Autoregressive Distributed Lag Framework Research Articles

Unveiling the interplay between climate variability and economic growth in India: an auto regressive distributed lag (ARDL) framework

Unveiling the interplay between climate variability and economic growth in India: an auto regressive distributed lag (ARDL) framework

Asymmetric Response of Fiscal Sustainability to the Financial Development in Nigeria

This study examines the asymmetric response of fiscal sustainability to financial development in Nigeria while augmenting the model with exchange rate volatility within the non-linear autoregressive distributed lag framework. The empirical evidence reveals that positive and negative shocks in domestic credit to the private sector result in significant unsustainable fiscal balance and fiscal sustainability both in the short run and long run respectively. Increase and decrease in annual market capitalization have a positive and negative significant impact on the fiscal sustainability in the long run respectively. Exchange rate devaluation or depreciation has a devastating effect on fiscal sustainability both in the short run and long run. Wald test revealed that credit to the private sector and annual market capitalization have an asymmetric effect on fiscal sustainability both in the short run and long run, while the exchange rate has no asymmetric effect on fiscal sustainability. For a sustainable fiscal stance, we recommend a financial model that channels credits towards productive activities to boost GDP as this will go a long way in reducing the debt-to-GDP ratio and enhancing solvency.

Uganda’s Debt Sustainability: Testing The Efficacy of Debt Overhang Theory

The primary objective of this paper is to discern the impact of key economic variables, including primary balance, real interest rate, GDP growth rate, real effective exchange rate, and current account balance, on the long-term and short-term sustainability of the country's debt. Drawing on an array of econometric analyses within the Auto Regressive Distributed Lag framework, the study establishes that a fiscal surplus and sound management positively influence debt sustainability in the long run. However, it reveals that higher real interest rates pose challenges, leading to increased debt loads. While GDP growth's impact remains inconclusive, a fluctuating real effective exchange rate and the influence of the current account balance on debt dynamics emerge as crucial determinants. The study recommends a cautious fiscal approach, interest rate management, economic growth stimulation, exchange rate stability, and a focus on achieving and maintaining current account surpluses as pivotal strategies for ensuring Uganda's long-term debt sustainability. Nonetheless, the study acknowledges limitations related to sample size and endogeneity, encouraging further research to enhance generalizability and address potential omitted variables.

The impact of natural resource, information and communication technology adoption, and economic expansion on financial development in post COVID era

This study explores the interplay between natural resources, economic growth, and financial development in China, extending the inquiry to the moderating role of Information and Communication Technology (ICT). Utilizing the advanced Fourier Autoregressive Distributed Lag (ARDL) framework on data spanning from 1991 to 2020, our analysis delineates the dual influence of natural resources on financial development. Results indicate that natural resources alone have a deleterious effect on financial development both in the short and long run. However, when combined with ICT, the long-run effects are positive, suggesting that ICT has a transformative potential on the natural resources-financial development nexus. Conversely, in the short run, this interaction proves detrimental. These findings underscore the imperative for a holistic strategy that harmonizes economic growth, ICT advancement, and natural resource utilization to foster sustainable financial development.

Driving green transformation: Innovations and green innovations in natural resource markets

The worldwide desire for green development necessitates that China's accelerating economic expansion be supported by environmental conservation. The present research established a connection between Green Total Factor Energy Productivity (GTFEP), Economic Opening-up (EOU), Environmental Regulations (ER), Rent of Natural Resources (RNR), and Green Innovation (GI) in China from the vantage point of environmental improvement. This study analyzed the short- and long-run dynamics among significant components using annual data from 1990 to 2022 and a bound testing technique for the Auto-regressive Distributed Lag framework (ARDL) with an error-correcting framework. The Granger causality study proved unidirectional causation from independent factors to GTFEP, and the findings confirmed cointegration between GTFEP and all other variables. In conclusion, the results showed that EOU, ER, RNR, and GI were all effective on China's GTFEP throughout the long and short term. As a result, government initiatives need to prioritize openness, environmental control, and eco-friendly technological development.

Asymmetric link between energy market and crypto market

This paper examines the nonlinear (NL) asymmetric long- and short-run interconnections between energy indices (S&P 500-ENERGY, MSCI-CHINA, and MSCI-WORLD) and the crypto (Bitcoin) market. The daily data have been used from January 1, 2013, to February 24, 2023, archived from the wind database. We use a nonlinear autoregressive distributed lag (NARDL) framework for the research to be empirical. The NARDL test reveals the presence of a nonlinear asymmetric relationship, both in the long-run and short-run, among the MSCI-China, MSCI-World, S&P500-ENERGY indices, and the price of Bitcoin. The S&P 500 energy index and Bitcoin price have an inverse asymmetric connection. The prices of Bitcoin are positively influenced by both positive and negative shifts in the MSCI-CHINA and MSCI-WORLD indices. Overall, this study underscores the growing significance of the cryptocurrency market as a hedge against risks, offering evidence that Bitcoin can be perceived as a safe haven amidst the turbulence of the energy market. This insight holds implications for Bitcoin investors, suggesting its potential as a refuge in times of energy market instability.

Electricity consumption and economic growth in Ghana: how significant are electricity transmission losses?

Purpose The purpose of this study is to analyze the nonlinear relationship between electricity consumption (EC) and electricity transmission losses (ETL) in Ghana. Also, we examined how ETL moderate the effect of EC on economic growth in Ghana from 1980 to 2021. Design/methodology/approach We used timeseries data from 1980 to 2021 within an autoregressive distributed lag framework to analyze the links among ETL, EC and economic growth in Ghana. Findings Findings show the existence of an asymmetric long-run relationship between EC and ETL. Also, the negative effects of ETL on EC are bigger in the long run. In addition, ETL and EC combine to reduce economic growth, in the long run, providing evidence for the energy-led growth theory in Ghana. Population and inflation were also found to have a significant effect on economic growth in Ghana. Originality/value We examined the nonlinear nexus of EC and ETL, which extant studies have ignored in discussing the link between EC and economic growth. Again, we showed that ETL reduces EC causing a reduction in economic growth.

Impact of global liquidity on Indian financial markets and monetary policy outcomes: An ARDL approach

Liquidity management is essential for the financial framework of any economy, especially for operationalizing monetary policy. The relatively resilient Indian financial system experiences the transmission of global liquidity shocks, which results in a reversal of portfolio flows from domestic markets resulting in central bank interventions. This paper examines the impact of global liquidity shocks on key financial and monetary variables of the Indian economy using quarterly data for the period 2000–2018 using an autoregressive distributed lags framework. We find the presence of long-run relationships between global liquidity variables (such as the US treasury bill rate, CBOE-VIX index, and US broad monetary aggregate) and the Indian financial markets (NSE Nifty index) and the monetary policy outcome (91-day Treasury bill rate). In the short run, the results were significant for the impact of the risk aversion measure on domestic policy rate in line with the expectations channel. The exchange rate channel and global money supply also significantly impacted the Indian policy rate. The results have significant policy implications as they indicate the most optimal transmission channels through which global liquidity affects the Indian economy.

Renewable energy development, unemployment and GDP growth: South Asian evidence

PurposeThis study aims to investigate the interplay between renewable energy development, unemployment and GDP growth within Bangladesh, India, Pakistan and Sri Lanka. The research underscores the significant role of renewable energy plays in stimulating economic growth and mitigating unemployment, offering crucial policy insights for sustainable growth in South Asia.Design/methodology/approachUtilizing the autoregressive distributive lag (ARDL) framework and Toda Yamamoto causality through the vector autoregressive (VAR) approach, the study analyzes the long-term and short-term impacts of these variables from 1990 to 2019.FindingsThis study reveals a significant co-integration among renewable energy consumption, unemployment and GDP growth in selected South Asian countries. The long-term estimation shows renewable energy consumption influences negatively economic progression in Bangladesh, with no notable correlation with unemployment. In contrast, Sri Lanka demonstrates an optimal relationship among all the variables. Short-run assessments reveal a significant positive relationship between renewable energy consumption and economic growth in India, while an inverse relationship is evident in Pakistan. Moreover, the relationship between unemployment and economic progression, the result shows a negative and significant relationship in India and Sri Lanka.Research limitations/implicationsThe study emphasizes the need for policy development concerning renewable energy development, unemployment reduction and sustainable economic growth in South Asia. While limitations exist, future research can expand upon this work by incorporating varied data, additional countries or alternative modeling techniques.Originality/valueThis research offers a unique exploration into the multidimensional impacts of renewable energy consumption, unemployment and economic growth in the South Asian context, an area previously unexplored in such depth.

Investigating the Dynamics of Cryptocurrencies with Financial Markets: Evidence from an ARDL Approach

This article focuses on the returns of four major cryptocurrencies. It covers a complete study of the dynamics of cryptocurrencies with traditional financial markets, including stocks, gold and oil prices and the technology proxied by hashrates and social sentiments gauged by Twitter data. The article fits the time series model using the Autoregressive Distributed Lag framework and selects the fitted model using penalized least-square estimates. The study also encompasses a set of control variables to improve the model’s accuracy. The findings confirm the existence of a dynamic relationship between the cryptocurrency market and the traditional financial markets. Our results imply that cryptocurrencies can be used as a tool for portfolio diversification. This study is a unique attempt at identifying the major drivers of the cryptocurrency market at large, by disentangling and modelling the dynamic relationships shared by the leading four cryptocurrencies with the relevant components of the financial markets. This article is a significant contribution to the emerging literature on cryptocurrencies and has implications for practitioners.

Achieving green environment in Brazil, Russia, India, China, and South Africa economies: Do composite risk index, green innovation, and environmental policy stringency matter?

AbstractThe Paris Accord has brought the world's governments together to begin implementing plans for their individual economies to become carbon‐free. The goal of attaining low‐carbon growth is not, however, as simple as it would appear since the world economies, which are dependent on fossil fuels and are fast expanding, are concentrated on accelerating economic expansion at the price of worse environmental effects. In light of this, the study aims to investigate the combined effects of the composite risk index (CRI), green innovation (GINOV), and environmental policy stringency (EPS) on carbon dioxide (CO2) emissions in the context of Brazil, Russia, India, China, and South Africa (BRICS) countries while controlling for gross domestic product (GDP) and renewable energy research and development (RERD) over the period from 1960 to 2020. The research addresses the problems of cross‐sectional dependence and slope heterogeneity in the data set used for analysis by using the second‐generation cross‐sectionally augmented autoregressive distributed lags framework to evaluate long‐ and short‐run models. The corresponding findings show cointegrating relationships between the research variables. Additionally, the results of the regression demonstrate that EPS, GINOV, and RERD contribute to a long‐term decrease in CO2 emissions. CRI and GDP, however, increase CO2 emissions. It is suggested that environmental policies be tightened, GINOV and RERD expenditures be promoted, political stability and institutional quality be maintained, and clean economic growth strategies be adopted in order to help the BRICS countries reduce sectoral risks, create a sustainable environment, and decarbonize their respective economies.

Testing the consistency of asymmetric interest rate pass-through: The case of Indonesia

This paper investigates the consistency of asymmetric interest rate past-trough (IRPT) using a nonlinear autoregressive distributed lag framework. Superior to the previous studies, this study exploits the historical profile of Indonesia to enrich the analysis. Asian Financial Crisis (AFC) which crashed the country in 1998 and several monetary policy changes implemented by the government offer different perspectives to grasp IRPT. The results of this study indicate that there is a consistent upward rigidity in the long-run pass-through in Indonesia. Particularly during the AFC, it is well proven that the asymmetric behavior is fickle whether disappear or bounce back to the downward rigidity. This finding demonstrates the importance of a rolling-window approach in understanding IRPT.

On the asymmetric effects of trade openness on CO2 emissions in SADC with a nonlinear ARDL approach

In this study, the expected asymmetric relationship between trade openness and CO2 emissions is investigated for the Southern African Development Community (SADC). We make use of a nonlinear autoregressive distributed lag (NARDL) framework proposed to capture the short- and long-run asymmetries for increases and decreases in trade openness and its impact on CO2 emissions over the period 1960–2020. We proxy trade openness using an innovative approach that considers both a country’s trade share to GDP and its size of trade relative to world trade. Both short- and long-run nonlinearity are tested by deriving the positive and negative partial sum decompositions of the trade openness variable. The results show mixed evidence of asymmetric behaviour between trade openness and CO2 emissions. Long-run asymmetry is found for Botswana, Madagascar, Mozambique and Tanzania, while in Comoros, Namibia and South Africa, there is evidence of both short- and long-run asymmetry. The remaining cases (Angola, Democratic Republic of Congo (DRC), Lesotho, Malawi, Mauritius, Seychelles, Zambia and Zimbabwe) show ample evidence of symmetric behaviour and linear long-run relationships between trade openness and CO2 emissions. The policy implication is that the SADC member countries should amend and reinforce environmental policies that can promote production and trade of environmentally friendly goods. For instance, a “tax or subsidy” policy, which taxes the trading of environmentally damaging goods, while subsidizing the trading of eco-friendly goods, can be implemented.Graphical

Investigating the Finance-Energy-Growth Trilogy in Sub-Saharan Africa: Evidence From the NARDL Framework

This paper analyzes the nexus between energy consumption, financial development, and economic growth in twenty-one (21) sub-Saharan African (SSA) nations by using the nonlinear autoregressive distributed lag (NARDL) framework from 1990Q1 to 2014Q4. First, the study reveals that energy consumption and financial development have asymmetrical impacts on economic growth in most countries in the short and long term. Second, positive shocks to financial development favor economic growth in only a few nations compared to the negative shocks in the short term, whereas they have mixed effects in the long term. Third, we found that adverse shocks to energy consumption boost economic growth in several nations in the short term, unlike the positive shocks, but the scenario has reversed in the long term. We also found that gross fixed capital formation and labor force remain key factors promoting economic growth in many SSA countries, in contrast to the mixed effects of trade openness over time. Accordingly, our study recommends implementing energy-saving policies in specific SSA countries to stimulate sustainable development. Policymakers must embrace an effective credit allocation to the private sector supporting productive investments. Governments should also optimize domestic investments in physical capital, upgrade the labor force, and implement efficient strategies in international trade. These policy recommendations need to be implemented according to the unique socio-economic characteristics of each SSA country.

Asymmetric reactions of stock prices and industrial output to exchange rate shocks: Multiple threshold nonlinear autoregressive distributed lag framework

Motivated by swings in the exchange rate of many developing economies which exert influence on firms? input costs, output, stock prices, and profits, the study investigated the asymmetric reactions of stock prices and industrial output to various shocks in the exchange rate in Nigeria using a multiple threshold nonlinear autoregressive distributed lag model and high frequency series from January 1999 to December 2021. Empirical results suggest that stock prices and industrial output react asymmetrically in the opposite direction to exchange rate depreciation. It further indicates that the reactions of both stock prices and industrial output to exchange rate changes are sensitive to the size of shocks. Exchange rate shocks above the 25th percentile significantly and inversely affect both stock prices and industrial output, and the effects of exchange rate shocks on stock prices and industrial output become pernicious if above the 75th percentile. The main economic implication of the empirical finding is that in the upper quantile, both exchange rate depreciation and appreciation hurt industrial output, and hence, stock values. Thus, the multiple threshold nonlinear autoregressive distributed lag results suggest that the reactions of both stock prices and industrial output to exchange rate changes are highly sensitive to the extent of the shocks.

Estimating the link between trade uncertainty, pandemic uncertainty and food price stability in Togo: New evidence for an asymmetric analysis

AbstractGlobally, the outbreak of COVID‐19 and the associated containment measures adopted by governments are causing disruptions that sow uncertainty in several sectors of the economy. In this study, we explore the asymmetric impact of pandemic uncertainty and global trade policy on food prices in Togo. The study uses a nonlinear autoregressive distributive lag (NARDL) framework and causality tests for the period 2000 M1–2021 M5. The results show that the different types of uncertainty affect food price stability in the short and long run, but the shock is more pronounced in the case of pandemic uncertainty, as they are sudden and disrupt food price stability. The main findings remain significant when we use various alternative methods and estimation techniques. However, our results suggest that the Togolese food market is facing pandemic uncertainty and trade policy, which should lead policymakers and stakeholders to take corrective measures to control losses.

The asymmetric effects of exchange rate on trade balance and output growth

The study analyses the impact of exchange rate asymmetries on trade and output growth in 8 of the largest African countries between 1970 and 2019 using the non-linear autoregressive distributed lag (NARDL) framework. The empirical result confirms a long-run relationship between exchange rate, trade and output growth. Also, currency appreciation and depreciation enhance short-run trade and output in South Africa while reducing both in Angola. Regarding Egypt and Morocco, currency appreciation improves short-run trade and growth, but in the long run, depreciation lowers both. This is similar in Kenya and Nigeria, except for the weak negative effect of currency depreciation on trade. In general, for most African nations, both appreciation and depreciation primarily exert negative impacts on the long-run trade balance, while depreciation has mainly short-run positive effects. Similarly, depreciation positively impacts short-run growth, while currency appreciation remains largely negative. We then recommend policy prescriptions for the continent.

Dynamic Role of Green Energy Efficiency and Climate Technologies in Realizing Environmental Sustainability: Fresh Insights From China

Amid rising industrialization and economic progress, China has shown exponential growth in energy and fossil fuel consumption; therefore, it faces great global concern and widespread criticism for energy and fuel conservation to reduce fuel-related emissions. In addition, the recent spread of COVID-19 instigates the impact of environmental pollution, exaggerates the virus intensity, and lowers people’s immunity due to poor air quality. Therefore, this study explored the role of green energy efficiency and climate technologies in achieving carbon neutrality in China using an advanced quantile autoregressive distributed lag (QARDL) framework. The results indicated that green energy efficiency and climate technologies significantly reduce environmental pollution across all quantiles in the long run. In contrast, urbanization enhances environmental degradation at lower and higher emissions quantiles, while trade only promotes environmental pollution at lower quantiles. These findings suggested using alternative energy sources and carbon-reducing technologies to ensure a sustainable environment.

Budget Consolidation and Social Sector Spending: Does Fiscal Contraction Endanger Growth of Human Capital in India?

This study analysed the short- and long-term impacts of fiscal consolidation on social sector spending in Indian economy and thereby on human capital. Using autoregressive distributed lag framework, the study found that fiscal adjustments have significant potential to undermine the short- and long-run spending in human capital. A fiscal adjustment aimed at strengthening fiscal position of the Indian economy can have adverse impacts on the growth rate of income. Lower-income growth will imply increased constraint on part of the government to spend in public utilities like education and health. Similarly, a fiscal adjustment based on slashing government spending can adversely impact both short- and long-term welfare spending as these spendings are mainly financed by deficits. The policymakers while framing the design of a consolidation programme need to take extra precaution as far as the composition of these adjustments are concerned. Moreover, there is need of legislate aimed at changing the nature of welfare spending from discretionary to compulsory.

Energy Consumption and Economic Growth Linkage: Global Evidence from Symmetric and Asymmetric Simulations

Abstract The literature reveals that linear models do not accurately represent the asymmetric relationship between economic growth and energy consumption (EC). To fill this gap, we examined the asymmetric relationship between EC and economic growth in a non-linear panel autoregressive distributed lag (ARDL) framework of 85 countries as a whole sample and of Brazil, Russia, India, China, and South Africa (BRICS), the Next Eleven, Big Four in Western Europe, Asia-Pacific region, Group of Seven, South Asian Association for Regional Cooperation (SAARC), Economic Cooperation Organization (ECO) and the Arab League as a sub-sample analysis from 1977 to 2014. A second generational unit root test has been applied to check the problem of cross-sectional dependency. Asymmetric co-integration was employed to analyse the co-integration between the variables of interest. Long-run and short-run estimates have been calculated using the non-linear panel ARDL method. Results indicate that positive shocks to energy use tend to have a growth-enhancing effect in ECO and the Next Eleven while in the rest of the regions, the effect is growth contraction. Moreover, economic recovery from a positive shock to energy use is the case in the Arab League, Asia-Pacific region, Group of Seven and in the whole sample. However, a negative shock to EC is observed in the Group of Seven, Asia Pacific region, Big Four in Western Europe and ECO, and the whole sample worsens the economic contraction. We can deduct from this study’s results that information on the asymmetric relationship between the subject variables is needed to design sound economic policy decisions across different economic regions.