
15
20
25
30
35
40
45
T
h
o
u
s
a
n
d
 M
il.
 E
u
ro
2000 2001 2002 2003 2004 2005 2006 2007
Year
Figure 1. Evolution of direct investment of non-residents in Romania
Direct inves tm ent of non-res idents
Table 1.
Dependent Variable: Foreign Direct Investment
Method: Least Squares
Model Equation: FDIt = β1⋅ FDIt–1
Estimated Coefficient Value Std. Error t-Statistic Probability
β1 1,314389627 0,076063618 17,28013549 2,406E-06
Multiple R 0,990102134     Mean dependent variable 18184,625
R-Square 0,980302235     S.D. dependent variable 13234,813
S.E. of regression 3542,620943     F-statistic 298,60308
t critical 2,446911846     F critical 3,79
The statistical parameters of the model show a strong autoregressive character of direct foreign investments 
because Multiple R and R-Square have values very close to 1. t-Statistic value is much above t critical, the 
same  with  F-statistic in  report  to  F  critical,  which  shows  a  model  with  a  high  degree   of  statistic 
significance. In such conditions, the estimated greater than one value of  β1 (Estimated Coefficient Value) 
shows a strong rising trend of direct foreign investments in Romania (an average rise of 1,314 times from 
one year to another). 
Autoregressive model for analysis of foreign portfolio investments in Romania
The second element of foreign investments in Romania is analyzed using the same data sample from 2000-
2007 ([5], [6]). This category of investments had a rising trend during the analyzed period, too. Unlike the 
first category of foreign investments, the portfolio investments had a more linear trend, less  abrupt. The 
evolution of foreign portfolio investments in Romania during 2000-2007 is shown in Figure 2: 
Source of data: National Bank of Romania & Romanian National Institute of Statistics
The foreign portfolio investments are the result of various categories of transactions, such as: purchase by 
the residents of a part of the shares in “lei” released by the World Bank on the Romanian Market; the 
purchase of shares of foreign banks by a part of the Romanian employees of the banks’ branches; issuing 
bonds by the Romanian banks onto the foreign capital markets; the redeem of the bonds issued in a foreign 
currency by various companies; other transactions with financial instruments expressed in foreign currency 
on the internal capital market. The autoregressive model of first order takes into consideration the linear 
influences the precedent level of foreign portfolio investments  FPIt–1 undertake over the present level of 
these FPIt. On the base of the data pattern analyzed, the results of the autoregressive model of first order, 
applied to the foreign portfolio investments in Romania, are shown in Table 2: 
929
0
1
2
3
4
5
6
Th
ou
sa
nd
 M
il.
 E
ur
o
2000 2001 2002 2003 2004 2005 2006 2007
Year
Figure 2. Evolution of foreign portfolio investment in Romania
Foreign portfolio inves tment
Table 2.
Dependent Variable: Foreign Portfolio Investment
Method: Least Squares
Model Equation: FPIt = β1⋅ FPIt–1
Estimated Coefficient Value Std. Error t-Statistic Probability
β2 1,1191819 0,0361730 30,939621 7,569E-08
Multiple R 0,9968807     Mean dependent variable 3647,375
R-Square 0,9937712     S.D. dependent variable 1129,374
S.E. of regression 340,10079     F-statistic 957,260
t critical 2,44691184     F critical 3,787043
As  in  the  case  of  direct  foreign  investments,  the  statistic  parameters  of  the  model  show  a  strong 
autoregressive condition of the portfolio investments, that is because Multiple R and R-square have values 
very close to 1, and the value of t-Statistic is much over the t critical. Also, F-statistic is much higher than 
F-critical,  which  shows  us  a  model  of  great  statistic  significance.  We  notice  that  the  supra-unitary 
estimated coefficient value of  β2 (Estimated Coefficient Value is of 1,119)  is a little bit lower than the 
value of  β1,  situation that shows us a trend to rise, a little bit milder than in the case of direct foreign 
investments.  Anyways,  the  market  of  portfolio  investments  is  fully  developing,  especially  after  the 
integration in the European Union. 
Autoregressive model for analysis of other foreign investments in Romania
The third element of foreign investments is being analyzed based on the same data sample pattern during 
2000 – 2007 ([5], [6]). It is made up of assets of the type of foreign loans and credits on short or long term, 
of cash and foreign currency deposits, or of other short, medium or long-term liabilities. This category of 
foreign  investments  also had  a  rising  tendency  during  the  period  of  time analyzed,  with  a  significant 
acceleration in the last two years. The evolution of other foreign investments in Romania during 2000 – 
2007 is shown in Figure 3: 
Source of data: National Bank of Romania & Romanian National Institute of Statistics
The net foreign financing obtained from medium and long-term loans and credits has increased due to the 
increase of the volume of the credits undertaken by the bank sector, the public administration, and by other 
sectors. The net cash inflow from credits and loans on short term has also increased in a sustained pace. 
The foreign short-term debt had a strong increasing development,  too.  Its  development needs attention 
from the perspective of financial stability for at least two reasons. The first reason is given by the fact that 
930
0
5
10
15
20
25
30
35
40
45
T
ho
u
s
an
d
 M
il.
 E
u
ro
2000 2001 2002 2003 2004 2005 2006 2007
Year
Figure 3. Evolution of other foreign investment in Romania
Other foreign investm ent
the foreign debts’ on short term dynamism is considerably superior to the cash flows that can be used in 
case of need, by the exports or the official fund of the Romanian National Bank; and the second reason is 
given by the very high degree of concentration of  the foreign  short  term debt  within the non-banking 
domain. 
The autoregressive model of first order takes in consideration the linear influences the precedent level of 
other foreign investments  OFIt–1 undergoes over the present  level of these  OFIt. On the grounds of the 
analyzed  data  sample,  the  results  of  the  autoregressive  model  of  first  order  applied  to  other  foreign 
investments in Romania are represented in Table 3:  
Table 3.
Dependent Variable: Other Foreign Investment
Method: Least Squares
Model Equation: OFIt =  β3⋅ OFIt–1
Estimated Coefficient Value Std. Error t-Statistic Probability
β3 1,316009905 0,065905415 19,96816056 1,02387E-06
Multiple R 0,992559927     Mean dependent variable 19773,750
R-Square 0,985175208     S.D. dependent variable 11220,907
S.E. of regression 3094,205365     F-statistic 398,72743
t critical 2,446911846     F critical 3,7870435
The statistical parameters of the model show a strong autoregressive character of other foreign investments, 
as it is in the case of the other two components of the foreign investments in Romania. Multiple R and R-
Square have values very close to 1, and the value of  t-Statistic is a lot over  t-critical; the same is  F-
statistic, if compared to F-critical. All these elements show us an autoregressive model with a high level of 
statistical significance. The supra-unitary estimated coefficient value β3 shows a strong rising tendency for 
other  foreign  investments  in  Romania,  similar  to  those  noticed  with  the  direct  foreign  investments  (a 
medium rise of 1,316 times from one year to another, the most noticeable of all three components). 
Conclusions
The autoregressive model which studies the development of the foreign investments in Romania on the 
grounds  of  the  three  fundamental  components  –  direct  investments,  portfolio  investments,  and  other 
investments – have shown a few essential characteristics of these macro-economical indicators. Firstly, the 
increase of all components, and so, of the whole system, was strictly increasing during the period of time of 
the research, the portfolio investments with a linear tendency, and the direct investments, and other foreign 
investments  with accelerated  rise  in  the  past  two years.  Secondly,  there  is  a  autoregressive  character, 
extremely  powerful  demonstrated  by  all  the  components,  which  shows the  importance  of  the  rational 
anticipations of the market operators. 
One should take into account the fact that the activities the direct foreign investments aimed at in the past 
few  years  have  been:  industry,  commerce,  financial  intermediation  and  insurance,  telecommunication, 
company  servicing,  transport,  and  construction.  The  main  investing  countries  were:  Holland,  Austria, 
Germany,  France,  Italy,  United  Kingdom of  Great  Britain  and  Northern  Ireland,  Greece,  Cyprus,  and 
United States of America. Compared to the total official fund, the size of foreign debts on short term has 
reached almost 60 per cent [5]. In the situation in which the export is relatively dependent on the imports, 
and an important part of the official reserve fund is made-up of the minimum compulsory fund of banks 
and  of  the  country’s  income from privatizations,  the  growth  pace  of  the  foreign  debts  on  short  term 
experiences a significant attention. The degree of concentration of the exposure of the foreign debts on 
short term within non-financial companies has increased; but the number of the firms that generated such 
net cash flow debts is decreasing. 
The perspective of a continuation of capital  inflow is relatively favorable,  that  if the American market 
crisis does not expand. But the excess of cash flow on the international markets is still going, and the 
companies’ performances in Romania, who were the beneficiaries of the infusion of foreign capital, are 
931
substantial.  These  companies  are  more  profitable and more productive than the  rest  of  economy.  The 
profitableness of the capitals also records a sustained and increased dynamism. The wage efficiency of the 
companies with foreign capital is in a continuous rising, over the national average of economy. On the 
other hand, it is necessary to undertake some coherent politics on a macro-economical level in order to 
maintain the favorable results mentioned above. 
References
1.   Frees  E.W.,  Data  Analysis  Using  Regression  Models,  Prentice-Hall  International,  Inc.,  New 
Jersey, 1996
2.   Greene W.H., Econometric Analysis, Fifth Edition, Prentice Hall, 2003
3.   Şipoş C., Modelarea comportamentului cursului de schimb al leului, Editura Universităţii de Vest, 
Timişoara, 2003
4.   Şipoş C., Preda C., Econometrie, Editura Mirton, Timişoara, 2004
5.   *** Annually and Monthly Reports of National Bank of Romania, 2000 – 2007 years
6.   *** Romanian Statistical Yearbook and Monthly Reports of National Institute of Statistics, 2000 
– 2007 years  
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Autoregressive models for analysis of foreign investment in Romania

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