Structural Cointegration of Exchange Rate, Gross Domestic Product, and External Debt in Indonesia: An Analysis of Macroeconomic Stability with the ARDL–ECM Approach

Import policies for food products, including beef, need to support national food security while protecting the domestic food industry. This study aims to develop a model for beef import demand of Indonesia. The study employed annual secondary data from various sources from 1990 to 2019. Autoregressive distributed lag (ARDL) and the error correction models (ECM) were adapted for predicting the long-run and short-run beef import demand, by considering income growth, domestic production, relative price, and exchange rate. The bounds test showed that gross domestic product (GDP) growth per capita, domestic beef production, and the exchange rate had no significant effect on the beef import demand in the long run; nonetheless, the relative beef price between local and international market had a considerable impact (5.353%). In the short run, GDP growth per capita and domestic beef production significantly affected beef import demand (0.036% and −0.9%, respectively). Error correction term (ECT) corrected the disequilibrium of the import demand model in current year towards the following year (17.60%). This finding is confirmed by the fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and canonical co-integrating regression (CCR) methods. Ultimately, this study can serve as an instrument for formulating policy related to beef imports in Indonesia.

A free float in the exchange rate has been recorded in the Sri Lankan rupee over the past few years affecting the Sri Lankan economy to a significant extent. This study intended to examine the factors affecting the exchange rate variability in Sri Lanka during the period from 1991 to 2020. For the study secondary data were obtained from the World Bank and the Central Bank of Sri Lanka. The exchange rate was considered as the dependent variable while inflation rate, merchandise trade, Gross Domestic Product (GDP) growth, foreign direct investments, balance of payments and external debt were considered as independent variables. Augmented Dickey Fuller (ADF) test was used to examine the stationary of the time series data, and Autoregressive Distributed Lag (ARDL) was adopted to figure out the long-run and short-run relationship between the variables. The results of ARDL bound test confirmed that there is a co-integration relationship between the variables, and the results of the error correction model revealed the significant impact of inflation rate, merchandise trade, Gross Domestic Product growth, foreign direct investments, balance of payments and external debt on exchange rate in both short run and long run. In the short run, balance of payment and GDP have no significant impact on the changes in exchange rate, and the results confirmed that there is a Exchange rate indicates negative relationships with external debt, inflation, and merchandise trade. Finally, the results confirmed the exchange rate is in a negative relationship with FDI and GDP in the long run.

This study aims to investigate the root causes of burgeoning external debt in Pakistan and to identify potential ways to minimise the growing burden of external debt. By analyzing time series data from 1976 to 2022, using the Auto Regressive Distributive Lag Model (ARDL) bound test and local projection impulse response, the research finds a long-term relationship among remittances, external debt, and other variables. The results indicate that gross domestic product (GDP) growth rate, trade volume, and foreign exchange reserves play crucial roles in mitigating Pakistan’s external debt, offering avenues for reducing the country’s debt burden, as the probability values of their coefficients are less than 0.05. However, remittances, gross capital formation, and external debt servicing contribute to increasing external debt at a 5% significance level. The negative and significant error correction term (ECT) implies the system’s stability and convergence. The study concludes that while remittances and gross capital formation have contributed to the increasing external debt, effective management of GDP growth, trade volume, and foreign exchange reserves can mitigate this burden. Based on these findings, it is recommended that the Government of Pakistan prioritize enhancing the GDP growth rate by channelling remittances and other foreign currency inflows, such as Foreign Direct Investment (FDI), foreign grants, and export earnings, towards building up foreign reserves.

This study aimed to determine the impact of oil prices, inflation and exchange rates on Malaysia’s economic growth. This study employed the autoregressive distributive lag (ARDL) method to observe the long-run and short-run relationships between the explanatory variables of oil price (Poil) as the focused variable, the inflation (INF) and exchange rate (ER) as the controlled explanatory variables, with Malaysia’s gross domestic product (GDP) as the dependent variable. The tests conducted are in the following order; the Unit Root Test, F-bound test, Error Correction test, diagnostic tests and the stability test. Annual type of time series data from 1990 to 2022 are used. The unit root tests provide evidence all data are stationary at first difference level. The finding of the F-bound test reveals the presence of long run relationship among the variables, and results generated from error correction model (ECM) show the presence of short-run relationship between the variables. Here we may conclude changes in oil price, inflation and exchange rates have significant impact on GDP. Given the significant results of these factors on GDP; other than oil price, policymakers are recommended to incorporate also the expected change in the inflation and exchange rate when implementing the stabilization policy. The multiple target variables in policy implementation not only helps trigger higher economic growth but also achieving a more sustain economy.

Purpose: This study examines the short-run and long-run impact of the expansionary fiscal policy on economic growth in Zambia from 1991 to 2021. Materials and Methods: The study employs the Vector Error Correction Model (VECM) and Auto Regressive Distributed Lag (ARDL) Models to examine the short-run and long-run impact of total public expenditure, total tax revenue and total public debt time series data on the gross domestic product (GDP) of Zambia from 1991 to 2021. The Keynesian theory informed our study, which presupposes that the unemployment problem might be solved by boosting government spending on consumption and that government spending was an exogenous factor that contributed to economic growth (Keynes, 1936; Singh & Sahni, 1984). Findings: Both the VECM and ARDL Models show the existence of statistically significant long-run cointegration among public expenditure, external debt, tax revenue and GDP. Specifically, VECM estimates show that for a 1% increase, Tax revenues have a positive long-run significant effect on Zambia’s economic growth of 3.36%, while external debt and public expenditure have significant negative effects on the economic growth of 1.17% and 0.003% in Zambia respectively. The ARDL model estimates indicate that, in the short run, an increase in tax revenue of 1% increases GDP growth by 1.92%, while a rise in government expenditure and external debt by 1% results in a decline in Zambia’s economic growth by 0.003% and 6.14% respectively. Implications to Theory, Practice and Policy: Given the foregoing findings, the therefore study recommends that the Government of Zambia should widen the tax base to mobilize more tax revenues and reduce the budget deficits emanating from high government expenditures. External public debt should also be reduced.

According to economic theory, the change in any economic variables may affect another economic variable through the time and these changes are not instantaneously, but also over future periods. The Autoregressive distributed lag (ARDL) model has been used for decades to study the relationship between variables using a single equation time series. The ARDL model is one of the most general dynamic unrestricted models in econometric literature. In this model, the dependent variable is expressed by the lag and current values of independent variables and its own lag value. The paper studies the dynamic causal relationships between inflation rate, foreign exchange rate, money supply, and gross domestic product (GDP) in Egypt during the period 2005: Q1 to 2018: Q2. Using the bounds testing approach to cointegration and error correction model, developed within an ARDL model, we investigate whether a long-run equilibrium relationship exists between the inflation rate and three determinants (foreign exchange rate, money supply, and GDP). The results indicate that the exchange rate and the growth in money supply have significant effects on the inflation rate in Egypt, while the real GDP has no significance effect on the inflation rate

Orientation: Some recent studies have been published that demonstrated the value of remote sensing night-time lights as descriptors and/or proxies for human activity. Research purpose: This article investigated the association between night-time light emissions and gross domestic product (GDP) estimates for South Africa. Motivation for the study: Satellite night-lights data seemed to be a useful proxy for economic activity at temporal and geographic scales for which traditional data are of poor quality, are unavailable or only available with a large time lag. Research approach/design and method: The article primarily used the remote sensing of night-time light emissions using satellite technologies. The methodology employed in this study involved estimating both a vector error correction modelling (VECM) and autoregressive distributed lag (ARDL) models that map light growth into a proxy for GDP growth. Main findings: Both the VECM and ARDL models confirmed a long-term co-integrating relationship between GDP (per capita) and night-time lights (total light intensity), a statistically significant short-term error correction term could, however, not be established through the VECM, but indeed through the ARDL model. Practical/managerial implications: The results of the study suggested that satellite remote sensing technologies held much promise and opportunities in terms of the field of Economics and Development. Contribution/value-add: This study contributes to our understanding of the spatial and temporal behaviour and trends in economic activity. It also suggested the use of satellite remote sensing technologies as part of official statistical frameworks and methodologies.

This study was carried out to investigate the impact of the Ethiopian exchange rate and its volatility on international trade. Trade openness was used as a proxy for international trade in the study. The study’s general objective was to investigate how international trade responds to exchange rate levels and volatility. The study relied solely on secondary time-series data spanning the years 1992 to 2019. The Autoregressive Distributive Lag (ARDL) model was used in the study to investigate the long-term relationship between exchange rate level, volatility, and international trade performance. An error correction model was used to estimate the variables in the short term. To conduct the regression analysis, Foreign Direct Investment (FDI), Gross Domestic Product (GDP), and inflation were used as control variables. The finding of the study implies that: in the short term, the exchange rate level was found to negatively and significantly influence international trade. However, exchange rate volatility positively and significantly affects international trade both in the short and in the long term. In addition, gross domestic product, foreign direct investment, and inflation have a positive effect on international trade both in the short term and long term. This finding lends support to the J-curve effects, which suggest an initial loss in the short term followed by a dramatic gain in the long term. However, the findings of this study suggest that there is no significant gain from international trade to justify currency depreciation in Ethiopia.

In 2014, the IMF reported that China became the largest economy in the world according to Purchasing Power Parity rates. This study aims to explain the Chinese economic miracle. It focuses on frequently suggested factors influencing China’s real gross domestic product (GDP), such as export promotion, exchange rate policy, and foreign direct investment (FDI). The paper employs the Bounds test of the autoregressive distributed lag (ARDL) model to test for cointegration. Once cointegration is established, Granger Causality is investigated using the vector autoregressive model and the Toda and Yamamoto (1995) method. Two different combinations of the real macroeconomic variables exports, exchange rate, imports, and FDI were employed to examine Granger causal relationships. All explanatory variables, except for the exchange rate, were found to have plausible relationships with GDP. The exchange rate and GDP relationship was unexpected; a Renminbi appreciation was associated with an increase in GDP. To investigate this paradox, a third ARDL model was estimated with exports as the dependent variable and the exchange rate, world GDP, and FDI as the independent variables. In this model, we found evidence of cointegration and a plausible relationship between real exports and the real exchange rate. Exchange rate devaluation increased exports and thus indirectly increased GDP. Such findings help to resolve the unexpected results. Nonetheless, according to the Granger causality tests the established statistical evidence is rather weak. We found that both the exchange rate and FDI are no longer strong drivers of economic growth in China.

<p>The study sets out to determine whether external debt has a significant relationship with economic growth indices in Sierra Leone. An ex-post facto research design was adopted for the study. Data on gross domestic product, external debt, capital expenditure, and exchange rate were obtained from the Bank of Sierra Leone Statistical Bulletin 2024 for the period 1993-2023. Ordinary Least Square Method of regression was used in which external debt was regressed on gross domestic product, capital expenditure, and exchange rate. A diagnostic test was done using the Augmented Dickey-Fuller (ADF) unit root test, as well as the co-integration and error correction method. Findings show that there is a positive relationship between external debt on one side and gross domestic product (GDP), exchange rate and capital expenditure. The findings imply that small external debt accumulation stimulates the economy, while huge debt has a negative impact. External debts were misappropriated, while debt servicing and repayment stifled infrastructural development. The study recommends, amongst other things, that external debt should be obtained when it is absolutely necessary and applied for productive ventures but not for social services, ensuring that the marginal productivity of the loan is greater than the interest incurred as a result of it. At the same time, the government should strengthen anti-corruption agencies to reduce embezzlements and misappropriations to the barest minimum by reviewing laws establishing them.</p><p> </p><p><strong>JEL</strong>: F34; E22; C22; H63; O11</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0792/a.php" alt="Hit counter" /></p>

Nigeria is the most populous country in Africa, it maintains the second largest oil reserve in the continent. The question on whether the oil natural resource endowment is a blessing or a curse is still not adequately answered in the literature. This study therefore examines the interrelationships between petroleum revenue and gross domestic product in Nigeria from 1985-2020. The data used for the analysis of the study was obtained from World Bank and Central Bank of Nigeria data base. Augmented Dickey Fuller (ADF) unit root test was used to test for the presence of stationarity in the variables, autoregressive distributed Lag (ARDL) co-integration test was employed to test for long run relationship and error correction model (ECM) was employed to test the short-run relationship among variables. The variables used for the research work are Gross Domestic Product (GDP), Oil Revenue (OIR), Inflation (INF), Effective Exchange Rate (EEXR), Labour (LAB) and Gross Capital Formation (GCFC). The study showed that oil revenue and labour force exhibit significant positive impacts on gross domestic product (economic growth). This study recommends that government should establish annual spending limits in order to reduce inflation, the government should engage in the rehabilitation of the old refineries and construction of new ones in order to stop the age long practice of exporting crude oil at a low price and purchasing the refined oil at a high price. Measures to reduce the high exchange rate of naira with other countries’ currencies should be put in place. Various government policies should be put in place and diligently enforced to ensure that the diversion of revenue gotten from the oil sector are duly handled to further meet the economic growth objective in the country.

This study examined the application of Auto-regressive distributed lag model (ARDL) bound test on some selected macroeconomic variables spanning from 1981-2017 obtained from the statistical Bulletin of Central Bank of Nigeria (CBN). The data were analyzed using the E-views 9.0 software. F-statistic of 5.9167 was found to be higher than the critical value of 3.79 in the Lower Bound I(0) and 4.85 in the Upper bound I(1) at the 5 % level, thus null hypothesis was rejected. ARDL (1, 2, 0) was found to be the best fit model for showing a long-run and short-run relationship between Gross Domestic Product (GDP), Exchange rate, and Interest rate. There is a long-run relationship among GDP, Exchange rate, and Interest rate which means that the variables under study are co-integrated. Also, a unidirectional relationship running from exchange rate to GDP exist. The study recommends the use of supportive fiscal and monetary policies that will tighten the local currency market and provide a set of incentives aimed at removing anti-export bias barriers so as to promote exports and boost GDP, particularly non-oil exports and discourage import of consumer goods to stabilize the exchange rate. Keywords: ARDL Bound test; Gross Domestic Product; Exchange rate; Macroeconomic Variables; Interest rate. JEL Codes: E06; O2; O4

Foreign investment is an activity of investing capital from one country to another. In essence, investment is an initial step in economic development activities. Foreign investment can be influenced by several factors, such as inflation, Bank Indonesia interest rates, labor, gross domestic product, and exchange rates. From the theory and actual conditions, the researchers found a gap. From this gap, the problem in this study was how inflation, Bank Indonesia interest rates, labor, Gross Domestic Product (GDP), exchange rates, and export value affected foreign investment in Indonesia in the short and long run. The aim of this study was to determine the effect of inflation, Bank Indonesia interest rates, labor, Gross Domestic Product (GDP), exchange rates, and export value on foreign investment in Indonesia in the short run and long run. The analytical method used in this research was Autoregressive Distributed Lag (ARDL). Based on the findings, this study concludes that in the short run, the variable of inflation, Bank Indonesia interest rates, Gross Domestic Product (GDP), and exports value have significant and positive effects on foreign investment in Indonesia. Meanwhile, labor and exchange rate variables have significant and negative effects on foreign investment in Indonesia. In the long run, inflation and export value variables have significant and positive effects on foreign investment in Indonesia. In addition, interest rates of Indonesia's Bank and exchange rates have significant and negative effects on foreign investment in Indonesia. However, the variables of labor and Gross Domestic Product (GDP) have no effect on foreign investment in Indonesia.

Macroeconomic impact of FDI inflows: an ARDL approach for the case of India

PurposeThis paper aims to examine the factors that contribute to the external debt growth in Ghana.Design/methodology/approachThe study adopts the autoregressive distributed lag (ARDL) model and the error correction model (ECM) to establish the short-run and long-run relationships between the dependent variable (external debt) and the independent variables (debt service, exchange rate, gross domestic product, government expenditure, import and trade openness), using a time series data spanning from 1990 to 2019.FindingsThe results indicate that debt service, GDP, government expenditure and trade openness have a positive and significant relationship with external debt, while import and exchange rates have a negative relationship with external debt in the long run. In the short run, debt service, import, exchange rate and trade openness have a positive and significant relationship with external debt, while GDP has a negative relationship with external debt.Practical implicationsThe study found that variables such as government expenditure, debt service and import contribute significantly to the nation’s external debt stock. These findings suggest that policymakers should focus on prioritising and cutting down expenditure in their quest to curtail the debt menace facing the nation. Since existing debt service has the tendency of influencing debt stock, it is recommended that government should reduce borrowing in order avoid debt trap. Home-grown policies to reduce imports must also be encouraged. As these drivers of external debt are tackled head-on, Ghana can be rightly positioned to record lower levels of public debt and subsequently reap the benefits of economic growth.Originality/valueThe study adds to the public debt literature, specifically addressing the idiosyncratic determinants of external debt within the Ghanaian context.