Augmented Dickey-Fuller Unit Root Test Research Articles

An Econometric Analysis of Linkages between Macroeconomic Variables and Stock Markets: Evidence from Asian Emerging Markets

The purpose of this paper is to investigate impact of macroeconomic variables on stock markets of India and Indonesia. This paper also attempts to identify linkages between markets and macroeconomic variables. The rationale behind selecting these countries for the present study is MSCI emerging markets index of Asia, which comprises emerging economies with huge return potential for prospective investors. This study will help investors and researchers to understand dynamics of linkages between markets and macroeconomic variables. Augmented Dickey-Fuller (ADF) unit root test is used to assess the stationary of time series, Johansen test co-integration is applied to examine long-term integration among variables, Granger causality test is used to examine the causality relationship between macroeconomic variables and stock returns. The monthly data are taken for the study which ranges from July 1997 to July 2017. Currency exchange rates, interest rates, money supply, and inflation are the macroeconomic variables for the current study. Results revealed that there is one co-integrating equation of long-run equilibrium between the variables for both countries. Granger causality test reveals that there exists unidirectional and bidirectional relationship between the variables.

Empirical Examination of the Effects of Government Spending on the GDP Growth Rates of Nigeria

This research work presents an empirical analysis of the impact of government spending on Nigerian economy. The research work made use of secondary data collected from Central Bank of Nigeria’s Statistical Bulletin of various issues and National Bureau of Statistics. The empirical measurement covers the period between 2000 and 2016. An Ordinary Least Square (OLS), Augmented Dickey-Fuller unit root test and Co-integration test were adopted to carry out an extensive analysis of the adopted variables which include Gross Domestic Product growth rate, recurrent expenditure and Capital expenditure. The result revealed that the variables have significant effect in the positive direction. This implies that as recurrent expenditure increases, the growth rate of the economy decreases. An increase in the capital expenditure also causes a positive influence on the Nigeria economy within the period considered. The following recommendations were made: That sine recurrent expenditure can still thrive amidst corruptions and embezzlements, government spending should be properly managed so as to raise the nation’s production capacity and employment, which in turn will increase economic growth in Nigeria. It was also recommended that in order that government can increase its capital expenditure especially on rural roads and electricity government should promote efficiency in the allocation of development resources through emphasis on private sector participation and privatization\commercialization. Besides, independence of Anti-graft or anti-corruption agencies should not be a negotiable phenomenon to enable the outfits curb the menaces of corruption and embezzlements in the system especially during budget preparation and implementations. They should be made to examine the lapses in embezzlement level of our past leaders in terms of budgetary inflation; correctness of proper imputation and computation of the monetary figures as well as checkmating the past wrong manipulation so as to correct it for future purposes.

The Relationship between Tax Revenue and Economic Growth in Nepal: A Co-integration Approach

The main objective of this paper is to examine the relationship between tax revenue and economic growth in Nepal. The 43 years' annual time series data from 1974/75 to 2016/17 of GDP, tax revenue and nontax revenue have been used to test the causal relationship of the variables. A unit root test, Engle-Granger’s co-integration and Error Correction Model have been applied for the data analysis. The variables have been found stationary after first differencing I(1) when Augmented Dickey-Fuller unit root test is employed. From Engel-Granger test, it has been found that the variables are co-integrated. The short-term coefficients are not significant, however error correction term (ECT) is significant and contains a negative sign in the error correction model (ECM). It validates the ECM model. The ECT has shown that the annual speed of adjustment from disequilibrium to equilibrium is 34.3 percent. So far as the relationship is concerned, there is a long run relationship between tax revenue and economic growth in Nepal controlling the non-tax revenue. The impact of tax revenue on economic growth could be a good impetus for the policy maker and planner to increase the collection of revenue for the country.

Financial Development and Economic Growth in Tanzania: An Empirical Investigation

Tanzania economy like of many other emerging market have seen rapid increase number of banks locally and foreign owned since financial sector liberalization in 1990’s even though clear impact of financial sector on economic growth is hard to be singled out. The paper investigates empirically the long run relationship between selected proxies of financial development and economic growth in the Tanzanian context. Using the vector error correction model (VECM), the study finds that financial development is cointegrated with economic growth. That is there is a long run relationship between chosen proxies of financial development and economic growth in the country. This paper used broad money supply M2, foreign direct investment, customer deposits in foreign and domestic banks, credit extended by foreign and domestic banks as percentage of GDP as proxies for financial development. While per capita growth rate used to measure economic growth. The results also show the need to develop even further the financial sector through appropriate regulatory and macroeconomic policies in order to ensure sustainable economic growth as well as economic development. For robustness of the results other test were also performed in this study such as Augmented-Dickey Fuller unit root test and Johansen cointegration test.

Role of Public Expenditure in Economic Growth: Econometric Evidence from Kosovo 2002–2015

Abstract The aim of the study is to examine the impact of public expenditure on economic growth of Kosovo. Time series data span for the period of time 2002-2015. The structure of the econometric model is built on Keynesian theories and endogenous growth model. The model estimation is performed only after implementing the Augmented Dickey-Fuller (ADF) Unit Root test to estimate if time series are stationary. Several tests have been implemented to determine model validity. The model has met all the assumptions of statistical tests: error term residuals have a normal distribution (Jarque-Bera test), there is no auto-correlation between variables (Breusch-Godfrey Serial test), and error variances are constant, known as the principle of homoscedasticity (Breusch-Pagan-Godfrey test). Gross domestic product is used as a dependent variable in the model, while public expenditure (G), foreign direct investment (FDI), export (EXP) and total budget revenue (TrTax) are used as the endogenous variables. The study results have revealed that there is a positive and statistically significant effect of public expenditures and exports on economic growth. Total budget revenue has a positive impact on economic growth but this has not been proved to be statistically significant. The authors of the research have also found out that FDI is negative and statistically insignificant.

An analysis of the association among carbon dioxide emissions, energy consumption and economic performance: an econometric model

ABSTRACTThis work is intended to present an investigation into the macroeconomic reasons for carbon dioxide emissions in Pakistan for the period 1971–2016. This study adds to the current empirical literature on the association among carbon dioxide emissions, energy consumption, economic growth and the level of investment in Pakistan. The data has been checked for its stationarity by applying the augmented Dickey-Fuller (ADF) unit root test, and then a cointegration test helped in the estimation of long-run equilibrium association between environmental variables. The outcomes of the co-integration test suggest the presence of a long-run equilibrium connection between series. The results of Vector Error Correction Model (VECM) demonstrate that all variables transform to sustain long-run equilibrium. The outcomes of a Granger causality test showed that causality runs from economic performance and population toward CO2 emissions, while bi-directional causality is found between carbon dioxide emissions and energy usage, and carbon dioxide emissions and trade openness. The results of cumulative sum of recursive residuals (CUSUM) and cumulative sum of recursive residuals squares (CUSUMSQ) show the stability of the functional relationship established in the present work, which implies that this model is an adequate and useful tool for strategy formulation. So, an upsurge or a decrease in macroeconomic series will cause and has caused variations in carbon dioxide emissions in the long run in Pakistan.

PRIVATE SECTOR INVESTMENT AND ECONOMIC GROWTH IN PALESTINE

This study examines the impact of private sector investment on economic growth in Palestine using quarterly time series data from 1990-2015. Multiple regression and co-integration methods are employed to analyse the data. The objectives of this study are to analyse the trends of private investment and economic growth in Palestine from 1990­-2015 and to examine the impact of private sector investment on economic. Being a time series data, to avoid spurious regression results, the first step is to test for the stationarity of the data by using Augmented Dickey-Fuller unit root test. Then ordinary least square (OLS) regression technique is used to estimate of each independent variable effect on the dependent variable. Test the stationary of the error term is done to test the long run co-integration among variables. The result of stationarity and normality test will reveal that the model is fairly well specified and could be used for policy analysis or not. The co-integration test result will indicate that private sector investment and economic growth have a long run significant effect on one another. The unit root tests, which conducted, confirm that variables are stationary in first difference and the co-integration tests also confirm the existence of long term relationship between the variables. The findings of the study concluded that there exist a short-run and long run relationship between private sector investment and economic growth in Palestine. This study recommends the Palestinian government to promote and encourage both domestic and foreign direct investment. The investment policy should be more transparent, attractive and competitive

Can Select Macroeconomic Variables Explain Long - Run Price Movements of Indian Stock Indices ?

This study was an attempt to find the cointegration and causality among select macroeconomic variables namely foreign direct investment (FDI), exports, and imports and select stock indices of India like Nifty 50, Nifty FMCG, and Nifty Pharma over the period from January 2001 - December 2015. Nifty 50 and sectoral stock indices were considered as dependent variables, and select macroeconomic variables were considered as independent variables. In this study, appropriate econometric tools such as Augmented Dickey-Fuller (ADF) unit root test, Phillips - Perron (PP) unit root test, Karl Pearson's correlation coefficient, Johansen's cointegration test, vector error correction model (VECM), Granger causality test, variance decomposition index, and impulse response function were applied to analyse the linkages between select time series data. From the analysis, it was found that all the study variables were cointegrated and it was determined that select macroeconomic variables had the ability to correct the disequilibrium in the price movements of select stock indices. Granger causality test resulted in unidirectional causality between the study variables. Furthermore, it was found that sectoral stock indices responded and fluctuated with shocks to FDI, exports, and imports at a certain level of variation.

THE EFFECT OF MACROECONOMIC DETERMINANTS OF STOCK PRICE MOVEMENTS IN NIGERIA

This study examined the effect of macroeconomic determinants of stock price movements in Nigeria. To achieve this objective, data were gathered on macroeconomic variables such as gross domestic product, exchange rate, inflation, interest rate and absolute stock price were captured for the purpose of analysis. The autoregressive distributive lag (ARDL) model was used in analyzing the macroeconomic determinants of stock price movement in Nigeria. The augmented Dickey-Fuller (ADF) unit root test was also engaged in order to ascertain the stationarity or otherwise of the variables. The ADF unit root test revealed that only interest rate was stationary at levels while the remaining variables became stationary when differenced once. The ARDL findings revealed that the determinants variables (GDP, EXCHR, INTR, and INFL) were not jointly co-integrated with the dependent variable, ASTP, hence, no existence of a long run relationship. Conclusively, there was no long run relationship between macroeconomic determinants and stock price movements in Nigeria. It was recommended that, government should create conducive business environment, strengthen the real sector to stimulate the economy, boost savings and stock investment. Finally, government should fine tune its policies on exchange rate determination and setup a consistent policy plan to stimulate investment in the capital market.

Testing for nonlinear unit roots in the presence of a structural break with an application to the qualified PPP during the 1997 Asian financial crisis

AbstractThis paper applies Monte Carlo simulations to evaluate the size and power properties in the presence of a structural break, for the standard Augmented Dickey‐Fuller (ADF) test versus nonlinear exponential smooth transition autoregressive unit root tests. The break causes the tests to be undersized, and the statistical power considerably decreases. Moreover, the effect is intensified in small samples and very much increased for more persistent nonlinear series. As a remedy, we modify the standard ADF and exponential smooth transition autoregressive unit root tests in order to adjust for a structural break. This improves both the power and the size considerably, even though the empirical size still is lower than the nominal one. More persistent series are more affected by structural breaks, and the new tests are most powerful under the existence of a rather persistent nonlinear data generating process (which is an empirically relevant and common type of data generating process). The proposed tests are applied to investigate mean reversion in the real effective exchange rates of 5 East and Southeast Asian countries, taking into account the structural change in exchange rate regime brought about by the 1997 Asian financial crisis. The empirical findings corroborate our simulation results; the modified more powerful tests are able to reject the unit root in all 5 countries, whereas the tests that do not consider the structural break could only reject in one of these cases.

International Tourism Demand in Bangladesh: An ARDL Bounds Test Approach

Tourism can somewhat be compared to the Cinderella industry, much because of its development being unattended despite having immense potentials in generating development within an economy. This paper aims to fill the gap in the literature by modeling tourist demand in Bangladesh as a function of its real fundamentals using time series data over the period 1980 to 2017. Augmented Dickey-Fuller (ADF) unit root tests along with the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration and causality analyses are considered. The results reveal that the relative cost of living in Bangladesh and travel costs negatively affect international tourism demand while the relative cost of living in India, national income and exchange rate are found to be positively associated to tourism demand in Bangladesh. Moreover, long run causalities stemming from all the explanatory variables to tourism demand are also established in light of the statistical evidence found. Thus, it is pertinent for the government to escalate tourism development in Bangladesh which can also play a pivotal role in the diversification of the nation's export basket.

The linkage between fertilizer consumption and rice production: Empirical evidence from Pakistan

Rice is one of the most important staple foods for 70 percent of the population of the world. It is among the main cereal crops grown in different regions of Pakistan as food crop. Pakistan has very much potentials for growing the crop and the potential rice production sown area is estimated to be about 2724 thousand hectares. The purpose of this study is to examine the linkage between fertilizer consumption and rice production in Pakistan from 1984 to 2014. For checking the stationarity of the data, this study incorporated Augmented Dickey Fuller (ADF) and Phillips Perron (PP) unit root tests. Furthermore, the Johenson Co-integration test is used to detect the long-term relationship among the series. Likewise, on the basis of annual time series data the Autoregressive Distributed Lag (ARDL) model is employed to evaluate the impact of fertilizer consumption on the production of rice in Pakistan up to now. The results of ADF and PP unit root tests reveal that fertilizer consumption and water availability are integrated at I(0) whereas area and rice production are integrated at I(1). The empirical findings of Autoregressive Distributed Lag (ARDL) model indicate that area and fertilizer consumption for rice has a significant effect on the rice production in both short-run and long-run. In contrast, water availability has a significant effect on the rice production in the long-run but it was statistically insignificant in the short-run. The estimated equation remains stable from the period of 1984 to 2014 as showed by stability tests.

An Examination of the Effect of Migrant Remittances on Human Capital Development & Agricultural Productivity in Nigeria: An ARDL Approach

This study is an attempt to bridge the academic and policy debates on the migration-development nexus using econometric tools of analysis in measuring the impact of migrant inflows or workers’ remittances on human capital development and agricultural productivity in Nigeria between 1981 to 2016. Data for the study were sourced from the World Bank Development Indicators (WBDI) (2015). Empirical findings from the study are quite instructive. First, the Augmented Dickey-Fuller (ADF) unit root test and ARDL Bounds testing revealed evidences of stationarity and long-run equilibrium relationship among the variables in the model. Findings from the ARDL long-run and short-run regression revealed that, migrant remittances have no significant impact on human capital development in Nigeria during the period studied. Furthermore, migrant remittances holds a positive prospect of growth in agricultural productivity for Nigerian households in the long-run, but there appears to be no immediate gains and or benefits from migrant inflows to growth in agricultural productivity in Nigeria in the short-run. It is therefore recommended that Nigerian migrants be encouraged to send more remittances to their relatives / households in order to build-up human capital and increase agricultural productivity which will lead to a reduction in poverty and increase the long term developmental objectives of Nigeria as a nation.

Impact Of Capital Budget Implementation On Economic Growth In Nigeria

The study examined the impact of capital budget expenditure implementation on economic growth in Nigeria. Specifically the study assessed the impact of implementation of capital expenditure on administration, economic services, socio-community services on the growth of Nigerian economy. Secondary data used in the study were collated from Central Bank of Nigeria (CBN) statistical bulletins, and analyzed with the use of Augmented Dickey-Fuller unit root test, co-integration test and error correction model (ECM) analysis. The long run normalized estimation reported coefficient values of -387,2292, 69.05, 184.17 for capital expenditure on administration, economic services and socio-community services respectively, while the short run parsimonious ECM estimation reported coefficient estimates and probability value of 27.20(p=0.11), -27.82(p=0.001), -17.23(p=0.49) respectively. Thus, it was concluded that capital expenditure implementation is germane in maintaining and sustaining economic growth in Nigeria. Hence, it was recommended that government should ensure adequate implementation of capital expenditure in the country especially in areas of economic and socio-community services and also overhaul ministries, government agencies and parastatals to curb and curtail loopholes impeding effective and efficient implementation of capital budget in the country.

Structural breaks and unit root in macroeconomic time series: evidence from Nigeria

The discourse on the properties of macroeconomic time series has received a considerable interest in recent literature. This is because the presence of unit in a realization of a stochastic process implies that shocks to the time series have a persistent effect with policy implications. Hence, this paper investigates the unit root properties of ten Nigerian macroeconomic time series using quarterly data from 1981-2015. For comparison, first we apply the conventional augmented Dickey-Fuller unit root test to examine the null of a unit root in the ten macroeconomic series, and we proceed to examine the unit root properties using the Lagrange Multiplier (LM) endogenous unit root tests that account for the presence of one-break and two-break as proposed by Lee and Strazicich (2003, 2013). On employing the augmented Dickey-Fuller test that does not account for structural breaks, our empirical results indicate that the unit root null hypothesis cannot be rejected for nine of the ten series considered in the study. However, on utilizing the Lagrange Multiplier (LM) endogenous one and two structural breaks test, we reject the unit root null in favour of the one and two-break stationary alternative for six of the ten series (60% rejection) considered in our study. These results imply that unit root tests that do not account sufficiently for the presence of structural breaks lead to misleading inference. These findings have important implications for the macroeconomic policy-making, modeling and forecasting of the Nigerian economy. We therefore, recommend that structural breaks should be taken into account in the econometric analysis of Nigerian macroeconomic variables.

Market efficiency of gold exchange-traded funds in India

BackgroundGold exchange-traded funds, since introduction, are primarily aimed at tracking the price of physical gold in the financial market. This, a category of exchange-traded funds, whose units represent physical gold, is traded on exchanges like any other financial instrument. In the Indian financial market, gold exchange traded funds were introduced a decade ago to facilitate ordinary households' participation in the bullion market. They were also designed to assist in the price discovery mechanism of the bullion market.Presentation of the hypothesisIn this paper, it is attempted to check if one of the constituents of price discovery mechanism, informational efficiency, has been achieved in gold exchange-traded funds’ market. Information efficiency becomes evident only when all available information is reflected in the market price of the instrument.Testing the hypothesisTherefore, in order to assess the weak-form efficiency of the gold exchange-traded funds market, the daily returns of five gold exchange-traded funds traded on the Indian Stock Exchange over the period March 22, 2010, to August 28, 2015, were used. The non-parametric runs test, the parametric serial correlation test, and the augmented Dickey-Fuller unit root test are employed.Implications of the hypothesisThe test results provide evidence that the efficient market hypothesis does not hold for the gold exchange-traded funds’ market in India. Further, the test results address several underlying issues with respect to price discovery in the market under study and suggest that the Indian market for this derivative is not weak-form efficient. Hence, the factors affecting gold exchange traded-funds’ market warrant the attention of the country’s regulatory bodies, as appropriate legislation in support of market efficiency is needed.

Agricultural exports and economic growth in Pakistan: an econometric reassessment

Agriculture sector works as backbone of Pakistan economy. In this modern era, exports work as locomotive of growth train. Pakistan earned a handsome amount through exports of agricultural raw material and refined products. This research investigates that either there is unidirectional or bidirectional association between agricultural exports and economic growth in Pakistan? For empirical investigation of relationships between economic growth and agricultural exports in Pakistan this study used most reliable econometric estimation tools, augmented Dickey–Fuller unit root test, Johansen co-integration and Engle–Granger causality tests for 45 time series annul observations from 1970 to 2014. This research winds up that Pakistan’s agricultural exports have positive but insignificant association with gross domestic product growth. It is due to the primary and raw material agricultural products exports which cannot compete in international markets due to close competitions, lower quality and dearer price. Consequently, receive a trifling amount as exports earnings; contribute slightly in national economic growth.

Persistency in tourism expenditure in a small-open economy

This study aims to examine whether the shocks to the Turkish tourism have a permanent or a transitory effect on tourism expenditure for the period 1964–2012. We took the structural break periods from Lumsdaine and Papell (LP) unit-root test as a base and implemented the Augmented Dickey–Fuller unit-root test for the three different sub-periods of the series of tourism expenditure. In this study, we also estimated the measure of half-life for the effects of shocks on the series under consideration and the grid-bootstrap method to estimate confidence intervals. The results show, irrespective of the structural breaks, the effect of shocks on tourism expenditure is persistent; however, considering the structural breaks, the effect of shocks on tourism expenditure is transitory.

FII Flows and Stock Market Capitalization in India

The portfolio investment by Foreign Institutional Investors (FIIs) has become a remarkable force behind the development of Indian stock market and is majorly perceived as achief cause of stock market volatility. This has attracted numerous of researchers to study the relationship between FIIs Portfolio flows and volatility in stock market of India. In order to ascertain the relation between FIIs portfolio flows and stock market volatility the impact study of market capitalization and FIIs inflows and outflows relationship has been established .The study is conducted using monthly time series of NIFTY, SENSEX and FIIs activity for a period of sixteen years spanning from January, 2001 to December, 2016. To check the non-stationarity of the time series the Augmented Dickey-Fuller (ADF) unit root test is applied. In addition to these tools, granger causality Test is also used to study the impact of FIIs (Buy/Sell/Net) capital flows on stock market capitalization and vice versa. The study reveals that there is significant relationship between FIIs capital flows and stock market capitalization. Moreover, BSE and NSE market capitalization have significant influence on FII flows.

SOCIO-ECONOMIC DEVELOPMENT, DEMOGRAPHIC CHANGES AND TOTAL LABOR PRODUCTIVITY IN PAKISTAN: A CO-INTEGRATIONAL AND DECOMPOSITION ANALYSIS

ABSTRACT The study has examined the relationship between the socio-economic and demographic changes with total labor productivity in Pakistan over the period of 1980 to 2013. Human development index, dependency ratio, domestic investment, foreign direct investment, globalization and inflation rate are the selected socio-economic and demographic variables. Augmented Dickey-Fuller (ADF) unit root test is used for examining the stationarity of the variables. Autoregressive distributed lag (ARDL) model is used for analyzing the co-integration among the variables of the model. Variance decomposition is used for examining the feedback impact of each pair of variables. The results show that human development index and domestic investment have positive and significant relationship with total labor productivity in Pakistan. The calculated results show that dependency ratio, foreign direct investment and globalization has a negative and significant relationship with total labor productivity in Pakistan. Inflation rate has a negative but insignificant relationship with total labor productivity in Pakistan. Feedback effects results show that socio-economic and demographic changes play an important role in determining total labor productivity of Pakistan. Based on the empirical results, it is suggested that socio-economic and demographic factors must be improved for targeted total labor productivity in Pakistan. Keywords economic development, population density, environmental degradation