Applying Autoregressive Distributed Lag Research Articles

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 ofARDLapproach

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.

Determinants of FDI in producer services: evidence from Chinese aggregate and sub-sectoral data

PurposeThe purpose of this paper is to examine the determinants of foreign direct investment (FDI) in producer services in China using both country aggregate and provincial sub-sectoral data.Design/methodology/approachThis paper applies autoregressive distributed lag (ARDL) cointegration and panel data regression approaches in examining the determinants of Producer Service FDI (PSFDI).FindingsOur results show differences between the determinants of aggregate FDI and PSFDI. Contrary to the typical influencing factors of general FDI (that include GDP, openness, low wages and environmental quality), the two main determinants of PSFDI inflows to China are found to be high wages and research inputs (specifically the number of research workers as a proxy for research intensity). Data drawn from 26 Chinese provinces disaggregated at sub-sector level of producer services corroborate the results.Originality/valueWe add to existing literature by identifying the key determinants of inward PSFDI in China also via a provincial-level data analysis and disaggregation at sub-sectoral level of producer services.

Intermittent Breaks of Public Order in the Moroccan Political Context

For more than twenty years, politics in Morocco has been witnessing a change in the cycles of protests under the influence of the parameters linked to the economic liberalization and evolution of the processes of disenchantment with a conventional political culture. The frequent use of repertories of collective action has not failed to shake the political and social landscape to the point that the demobilization of an area is followed by uprisings in neighboring sites. The response of public authorities varies according to the intensity and objectives of the social uprisings. This research is to study the evolution, over time, of the links between repression, the index of consumer prices of basic foodstuffs, and social uprisings. It covers about twenty years from January 1997 to November 2018. In addition to the descriptive temporal evolution, the work applies autoregressive distributed lag (ARDL) modeling to examine whether there are short- and long-term associations between the variables mentioned above.

Testing the nexus between renewable energy consumption and environmental quality in Nigeria: The role of broad‐based financial development

AbstractThis study investigates the nexus between renewable energy consumption and environmental quality in Nigeria, accounting for the role of financial development, and re‐examines the validity of the environmental Kuznet curve (EKC) hypothesis for Nigeria covering the period 1990 to 2016. To cover financial development more adequately, the current study uses the broad‐based financial development index constructed by the International Monetary Fund. The study employs second generation econometric approaches of Lee and Strazicich, and Bayer and Hanck combined cointegration tests to check for stationarity and cointegration among the variables, and then applies autoregressive distributed lag (ARDL) and vector error correction model (VECM) Granger causality tests to explore the effect and causal relationship respectively. The results divulge that renewable energy consumption improves environmental quality, while financial development hurts the environment. Further, the results validate an inverted U‐shaped association between economic growth and environmental degradation in Nigeria. The VECM Granger causality results indicate a long‐run effect of the independent variables on CO2 emission, while the short‐run causality reveals a mixture of unidirectional and bidirectional causality among the variables. This study therefore recommends that policy makers consider the important roles of renewable energy and financial development in reforming energy policies to achieve environmental sustainability.

The Impact of Taxation on Economic Growth Using ARDL Approach: A Case Study of Pakistan

This study intends to observe to investigate the taxation impact on economic growth of Pakistan by using time series data from 1980 to 2015. This study explore the short \& long run effects of taxation on economic growth of Pakistan. Stationarity of the data checked through Augmented Dickey Fuller (ADF) test and then applied Autoregressive Distributed Lag (ARDL) model to check relations among the variables. Results of the study shows that taxes and exchange rate show negative but significant effect on economic growth in short run and long run. Life expectancy and trade liberalization have positive impact on economic growth in both periods. Thus, policymakers should focus on fiscal policy which is necessary to promote sustainable economic growth.

The Impact of Energy Consumption and Agricultural Production on Carbon Dioxide Emissions in Portugal

The consequences of climate change heavily influence the Mediterranean region. However, the Portuguese CO2 emission shows a decreasing tendency, the evolution of livestock and animal production have significantly increased its level in agriculture. The article investigates the role of the agricultural output and energy consumption in the environmental pollution in Portugal. It explores the short and long-run cointegration between carbon dioxide emissions and agricultural activities such as crop production, livestock production, and agricultural land use applying Autoregressive Distributed Lag (ARDL), Granger causality, Newey-West Standard Errors regression, as well as ARIMA model for the period of 1960-2015. The causality relation between CO2 emissions and agriculture is also analyzed. The Augmented Dickey-Fuller (ADF) unit root tests suggest that all variables are stationary. ARDL model demonstrates a long-run relationship between CO2 emissions, agriculture, and energy consumption. Results indicate that agricultural activities and energy use have a positive effect on environmental pollution; therefore, the Portuguese agriculture needs to achieve a higher level of sustainable development, with reducing the impact of animal husbandry and intensive crop production.

Assessment of the impact of factors upon tourism revenue in Jordan

This article examines Jordan’s tourism revenue over the recent years. Tourism is a substantial source of national revenue and significantly contributes to the flow of foreign currency for the development of national economy. The economic theory claims that tourism revenue is affected by a wide range of factors. The article explores the impact of consumer price index and number of tourists upon Jordan’s tourism revenue. In the course of this study, the author used the statistical data of the World Bank and International Monetary Fund; applied Autoregressive Distributed Lag model (ARDL); and conducted necessary diagnostic tests in Eviews 9 software. The research demonstrated that high internal inflation ratios reduce the external demand for tourism services in Jordan, and thus significantly decrease the tourism revenue. Over a long-term, the author determines a negative influence of consumer price index upon tourism revenue in Jordan and the expected positive influence of the number of tourists thereof.  

FINANCIAL STABILITY AND MONETARY POLICY REACTION FUNCTION FOR SOUTH ASIAN COUNTRIES: AN ECONOMETRIC APPROACH

This study empirically investigates a monetary policy reaction function for South Asian economies by incorporating financial stability as an additional policy objective in the central bank’s loss function. Empirical results are estimated by applying auto-regressive distributed lag (ARDL) approach to cointegration and vector autoregressive (VAR) approach using time-series data of five South Asian countries, namely, Pakistan, India, Bangladesh, Nepal and Sri Lanka. Estimated results indicate that monetary policy significantly reacts to the level of financial stability in all countries. The result further suggests that central banks would tighten monetary policy if output gap widens and exchange rate depreciate. In addition, central banks of Pakistan and India do not respond significantly to inflation gap.

DAMPAK PEMBANGUNAN EKONOMI, PENGELUARAN RUMAH TANGGA, DAN KETERBUKAAN PERDAGANGAN TERHADAP KONSUMSI ENERGI FINAL DI INDONESIA

This study investigates the impact of economic growth on three main development sectors, household final consumption expenditure, and trade openness towards the growth of final energy consumption in Indonesia using annual data for the period 1972-2016. We applied autoregressive distributed lag (ARDL) procedures which consist of stationarity test, cointegration test, as well as estimation the short-term and long-term relationships. The cointegration test revealed existence cointegrationrelationship among the variables in the model. In the short-term and long-term model, our results indicated that the growth of value-added in agriculture sector and industry sector, household final consumption expenditures, and trade openness in the short-term and long-term have a significant effect toward final energy consumption in Indonesia, while the growth of value-added in the service sector only given a short-term effect toward final energy consumption in Indonesia. Based on theseresults, it can be concluded that sustainable economic development in Indonesia needs to be accompanied by the development of new and renewable energy in order to fulfil domestic energy supply which is predicted to continue to increase rapidly in the future.Keyword : final energi consumption, economic development, household final consumption expenditure, trade openness, autoregressive distributed lag modelingJEL Classification : D1, E21, F14, O13, Q43.

The role of globalization, real income, tourism in environmental sustainability target. Evidence from Turkey

In this study, we examine the role of real income, globalization and tourism on environmental sustainability target by applying Autoregressive Distributed Lag (ARDL) bounds testing approach that controls for structural breaks and Vector Error Correction Model (VECM) Granger causality approach that produces robust, efficient and reliable short-run and long-run estimates in the case of Turkey over the periods 1970–2014. To achieve our research objective, we examine stationarity properties of the series via unit root test after which we applied Bayer-Hanck combined cointegration technique to evaluate the presence of a long-run cointegration relationship among the series. The empirical results show that a 1% increase in real income level and international tourists' arrivals led to 0.625% and 0.129% increase in metric ton per capita CO2 emissions in the short-run and 0.345% and 0.071% increase in metric tons per capita CO2 emissions in the long-run, while globalization has non-significant negative impacts on CO2 emissions. The causality analysis suggest that tourism Granger causes CO2 emissions both in the short- and long-run, while real income and globalization only Granger cause CO2 emissions in the long-run. Findings also show that a one standard deviation shock to CO2 emissions has a noticeable positive and persistent impact on tourism, globalization and economic growth in the long-run.

Energy Consumption and Inflation Dynamics in Nigeria: An ARDL Cointegration Approach

This paper investigated the dynamic relationship between energy consumption and inflation in Nigeria using time series data obtained for the period 1980 to 2017. Applying Autoregressive Distributed Lag (ADL) technique on the variables, the study found that Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK) and Natural gas were noninflationary in Nigeria both in consumption and prices over the period. Also, Automotive Gas Oil (AGO) consumption produces strong evidence of positive inflationary pressure but not in prices throughout the study period. Further, we found a strong causality link between natural gas consumption and inflation in Nigeria. We concluded that inflation in Nigeria is not majorly a demand-pull phenomenon, pulled by energy consumption. We provide both subjective and evidence-based reasons for the economic trend and recommend a bridge in the degrading systemic informality in the energy sector that will deliver real time effect of energy consumption-inflation proposition in Nigeria.

Ageing population and health care expenditure: Evidence using time series analysis

This study is conducted to examine the relationship between population agieng and its effects on total health expenditure since there has been less attention given in analysing this issue particularly in developing countries. Thus, the study covers a period from 1995 to 2014 and was analysed in 3 countries in Southeast Asia; Malaysia, Indonesia, and Thailand. This study applies Autoregressive Distributed Lag (ARDL) method with Bound test approach to examine the existance of cointegration in the model. Apart from that Vector Error Correction Model (VECM) was also estimated to investigate the short run nexus. For validation and appropriate model specification purpose, different econometric diagnostic tests were applied. The motivation of this study is to shed some light on the growing concern of raising ageing population across the world and the burden carried with it, namely health expenditure. The result of this study supports previous studies where increasing numbers of ageing population has significantly affect health expenditure in Malaysia and Indonesia while in the case of Thailand its remains insignificant. The ageing does not affect health expenditure in Thailand probably due the fact that major healthcare provider in Thailand is private sector which implies that health expenditure are mostly determined by the affordability of population to pay for health services. Thus, in order to ensure that raising of ageing population would not increase the burden via health expenditure, the government should embark on the education campaign to encourage a healthy life style among adulthood since they were young. Keywords : ageing population, ARDL, expenditure, growth, health, public spending

DOES DOMESTIC CREDIT OF THE BANKING SECTOR PROMOTE ECONOMIC GROWTH? EVIDENCE FROM BANGLADESH

The objective of the study is to investigate the relationship between domestic credit and economic growth for Bangladesh economy. The paper attempts to link between financial development and economic growth in answering a question whether the credit channelling through banking system goes to productive activities that bring economic growth in a country. Sample data was taken for the period 1975-2016 for year-wise trend analysis while econometric specification applies autoregressive distributed lag (ARDL) model and uses quarterly data for the period 1980Q1-2016Q2. The Bangladesh economy experienced structural changes initiated at the beginning of the 1990s that are addressed in the specification by dividing the full sample period into two sub-samples (19980Q1-1990Q4 and 1991Q1-2016Q2). Overall, the paper finds that an increase in real domestic credit impacts positively on real GDP and the impact is found to be statistically highly significant. On the other hand, the results indicate that an increase in real lending rates decreases real GDP. However, this result is not statistically significant. Respective policy-makers need to initiate appropriate market-based policy rates that can impact GDP growth through domestic credit channel since this paper finds that domestic credit effectively enhances GDP growth.

Monetary policy shocks and industrial output in Nigeria: a dynamic effect

The study examines the dynamic effect of positive and negative monetary policy shocks on industrial output in Nigeria. Quarterly secondary data covering the period from 1986 to 2015 were used for the study. Applying Autoregressive Distributed Lag (ARDL), the results shows that both negative monetary policy shocks and positive monetary policy shocks have negative effect on industrial output in Nigeria both in the short run and in the long run. The study recommend that monetary policy should the used with caution in Nigeria. Keyword: Positive Monetary Policy Shock, Negative Monetary Policy Shock, Industrial Output, ARDL

WHAT DRIVES MICROFINANCE CREDIT DISBURSEMENT? AN EMPIRICAL EVIDENCE FROM INDONESIA’S RURAL BANKS (BPRs)

The paper investigates determinants of Indonesia’s microfinance credit disbursement, case taken from Indonesia’s rural banks (BPRs) which primarily focus on providing funding to the Micro and Small Enterprises (MSEs). The study applies Autoregressive Distributed Lag (ARDL) model by using monthly data over the period of January 2009 to January 2016. Result indicates that rural banks credit disbursement is more determined by demand side rather than supply side as variable representing demand side (production index) has significant effect to credit disbursement both long run and short run. In terms of supply side, the amount of credit disbursement is affected by interbank fund in the long run, whereas in the short run the significant variables are customer fund and internal fund. In addition, Consumer Price Index (CPI) and Non-Performing Loan (NPL) impose significant effect to the microfinance credit disbursement; yet, interestingly, interest rate is not a significant factor in microfinance’s case.

The Evolution and Determinants of Services Sector in Pakistan: A bound test analysis

Using the annual data over the period of 1975-2015, this paper examines the determinants of services sector growth of Pakistan. We applied auto regressive distributed lag (ARDL) approach to analyse the major determinants of services sector growth of Pakistan. In addition, Granger causality technique has been used to investigate the causality between the variables. Our findings reveal that per capita income, capital accumulation and urbanisation positively contribute towards the services sector growth. However, negative impact of trade liberalisation has been observed on services growth of Pakistan. Therefore, greater focus on the quality parameters of services sector is needed so that it may become more competitive in the world.

WHAT DRIVES HOUSE PRICE IN MALAYSIA? IN SEARCH OF AN ALTERNATIVE PRICING BENCHMARK FOR ISLAMIC HOME FINANCING

The current practise of the Islamic banks to rely on market interest rate as pricing benchmark for their home financing products has been a subject of intense debate among many parties. Muslim scholars have warned that it is highly discouraged as it could lead to a possible convergence between the practices of the Islamic and conventional banks. This paper intends to address the financing issues in the discussion of human settlement or housing policy by presenting the determinants for house price index as well as looking into the possibility of adopting the House Price Index (HPI) to replace the market interest rate as a pricing benchmark for the Islamic home financing. The study applies Auto-Regressive Distributed Lag (ARDL) method on a model comprising HPI as the dependent variable and a set of independent variables consisting of economic, housing demand and housing supply factors. The findings lead to the formulation of recommendations as a way forward for the Islamic banking industry in particular, and the economy in general. This will require a paradigm shift from basic financing products to a more holistic approach which integrates supply of housing factors, as well as urban planning and urban finance, with human rights and recognizes the need to place and shelter people.

WHAT DRIVES HOUSE PRICE IN MALAYSIA? IN SEARCH OF AN ALTERNATIVE PRICING BENCHMARK FOR ISLAMIC HOME FINANCING

The current practise of the Islamic banks to rely on market interest rate as pricing benchmark for their home financing products has been a subject of intense debate among many parties. Muslim scholars have warned that it is highly discouraged as it could lead to a possible convergence between the practices of the Islamic and conventional banks. This paper intends to address the financing issues in the discussion of human settlement or housing policy by presenting the determinants for house price index as well as looking into the possibility of adopting the House Price Index (HPI) to replace the market interest rate as a pricing benchmark for the Islamic home financing. The study applies Auto-Regressive Distributed Lag (ARDL) method on a model comprising HPI as the dependent variable and a set of independent variables consisting of economic, housing demand and housing supply factors. The findings lead to the formulation of recommendations as a way forward for the Islamic banking industry in particular, and the economy in general. This will require a paradigm shift from basic financing products to a more holistic approach which integrates supply of housing factors, as well as urban planning and urban finance, with human rights and recognizes the need to place and shelter people.

Financial innovation and economic growth in Bangladesh

BackgroundThis study provides evidence for the financial innovation in the financial system that resulted in the economic growth of Bangladesh from 1980-2016.MethodsTo capture the influence of financial innovation on economic growth, we estimated the long-run cointegration by applying Autoregressive Distributed Lag (ARDL) bound testing and Granger causality-based Error Correction Model (ECM) to capture the directional association.ResultsThe Test of Cointegration satisfied the existence of a long-run association between economic growth and the financial innovation proxies, which were the Domestic Credit to the Private Sector (DCB) as a percentage of the Gross Domestic Product and the Broad-to-Narrow Money (M2/M1) as a percentage of the Gross Domestic Product. Our results showed that in the long run, credit circulation to the private sector and monetary management play important roles in economic growth. We also found that the coefficients of the financial innovation proxy variables were positive and statistically significant both in the short run and long run. We also ran Granger causality tests to investigate the directional effect. This study confirmed the feedback causality between the economic growth and 2 proxies of financial innovation in the short and long run. The gross capital formation and trade openness contribute significantly to explaining the economic growth in Bangladesh.ConclusionThe government of Bangladesh should encourage financial innovation in the financial system, especially at financial institutions, so that access to financial services can easily provide for equitable development. The government should also encourage financial innovation in the capital market, which will assist in raising long-term capital for investment and expedite overall economic growth.