Applying Autoregressive Distributed Lag Research Articles

COVID-19 pandemic, oil prices and Saudi stock market: empirical evidence from ARDL modeling and Bayer–Hanck cointegration approach

In 2020, the world experienced several significant events, including the coronavirus (COVID-19) pandemic and the collapse of international crude oil prices. The rapid spread of this pandemic has dramatic impacts on financial markets all over the world, thereby increasing market risk aversion in an unprecedented way since the subprime financial crisis. The decline in stock markets implied volatilities of equity and oil prices, thereby heightening turmoil in global financial markets despite comprehensive and substantial financial reforms. To this end, we investigated the likely effects of this pandemic on the Saudi stock market while controlling for oil prices based on daily data for a period from 1/1/2020 to 19/9/2022. To ascertain the existence of a long-run equilibrium relationship between the variables, we applied autoregressive distributed lag (ARDL) modeling and the error correction model, with this ultimately revealing the existence of strong cointegration in the long run. The ARDL bounds test was found to be robust by combined cointegration tests, thus providing further evidence of a strong relationship in the long run. Granger causality tests also yielded evidence of causality between the variables in both directions. The total COVID-19 confirmed cases and oil prices also caused movements in stock returns in the short run. Our findings have some prominent implications for asset managers and policymakers to improve stock market efficiency and boost global economic activity. Saudi authorities can consequently remove the regulatory and legal obstacles to develop their stock market and better improve the risk management, which will allow to make quick decisions in response to any oil price volatilities. Policymakers should also adopt proactive strategies that can comfort stock investors’ anxieties over the increasing oil price volatilities. Finally, the findings should be treated with some cautions because of the limited sample size and the tests’ statistical inference. Nevertheless, they do open opportunities for further studies to look in more detail at how the COVID-19 pandemic affected, over the short and long run, monetary and fiscal policy coordination, financial stability, and various other macroeconomic indicators in Saudi Arabia.

Impact of Remittance on Educational Outcomes: Empirical Evidence from Nepal

The remittances are the treasure for irrigating Nepal's economy. Because emigration is increasing, per capita remittance is also increasing in Nepal. However, the question is signaling in its utilization for educational attainment. In this context, the study examines the impact of remittance on educational outcomes in Nepal. The study applied autoregressive distributed lag (ARDL) estimations, Granger causality, forecast error variance decomposition (FEVD) technique, and impulse response functions (IRFs), with time-series data spanning from 1981 to 2021. The overall findings revealed that remittance had a positive impact on educational outcomes in Nepal. In the short run, remittance was found to be crucial for secondary schooling; in the long run, remittance had a significant effect on tertiary schooling in Nepal. The FEVD confirmed that remittance might be the inevitable predictor of educational outcomes in Nepal. The Granger causality also found a unidirectional causality from remittance to educational outcomes. The policymakers and stakeholders, therefore, should focus on funneling remittance toward financing education as well as a productive sector to accelerate per capita GDP and on cropping the demographic dividend in the Nepali economy.

Impact of Public Domestic Borrowing on Private Sector Investments in Kenya

In recent there has been rapid increase in uptake of domestic debt by the government of Kenya. The purpose of this study was to establish the Impact of Public Domestic Debt on Private Investments in Kenya. The independent variable was public domestic debt while the dependent variable was private investment. Secondary data on Public domestic debt data and private investment was collected from Central Bank of Kenya. The secondary data was for the periods 1999 to 2021. Private investment was operationalised using Gross fixed capital formation (GFCF) and the study applied Autoregressive distributed lag (ARDL) econometric model. The study found out that the long-term analysis indicated sustained public domestic borrowing had a negative influence on GFCF, revealing a crowding-out effect. This implied that over time, persistent government debt led to reduced private sector investment.

Bilateral trade of Turkey-US: Can euro explain this relationship?

This study applies Autoregressive Distributed Lag (ARDL) cointegration method to study the impact of exchange rate fluctuations on Turkey-US trade, considering the third country effect. We estimated bilateral exports and imports of 10 industries between Turkey and the US, collected trade data between Turkey and the US and related exchange rate fluctuation indicators, and established economic models. The results show a two-way interaction effect of exchange rate fluctuations on bilateral trade. At the same time, we find that the third-country effect plays a vital role in Turkey-US trade, and changes in demand and supply from other countries indirectly impact bilateral trade. This study helps to understand the complexity and volatility of trade between Turkey and the US and provides reference for relevant economic policies. These insights help not only address challenges posed by exchange rate fluctuations and third-country effects but also promote stable and sustainable bilateral trade in an evolving global economy.

Monetary Policy and Commercial Banks’ Credit to Agricultural Sector: A Study of Nigeria

This study examines the relationship between monetary policy and commercial banks credit to agricultural sector in Nigeria with uses of secondary data for the period 1981 to 2021 by applying Autoregressive Distributed Lag technique. Result from this study shown that, liquidity ratio, monetary policy rate, loan to deposit ratio and cash reserve ratio have no significant influence on commercial banks credit to agricultural sector in Nigeria. On the other hand the treasury bill ratios has significant positive effect on commercial banks credit allocated to agricultural sector in Nigeria. The study therefore recommends that Central Bank of Nigeria should cuts down the cash reserve ratio to encourage the loanable funds available with the banks. Regulatory authority should put in place suitable policy that will prevailing cash hoarding in the economy to achieve desired liquidity ratio level. CBN should use the loan to deposit to center for regulating and moderating commercial banks for a positive significant impact to sectors in Nigeria. Authorities should use monetary policy rate to expand the volume of commercial banks’ ability to grant credits. Finally, monetary policy authority should ensure that holding of treasury bills by commercial banks should be reduced to enhance the ability to grant loans and advances to the public for productive purposes. .

Factors Effecting Private Consumption in India: An ARDL Approach

Various macroeconomic and microeconomic factors influence household expenditure. This study thus attempts to establish long-run and short-run relationships among consumption, credit, capital formation, and current account deficit (CAD). By applying autoregressive distributed lag (ARDL) and Granger causality models, results of the study suggest that capital formation is the primary factor influencing consumption in the long run. It must be noted that consumption-led growth post 2000 was financed by rise in credit. Imports will rise in response to rising GDP and rising exports, and the main cause of CAD has been a persistent trade account deficit. In this article, pre-COVID-19 macroeconomic conditions have been studied.

Covid-19 and oil and gold price volatilities: Evidence from China market

Gold and crude oil are the influential commodities of the stock markets and real economy of the world in financial crises as well as in COVID-19 periods. However literature mainly focused on the effects of these commodities' prices only, and the volatilities in the prices of these commodities altogether with the prices got little attention. To fill in a major research gap, our study intends to estimate the dynamic relationship between oil prices, gold prices, oil prices volatilities and gold prices volatilities on the stock market of China. Using daily data over the period from 2009 to 2021, the study applied Autoregressive Distributed Lag (ARDL) bound test approach for the purpose of empirical estimation. Moreover, Non linear ARDL and asymmetric Causality analysis has also been applied for more comprehensive asymmetric estimation. The findings of our study indicated that gold prices and oil prices negatively affect stock market of China in the long run. In terms of implied volatility index of these commodities, study finds negative impact of price volatility of oil but positive impact of the price volatility of gold on the country's stock market in the long run. However, in the short run, only oil price and gold prices have significant effect on the China's stock market. On the basis of our findings, we recommend the investors to make rational decisions in response to the uncertainties in these markets and should consider gold as a safe haven to hedge themselves in times of uncertainty. Policymakers should take appropriate actions and adopt proper mechanisms for dealing with the quick uncertainty flow of information from the oil to the stock market.

The Determinants of Inflation in Nigeria

This paper examined the determinants of inflation in Nigeria using annual time series data covering the period of 1981 to 2017. This period has been carefully selected as it captures the different eras of policy implementation in Nigeria such as the pre–SAP era, SAP era, and the post–SAP era; and is long enough to make an objective assessment of the determinants of inflation in Nigeria. The study applied Auto–Regressive Distributed Lag (ARDL) methodology based on the outcome of the ADF unit root test which revealed that the variables are integrated of I (1) and I (0). The ARDL bounds test result provided evidence of a stronghold long-run relationship among the variables. This necessitated the estimation of ARDL short-run and long-run results. The short-run results of both models revealed that YGAP, M2, TGE, TIMP and UEMPR were significant determinants of inflation in Nigeria whereas the long-run results indicated that TGE, TIMP and UEMPR were significant determinants of inflation in Nigeria. The impact of YGAP, M2, TGE and TIMP was positive in both long and short runs whereas YGAP, TIMP, TGE and UEMPR impacted negatively on inflation in both periods. The outcome of all the diagnostic tests supported the acceptability of the models’ results. The study concludes that both demand–pull and cost–push factors are responsible for inflation in Nigeria and also provide the social infrastructure that would encourage private investment.

Impact of the Number of Hours Spent at Home on the Volume of Municipal Waste Generated: Evidence from Tokyo during the COVID-19 Pandemic

This study explores how changes in hours spent at home during the COVID-19 pandemic (February 2020–February 2022) affected the volume of municipal waste generated by households. Applying autoregressive distributed lag (ARDL) to a time series model created to measure the volume of combustible waste, recyclable plastic, plastic bottles, glasses and cans, and used paper, this study finds that an increase in the number of hours spent at home elevated the amount of combustible waste, recyclable plastic bottles, and glass bottles and cans generated. The increase in the volume of waste during the pandemic tended to be related to increased demand for delivery and take-out containers, and the increase in combustible waste was likely caused by a surge in the use of unrecyclable plastic containers. Thus, the results of the study suggest the importance of enhancing the use of recyclable containers and the need for support to develop ways to spread the use of such containers.

Liquidity risk in economic uncertainty: Evidence from Indonesian Islamic banks

Purpose – This paper aims to analyze the effect of economic uncertainty on liquidity risk of Islamic banks in Indonesia by observing the impact of economic uncertainty (World Uncertainty Index), macroeconomic factors (GDP Growth and Inflation Rate), and bank-specific factors (CAR and ROA) on liquidity risk.Methodology – Using time-series quarterly data from OJK’s Islamic Banking Statistics 2015-2021, this research applies Auto-Regressive Distributed Lag (ARDL) and Error Correction Term (ECT) to see the long-term impact and short-term response of economic uncertainty, inflation rate, GDP growth, ROA and CAR on liquidity risk of Islamic Bank.Findings – This research finds that economic uncertainty has a positive and significant effect on liquidity risk in the short term and long term. It means the increase in uncertainty index caused by the crisis, war, or pandemic like nowadays will enhance the liquidity risk of Islamic banking. At the same time, the inflation rate has a significant negative effect on liquidity risk in the short-term and long term.Originality – This research uses a combination of macroeconomic variables and bank-specific factors, and the economic uncertainty variable from the World Uncertainty Index. In this case, one of the reasons for liquidity problems apart from fund management failure is unfavorable economic conditions. In addition, this study also provides several recommendations in maintaining banking liquidity risk.Research limitations – This study uses time-series data with a limited period (2015Q1-2021Q2). In addition, this uses cumulative data on Islamic banking in Indonesia; thus, it does not describe the conditions in each Islamic bank, although certainly there are some different conditions between each other. Therefore, it is hoped that studies will complement these limitations in the future.

Towards a sustainable development: econometric analysis of energy use, economic factors, and CO2 emission in Pakistan during 1975-2018.

Many studies have computed the carbon dioxide emissions (CO2Es) associated with energy consumption, overall population, imports, manufacturing industries, and financial development in various countries. However, past studies have ignored the impact of CO2Es on fossil fuel energy, domestic economy, rural-urban unemployment, rural-urban population, services value-added, and fiscal deficit, especially in the context of Pakistan. Thus, to avoid the problems of mis-specification, sustainable growth, and carbon reduction simultaneously, it is necessary to study how to accomplish the time-varying relationship between factors. The present study applied autoregressive distributed lag (ARDL) model for cointegration between CO2Es and its determinants to test long-run and short-run effects from 1975 to 2018. The findings are as follows: first, in the short run, CO2Es, fossil fuel, and services value added show the unidirectional causality, while CO2Es, economic growth, rural-urban population, rural-urban unemployment, and fiscal deficit have bidirectional causality among them. Second, in the long run, we found bidirectional causality between CO2Es and its determinants. Finally, the diagnostic estimations, cumulative sum, and cumulative sum of squares check the long-run association between the selected variables and present the constancy of coefficients. The empirical outcomes give new insights for policymakers to regulate renewable technology investment in the energy sector for the improvement of environmental excellence. Related to the key results, the focused policies are presented below.

Impact of Tourism on Economic Growth of Nepal: Is Tourism-Led Growth Hypothesis Valid for Nepal?

A voluminous study is available on tourism-growth nexus as tourism industry received considerable attention as a potential source of economic growth. This paper empirically examines the impact of tourism on economic growth of Nepal by using time series data of 1976-2020 and applying autoregressive distributed lag (ARDL) approach. Real GDP was used as proxy measure of economic growth, which was the outcome variable whereas the variable of interest was tourism receipts. Foreign aid, total volume of trade and ratio of government consumption expenditure to GDP were taken as control variables. The result of ARDL model shows that tourism has no significant impact on economic growth of Nepal in both short-run and long-run. However, total volume of trade has positive and significant effect on economic growth in short-run whereas foreign aid, total volume of trade and ratio of government consumption expenditure to GDP have positive and significant effect on economic growth in the long-run. In such context of tourism and growth relationship, tourism-led growth hypothesis is rejected for Nepal.

The Impact of Financial Development on Economic Growth of Pakistan

This study aims to investigate the effect of financial development on the economic growth of Pakistan and applied Auto Regressive Distributed Lag (ARDL) approach to compute the data period of 1979-2019. This study found that the gross capital formation haspositive and significant effect on economic growth in the long-run and short-run. The financial development has a positive and statistically significant effect on economic growth in the long-run. The Exports, secondary school enrollment, labor force participation, and money supply have also a favorable and significant effect on the economic growth in the long-run. There are exist long-run co integration among the variables including in the model. There is one-way casualty running from GDP per capita to gross capital formation and financial development. Therefore, this study concluded that financial development is more important factor of economic growth and significantly promote with the increase in domestic credit to private sector by banks in Pakistan. This study recommended that the government should create friendly investment environment to boost the private sector investment in the country.

Impact of Institutional Quality on Multilateral Aid in Nigeria

The linkage between quality of institutions and economic performance of nations has generated a lot of interest among scholars, due to their influence on development of many countries and effective use of resources including foreign aid from multilateral organizations. Two strands of theories emerge on the institutions-multilateral aids nexus: those for benefits of aid to growth and development; and those for harms caused by aid. The research objective is to investigate the impact of institutional quality on multilateral aid in Nigeria. To do this, the study applied auto-regressive distributed lag (ARDL) bounds testing approach. Data for the study were sourced from the ICRG data, WGI data, QoG database, Transparency International, and World Development Indicators (WDI). The findings show that institutional quality variables do not have any influence on the multilateral aid in Nigeria, except the ‘independence of judiciary’ which appeared statistically significant. In the short-run analysis, the disequilibrium in the long-run equilibrium is corrected for in the next quarter period by about 25%; almost all the variables are statistically and significantly influencing multilateral aid. It is therefore recommended that donor agencies should consider other factors that negatively influence official development assistance (ODA) such as politics, location and colonial history.

The Impact of Economic Growth, Foreign Direct Investment, Urbanization and Trade Openness on CO<sub>2</sub> Emissions in Sri Lanka

Climate change in Sri Lanka is a big issue in recent years and CO2 emission is continuously rising in Sri Lanka. The main objective of the study is to examine the impact of economic growth, foreign direct investment, urbanization and trade openness on CO2 emissions in Sri Lanka during the period 1978-2019. To accomplish the objective, applied Autoregressive Distributed Lag (ARDL) model to determine the long-run and short-run effects. CO2 emission is used as the dependent variable. Foreign direct investment, per capita GDP, trade openness and urbanization variables, which act as the independent variables in the model. The results indicate that GDP per capita, urbanization and trade openness could lead to increased environmental emissions in the long-run. However, GDP per capita could lead to decreased environmental emissions in the short-run. In order to prevent the increase of CO2 emissions caused by economic growth, urbanization and trade openness, the level of CO2 emissions should be considered when making policies to improve economic growth, and urbanization. Moreover, the government should design the trade reforms and policies to be accompanied by strong environmental policies in the long-run.

CO2 emissions and the role of urbanization in East Asian and Pacific countries.

Considering the anthropogenic activities and its adverse effects on the Earth's environment, the present study provides empirical evidence about the nexus between CO2 emissions and urbanization over the period of 1982-2014 for East Asian and Pacific countries. After the application of Zivot Andrews (ZA) unit root test, we applied autoregressive distributed lag (ARDL) approach for econometric analysis. The findings showed that urbanization is significantly decreasing CO2 emissions in China, Japan, Hong Kong, and Mongolia. Moreover, urbanization is increasing CO2 emissions in Singapore, Macao, and South Korea. This study put some policy implications for Singapore, Macao, and South Korea to consider there urbanization policies. They should promote green energy in their urban areas for sustainable development. Hence, the policy makers should reconsider their trade and urbanization policies in the region to achieve healthy and sustainable environment.

Financial Development and Private Sector Investment in the Post-Financial Liberalization Era in Tanzania

Abstract This paper examines the relationship between financial development and private sector investment in the post-financial sector liberalization episode in Tanzania. The proxies for financial development were the financial market depth index and financial institutions depth index. Applying Autoregressive Distributed Lag (ARDL) technique, the results show the nexus between financial development and private sector investment in Tanzania. We find that the financial market depth index has a positive and significant impact on private sector investment in the long run but not in the short run. This is linked to the underdevelopment of capital markets in Tanzania at present. Similarly, we find that the financial institution depth index positively and significantly impacts private sector investment in both the long and short run. The degree of openness of the economy recorded a positive and significant impact on private investment in both periods suggesting that it has played a critical role in the financial development and growth of the private sector in Tanzania. In contrast, we observe that the real exchange rate has recorded a negative and significant impact on private investment in the long and short run. This suggests that appreciation of the real exchange rate had a negative impact on private investment. We recommend increasing financial openness and reinforcing the financial regulatory reforms to widen and deepen the financial system that can effectively support the mobilization of short, medium, and long-term finance for private sector investment.

Counterfactual shock in energy commodities affects stock market dynamics: Evidence from the United States

Volatilities in the stock market are due to fluctuations in essential energy commodities. This in effect underpins the impact of short- and long-run prices on producers, consumers, portfolio managers, and policymakers. To understand the past, present, and future dynamics of energy commodities and stock market uncertainty — this paper investigated the nexus between real stock index in the US. We investigated energy commodities namely oil price, coal price, and natural gas price employing over decadal monthly data from 1991:01 to 2019:12. The study applied autoregressive distributed lag (ARDL) and dynamic simulations of ARDL (DYNARDL) techniques to investigate long-term shocks in oil price, coal price, natural gas price, short-term interest rate, and industrial production index. The study found negative long-run relationship between real oil price, real coal price, real natural gas price, short-term interest rate, and real stock index, with only industrial production index reporting a positive relationship with real stock index in both ARDL and dynamic simulated ARDL models. While we found positive relationship between energy commodities and real stock index in the short run, negative relationship was reported between short-term interest rate, industrial production index, and real stock index. Incorporating real Western Texas Intermediate oil in S&P500 stock price index function corrects historical fluctuations by 64% compared to 54% speed of adjustment with real brent oil. The dynamic ARDL simulation further provides key insight into how energy commodity prices and economic activity shocks are transmitted to stock market prices in the U.S.

Bidirectional Relationship between Stock Market Decline and Liquidity: A Study of Emerged & Emerging Economies

Purpose: This study intends to examine the nature & direction of relationship between stock market movements, particularly market decline, and its liquidity in 14 selected emerged and emerging economies (G8+5 and Pakistan) for January 2001 through December 2017 by applying Autoregressive Distributed Lag (ARDL) Bounds test and Granger-causality test. Trading value and turnover ratio are employed to measure market liquidity.
 Methodology: The study is conducted on a sample of 14 economies (G8 + 5 emerging economies, and Pakistan) for January 2001 through December 2017. Daily basis data for all variables is collected from data stream and Economic Indicator website. Market Liquidity is measured by trading value and turnover ratio
 Findings: Results of trading value Granger-causality test highlight the evidence of no causality in Germany & India. Bi-directional causality exists in Pakistan only. Uni-directional causality subsists only in Russia at 10% significance level from trading value to market return. However, from market return to trading value, results demonstrate the presence of uni-directional causality at 5% significance level for Brazil, Japan. Canada, China, France, Italy, UK, USA, South Africa and Mexico. Negative returns are used to represent the notion of market decline.
 Implications: Study summarizes the stock market movements of emerging and emerged countries which will be helpful for future researchers and policy makers in their projects.

Financial innovation, human capital development, and economic growth of selected South Asian countries: An application of ARDL approach

AbstractThis study investigates the interaction between financial innovation, human capital development and economic growth in Bangladesh, India, Pakistan, Sri Lanka, Nepal, and Bhutan for the period of 1981Q1–2016Q4 by applying Autoregressive Distributed Lag (ARDL) and Granger‐causality under error correction model (ECM). Our principal finding confirms long‐run association among financial innovation, human capital development, and economic growth of selected South Asian countries. Also, we found both long‐run and short‐run elasticities from financial innovation and human capital development to economic growth is positive for each country. The study confirms that economic growth of sample countries would positively affect any development in financial innovation and increase in investment for human capital development in future. We also perform a Granger‐causality test to investigate directional causality, and we found bidirectional causality between financial innovation and economic growth, and human capital development and economic growth both in short‐run and long‐run, thus, supporting the feedback hypothesis. The study comes with two recommendations; first, the government should encourage financial innovation in the financial system and formulate fiscal policy in favour of adaption and diffusion of financial innovation. Second, public investment in human capital development should continue and made necessary initiative towards ensuring better implementation of undertaken measures in the economy.