Autoregressive Distributed Lag Bounds Testing Approach Research Articles

Effect of Longevity on Economic Growth, Accounting for Variability in Demographic Transition: Evidence for Pakistan using ARDL Bounds Testing Approach

Rising longevity due to access to better health services affects the growth and composition of the population differently than birth rates. In addition, empirical evidence of the effects of rising longevity on standards of living is ambiguous. From the perspective of developing nations, it is important to understand how rising longevity affects national prosperity, as this allows governments to develop programs for increasing investment in the health sector. This study explicitly tested varying intertemporal impacts of rising longevity on the GDP per capita of Pakistan between 1967 and 2020. An Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration was used to estimate and compare short-run and long-run estimates of longevity. The results indicated that a 1% increase in longevity increased the growth rate of GDP per capita in Pakistan by 0.64% in the long-run. In addition, a 1% increase in life expectancy at birth above 62 years increased economic growth by an additional 0.009%. In general, the estimated effect of increased longevity varied by stages of demographic transition in Pakistan.

Determinants of Indonesian stock market development: Implementation of an ARDL bound testing approach

The Indonesian stock market is a growing financial industry that plays a strategic role in the growth of the country’s economy. Its development is affected by various factors. This study examined the impact of the exchange rate, gross domestic product (GDP), interest rates, inflation, foreign portfolio investment (FPI), and domestic political stability on stock market capitalization. Quarterly data between 2000:Q1 and 2020:Q4 are used. The autoregressive distributed lag (ARDL) method is applied to identify long-run relationships between variables. To understand how fast the system reaches equilibrium after a shock, the model also examines short-run relationships using an error correction model (ECM). The findings show that the impact of exchange rate, interest rate, and inflation on stock market capitalization is negative in the long run. While the GDP, FPI, and political stability are positive. Increment in the US Dollar against the Indonesian Rupiah, interest rate, and inflation by 1% respectively, caused stock market capitalization to fall by 1.31%, 0.06%, and 0.04%. A rise in GDP, FPI, and political stability by 1% respectively, increases the stock market’s value by 1.17%, 1.08%, and 1.28%. In the short run, the coefficient of ECM indicates the speed of adjustment of the system: the occurrence of the shock to reach long-run equilibrium is quick enough, at 63.8% each quarter. The study recommends governments evaluate the impact of these factors when formulating monetary policies, promote economic growth, and continuously implement good governance, thus supporting stock market development.

Financialization and growth nexus in the EU new member states (NMS): an ARDL bounds testing approach and Granger causality analysis

PurposeThis study aims to explore the short-run and long-run relationships and causality between economic growth and financialization in the new member states (NMS-11) and to provide some policy implications drawn from the empirical findings.Design/methodology/approachThe autoregressive distributed lag (ARDL) bounds test approach to cointegration with the vector error correction model and the cumulative sum of squares (CUSUMQ) test for stability of functions is used between 1995q1 and 2021q4 to examine the existence of cointegration, relationships and causality between economic growth and financialization.FindingsThe findings of the ARDL bounds test demonstrate that the variables included in the models are bound together in the long run, as confirmed by the associated equilibrium correction. The estimated models indicate that the association between selected variables and economic growth is stronger and more statistically significant in the short run compared with the long run. Also, for NMS-11 understudied countries, short-run causality prevails over long-run causality. The changes in the level of financialization have a significant negative effect on the growth rates in the short run, which aligns with findings from previous empirical studies.Originality/valueThis study extends the existing very limited literature about short-run and long-run relationships and causality among economic growth and financialization, including inflation and unemployment variables, to determine their link in the NMS-11. Specifically, the present study reveals that the current level of financialization hampers economic growth and promoting such economic policies further can have adverse effects on the overall economic growth.

Investigating the Dynamic Relationship between Exchange Rate and Trade Balance in Egypt: ARDL Bounds Testing Approach

Exchange rate policies are among the most important economic tools in the country for their impact on the balance of payments in general and the balance of trade. This study used the autoregressive distributed lag (ARDL) model to estimate the long-term relationship between the exchange rate and the trade balance deficit while clarifying the impact of potential determinants during the period 1990 to 2021 in Egypt. The data for trade balance and its economic determinants (exchange rate, foreign direct investment, and money supply) was obtained from the World Bank. The results indicated that the best model was ARDL (2,1,2,3). The exchange rate is found to have a significant negative effect on the trade balance, confirming the perceptions of the economic theory. The money supply is positively and significantly related to the trade balance while there is no significant effect of foreign direct investment in the long term on the trade balance deficit. Economic adjustments between the four variables occur in the short run (after about 14 months only). The study recommends continuing the policy of liberalizing the exchange rate while working on expanding the production base to increase exports.

Investigating the relationship between market value added (MVA) and economic value-added momentum (EVAM): empirical evidence from Turkiye

Purpose- This study aims to investigate the possible relationship between market value added (MVA) and economic value-added momentum (EVAM). Besides, any possible linkage between leverage (in terms of the degree of combined leverage) and market value added is also tested. Methodology- This study conducts a time series analysis to the quarterly data of manufacturing industry, comprising Borsa Istanbul (BIST) listed manufacturing firms for the period of 2001.q2-2022.q4 to test MVA-EVAM relationship. It employs autoregressive distributed lag (ARDL) bounds testing approach, developed firstly by Pesaran and Shin (1999) and further revised by Pesaran, Smith and Shin (2001). The stationarity of the series is tested by the Augmented Dickey-Fuller (ADF) and Phillips and Perron (PP) unit root tests. Findings- Empirical findings from ARDL bounds testing approach refers the existence of long-run relationships between market value added and economic value added momentum; and market value added and degree of total leverage. The coefficients of the long-run form of ARDL model reveal that both economic value-added momentum and degree of combined leverage have statistically significant and negative effects on market value added. The estimated short-run coefficients indicate that economic value added momentum has significantly negative effect on market value added created as similar to the long-run finding. Another finding is that though leverage has significantly positive effect on market value added in the short-run, this positive effect turns out to be negative in lag one period. Conclusion- This study contributes to the literature on MVA-EVA relationship by employing autoregressive ARDL bounds testing approach to manufacturing industry comprising Borsa Istanbul (BIST) listed manufacturing firms of Turkey as an emerging market. Besides, the research model includes EVAM -as an independent variable- that is so rarely considered in existing literature. Keywords: Market value-added, economic value-added momentum, leverage, time series analysis, ARDL bounds testing approach. JEL Codes: G32, C32, C58

The effects of economic growth, energy consumption and financial development on CO2 emissions in Tunisia: ARDL bounds testing approach to cointegration

This study aims to investigate the impacts of economic growth, energy consumption, and financial development on carbon emissions within the framework of the environmental Kuznets curve hypothesis for Tunisa from 1970 to 2018. The long-run relationship is examined by applying the autoregressive distributed lag (ARDL) bounds testing procedure to cointegration and error correction analysis. The empirical findings show a positive monotonic relationship between real GDP and carbon dioxide emissions (CO2), which means that Tunisia has not yet reached the required level of per capita income to get an inverted U-shaped EKC. The results also reveal a positive impact on both the energy consumption and the financial development, suggesting that theses control variables lead to environmental damages by polluting the atmosphere in the long run. At the same time, the paper explores causal links between the variables by referring to the Toda and Yamamoto (1995) Causality Test, and it concludes that financial development and energy consumption play a vital role in the Tunisian economy to achieve sustainable environmental development. Therefore, policy makers should not only focus on economic development, but also undertake a solid green finance regulation to assume an active environmentally friendly processes, and the energy matrix should be transformed in favor of renewable energy to cope with environmental degradation and to ensure sustainable development in Tunisia.

Impact of Macroeconomic Variables on Stock Market Price Levels: Evidence from the Philippines

The study investigates the short and long-run relationship between the Philippine Stock Exchange Index and macroeconomic variables interest rate, foreign direct investment (FDI), and exchange rate. Specifically, the paper analyzed annual secondary data from the inception of PSEi in 1985 to 2019. This study's theoretical and empirical research finds diverse perspectives on how each macroeconomic variable factors into the stock market price levels. The Philippine stock market has also grown remarkably during the past few decades. However, there is little to no comparable study in Philippine literature. So, by employing the ARDL bounds testing approach, the research adds to the body of literature by examining the macroeconomic factors influencing the growth of the Philippine stock market. The study adopted the Autoregressive Distributed Lag (ARDL) model to estimate the causality function, F-Bounds Test to establish long-run causal significance, and Error Correction Term (ECT) to determine how long until the adjustment of short-run errors to re-equilibrate to the long-run equilibrium. The results show that FDI has a positive cointegration in both the short and long run, the exchange rate has a positive cointegration both in the short and long run, and the lag of interest rate is positively significant in the short run and negatively significant in the long run.

Symmetric and asymmetric impact of public investment on private investment in South Africa: Evidence from the ARDL and non-linear ARDL approaches

This study examines the impact of public investment on private investment in South Africa using the autoregressive distributed-lag (ARDL) and nonlinear ARDL bounds testing approach for the period from 1980 to 2018. The ARDL results show that public investment crowds in private investment in the long and short run. The NARDL results indicate that the negative shock in public investment leads to a decrease in private investment in the long and short run. The results show that public investment has an asymmetric impact on private investment in South Africa. The study recommends that government increase investment in infrastructure such as energy, roads and railways, among others, in order to promote private investment.

The Relationship of Crude Oil Prices and the U.S. Dollar Exchange Rate in the Philippines

This paper examines the U.S. dollar exchange rate, gasoline octane 95, diesel, and kerosene prices in one econometric model. These comprehensive literature reviews related to this topic of interest prove evidence of variations in the relationship that exists between the U.S. dollar exchange rate, gasoline octane 95, diesel, and kerosene prices. This study will undertake to find out the effect of the rising crude oil prices in the Philippines on the U.S. dollar exchange rate during these times. Significantly, Through the ARDL bounds testing approach, the research adds to the body of literature by examining the relationship between crude oil prices and the U.S. dollar exchange rate in the Philippines. The study adopted the Autoregressive Distributed Lag (ARDL) model to estimate the causality function, F-Bounds Test to establish long-run causal significance, and Error Correction Term (ECT) to determine how long until the adjustment of short-run errors to re-equilibrate to the long-run equilibrium. The results show that the lag of crude oil prices has a significant relationship with the lag of the U.S. dollar exchange rate in the short run. In regards to the long-run, the crude oil prices were found to be insignificant, but the kerosene and gasoline prices may still have a positive long-term impact, and diesel has a negative long-term impact on the U.S. dollar exchange rate against Philippine Peso.

China and deglobalization of the world economy

<abstract> <p>This paper analyses the causes of the downward trend in three key cohesion aspects of the world economy: international trade, foreign investment and global value chains. The paper shows that the causes of these trends are not cyclical, but structural; that is, it is the process of deglobalization of the international market, and transformation of the very foundation of the international economic system is underway. The specific aim of the study was to investigate the impact of current trends on China's economy. The question is whether the Chinese economy, which has developed due to globalization processes, will be negatively affected by reverse processes, and to what extent. To capture the short-run effect of globalization-related factors on China's economy, an autoregressive distributed lag (ARDL) model was used. For estimation of the long-run linkage, the ARDL bounds testing approach to cointegration was launched. The results of testing the short-term effects showed that the new Chinese development strategy, aimed at protecting domestic economy from external disturbances, has produced excellent results. Significant changes in the Chinese development paradigm, as based on domestic production to meet domestic demand and financed by internal resources, have led to a decrease in the share of all international indicators in the Chinese economy. This is shown by both the statistical description of changes in the globalization-related variables, and it is confirmed by the results of conducted empirical research. Testing of long-term relationships has given conflicting results, so it is not possible to identify the long-term impact with certainty. Nevertheless, the parts of bounds testing that are statistically indisputable indicate a long-term, strong cumulative impact of these variables on the Chinese economy, while the direction and intensity of the action of individual variables are unpredictable. A new paradigm enables China to take a better international position as a global investor instead of a recipient of investments, to take over growing parts of global product chains instead of being their production link and to initiate a new form of globalization in the Chinese way.</p> </abstract>

Does the structure of state budget matter for Egypt’s fiscal deficit? An empirical investigation using an ARDL bounds testing approach

ABSTRACT The current study contributes to the existing literature by investigating the relationship between structure of the State budget and fiscal deficit-to-GDP ratio in Egypt over the period 1981/1982–2020/2021. The dynamic relationship between the examined variables is tested using an Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration. The study finds an empirical evidence that supports the hypothesis that budget structure matters for fiscal deficit in Egypt. A higher share of investment expenditure in total government expenditure is correlated with a lower fiscal deficit-to-GDP ratio in the long- and short-run. The share of taxes in total government revenue is found to be negatively (positively) associated with the fiscal deficit-to-GDP ratio in the short-run (long-run). In addition, the current account balance is found to be negatively correlated with the fiscal deficit, in the long-run, which supports the ‘twin deficits hypothesis’ and the ‘current account targeting hypothesis’. Furthermore, the study finds a unidirectional Granger causality relationship that runs from fiscal deficit to government investment expenditure.

Public expenditure and inflation rate in Nigeria: An empirical analysis

The study investigated the impact of public expenditure on inflation rate in Nigeria. Time series data spanning from 1981 to 2021 was sourced from the Central Bank of Nigeria statistical bulletin. The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that one period lag of CAP has a negative and insignificant impact on inflation rate. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 19.7 percent as shown by the coefficient of ECM. The long run result showed that capital expenditure has no impact on inflation rate while recurrent expenditure has a positive and significant impact on inflation rate. The result also showed that debt servicing has a positive and insignificant impact on inflation rate. Based on these findings, the study recommended that government should reduce its rate of borrowing and also ensure that borrowed funds and greater part of its expenditures are strictly channeled to productive ventures that are capable of transforming the economy.

Government debt accumulation and non-performing loans: An ARDL bounds testing approach

Following the financial and debt crises in the euro area and the global COVID pandemic, governments supported their economies by increasing borrowing and accumulating debt with ambiguous long-run effects on non-performing loans (NPLs). We empirically investigate the determinants of NPLs using quarterly (2003Q1-2020Q2) aggregate data for Greece and applying the autoregressive distributed lag (ARDL) bounds testing approach. We offer new policy-making relevant evidence by showing that government debt has a significant and positive long-term impact on NPLs irrespective of possible short-term dynamics that appear to provide a temporary relief. Fiscal balance, on the contrary, exerts a negative long-term effect justifying the quest for surpluses post-COVID.

Is stock market development sensitive to macroeconomic indicators? A fresh evidence using ARDL bounds testing approach.

Over the past decades, emerging stock markets have started to significantly contribute to economic growth through mobilizing long-term capital by pooling funds, facilitating savings and investments into profitable projects and improving corporate governance structure. A plethora of empirical studies is devoted to investigate the determinants of different capital markets but due to highly controversial and inconclusive findings about macroeconomic determinants, this study contributes to the body of existing literature by empirically investigating the macroeconomic forces that drive the stock market development of Pakistan from 1980 to 2019. By applying Ng-Perron and Zivot-Andrews unit root tests (to determine the integrating orders of variables) and Autoregressive Distributed Lag (ARDL) bounds testing approach, our results confirm cointegration among variables and exhibit the significant positive impact of economic growth and banking sector development on stock market development and negative affect of inflation, foreign direct investment and trade openness on it in long run. At the same time, the short run results show a significant relationship of economic growth, inflation and foreign direct investment with stock market development. Our study has some important policy implications.

Monetary policy and unemployment rate in Nigeria: An empirical investigation

The study investigated the impact of monetary policy on unemployment rate in Nigeria. Time series data spanning from 1981 to 2020 was sourced from the Central Bank of Nigeria statistical bulletin and national bureau of statistics (various editions). The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that prime lending rate has a positive and insignificant impact on unemployment rate while that minimum rediscount rate has a negative and insignificant impact on unemployment rate. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 81.9 percent as shown by the coefficient of ECM. The long run result of the study showed that there is a positive and significant impact between prime lending rate and unemployment rate in Nigeria but a negative and significant impact between minimum rediscount rate and unemployment rate in Nigeria. The run result equally revealed that there is a positive and insignificant impact between exchange rate and unemployment rate in Nigeria. Based on these findings, the study recommended that the monetary authority should come up with policies that will reduce minimum rediscount rate as this will encourage borrowing of funds for investment purposes as this will help to reduce unemployment rate. Monetary authorities should also come up with policies that will stabilize exchange rate.

Relationship between Covid-19 and money supply in Turkey: evidence from ARDL bounds testing approach

Purpose- COVID-19 has been a devastating process. During this period, there was a significant increase in the money supply. So, in this process, is there a relationship between COVID-19 and the money supply? This study intends to investigate if COVID-19 and the money supply have both a short- and long-term relationship. Methodology- Logarithmic conversions were used to examine the number of COVID-19 new cases obtained from the Association of Public Health Professionals (HASUDER) and the Turkey Republic Ministry of Health, as well as M2 weekly money supply data from the Central Bank of the Republic of Turkey (CBRT) Electronic Data Distribution System (EVDS). For stationarity tests, the Augmented Dickey-Fuller (ADF), Phillips Perron (PP), and Kwiatkowski, Phillips, Schmidt, and Shin (KPSS) unit root tests were used. Due to the different degrees of stationarity of the series, cointegration was not possible, so the long-term relationship was evaluated using Autoregressive Distributed Lag (ARDL). Short-term analyzes included the VAR Model and the Granger Causality Test. Findings- COVID-19 and the money supply, according to the findings, are not cointegrated in the long term. It has been discovered that the series do not move together over the long run. But in the short term, COVID-19 is a Granger cause of the money supply. Conclusion- The increase in COVID-19 cases positively affects the money supply. An increase in the money supply also leads to inflation. Therefore, in order to cope with the inflationary process triggered by the pandemic, measures to prevent the increase in COVID-19 cases are important. These findings will be "confirming" in the design of policies in this process. This study is also a contribution to the literature due to the lack of studies investigating the response of the money supply to COVID-19. Keywords: Covid-19, money supply, ARDL bounds testing approach, VAR model, Granger Causality. JEL Codes: E51, E52, I15, I18, C22

Determinants of Mutual Fund Flows in the Indian Stock Market: Insights Through the Nonlinear Autoregressive Distributed Lag Bounds-testing Approach with Structural Breaks

The study investigates the determinants of mutual fund (MF) flows with special reference to the Indian stock market using monthly data over the period of January 2012 to December 2020. The analysis has been conducted using the linear and nonlinear autoregressive distributed lag bounds testing approach. The impact of structural breaks on the model has been incorporated by using dummies. The results reveal that the negative and positive changes in stock returns and volatility have asymmetric impact on fund flows by MFs. Macroeconomic variables have a significant impact on the investment decisions made by MFs. The trading patterns of MFs and foreign institutional investors (FIIs) are opposite to each other, that is, purchases by FIIs lead to sales by MFs and vice- versa. The trading pattern of FIIs significantly impacts the direction of MF flows.

The Dynamic Impact of Taxation on the Economic Growth of Sri Lanka: An ARDL bounds testing approach

Discussions on how a government can stimulate an economy through non-distortionary taxation and productive government expenditures have become prominent during the past three decades. Against this backdrop, this paper aims to analyse the short-run and long-run impacts of taxation on the economic growth of Sri Lanka. Some taxes can be distortionary, while others are not. Therefore, while analysing the effect of overall tax level on economic growth, we also estimated the distortionary nature of major tax categories on the economic growth of Sri Lanka. Sri Lanka presents a unique case to analyse the nexus between taxation and economic growth, as the economy was liberalized in 1977. Therefore, the impact of taxation level on economic growth was estimated using a linear Auto-Regressive Distributed Lag (ARDL) model under two scenarios: without controlling for economic liberalization (from 1960 to 2018) and the post-liberalized period (from 1980 to 2018). The results of both pre-and post-economic liberalization conditions suggest a significant long-run positive impact of tax level on economic growth. Similarly, the impact of consumption tax on short-run economic growth was significant. In addition, personal and corporate income taxes were non-distortionary, both in the short-run and the long-run, while consumption taxes were non-distortionary in the long-run. This suggests that increasing taxes is a viable policy option in achieving fiscal independence without compromising Sri Lanka's growth potential.
 Keywords: ARDL, Economic Growth, Fiscal policy, Public Sector, Tax Levels, Tax Structure

Interlinkages between Energy Consumption and Economic Growth: A Review, an ARDL Bounds Testing Approach

In this study, we re-examine the discussions on the relationship between energy consumption and economic growth by replicating the autoregressive distributed lag (ARDL) bounds testing framework for Tanzania in Odhiambo [1,2], Journal of Energy Policy, and extending it to Kenya country from 1971 to 2014. We use two proxies of energy consumption (total energy consumption and electricity consumption for each country) and GDP growth rate as a proxy of economic growth for each country. The bound F-test reveal that our results are consistent with Odhiambo [1,2] findings that there is still a stable long-run relationship between each proxy of the energy consumption and economic growth for both Tanzania and Kenya. However, when extending the study to more recent data up to 2014, the results of the causality test are inconsistent with Odhiambo [1,2] findings for Tanzania only while being consistent with Kenya results for both two energy proxies and economic growth. The findings reveal the bi-directional causal relationship between each proxy of the energy consumption and economic growth in both short-run and long-run in Tanzania. Overall, the paper finds that the recent discoveries of the substantial natural gas and significant energy project spur economic growth in Kenya and Tanzania.

Does emission of carbon dioxide is impacted by urbanization? An empirical study of urbanization, energy consumption, economic growth and carbon emissions - Using ARDL bound testing approach

In modern era, where urbanization is at its peak, has resulted a significant economic-gap among rural and urban residents across developing nations, and had a considerable impact on CO2 emission. The current study investigated that how urbanization affects emission of CO2 in Pakistan. To achieve the expected long- and short run goals, we utilized the better suited approach of Auto-regressive Distributed Lag (ARDL) approach. Similarly, causality investigation was accomplished through vector error correction model (VECM). The current outcomes from unit root tests verified the stationarity of the selected variables. Whereas, ARDL outcomes endorsed the relationship among the selected variables of the model. We observed that emission of CO2 goes-up with increase in urbanization. Similarly, VECM endorsed the existence of SR unidirectional causal connection towards the emission of CO2 from urbanization. In short-run, however, economic growth is one-way, Granger produces CO2 emissions. As a result, the effect of short-run results on CO2 emissions coming from economic growth and urbanization is supported and validated by these causalities. In a nutshell, government action is critical in developing energy-efficient and environmentally sustainable ways to reduce CO2 emissions and improve the environment.