Autoregressive Distributed Lag Error Correction Model Research Articles

What Explains the Trends of Wheat Imports in Kenya; A Cointegration Analysis Using ARDL-ECM Modelling

This study aims to determine the cointegration of wheat imports and its determinants in Kenya. To achieve this objective, annual time series secondary data from 2000 to 2019 was utilized. The time frame was considered because it was during this period that wheat imports in Kenya skyrocketed. Data was collected from national and international published sources. The findings of the Auto-Regressive Distributed Lag-Error Correction Model (ARDL-ECM) analysis shows that wheat imports in Kenya are determined by the tariff, relative prices and ending stock in the long run. In the short run relative price was the main determinant that influenced wheat imports in Kenya. It was also realized that wheat imports in Kenya are inelastic to its determinants. Therefore, the study recommends that policymakers should embrace policies that increase the competitiveness of domestic wheat production in Kenya to tap the multiplier benefits that can be realized from the wheat sector. This can be done by embracing modern and efficient production technologies. Keywords: ARDL model, Kenya, Time series, Wheat Import Demand, Error Correction Model. DOI: 10.7176/JESD/12-16-10 Publication date: August 31 st 2021

Forecasting tourism recovery amid COVID-19

The profound impact of the coronavirus disease 2019 (COVID-19) pandemic on global tourism activity has rendered forecasts of tourism demand obsolete. Accordingly, scholars have begun to seek the best methods to predict the recovery of tourism from the devastating effects of COVID-19. In this study, econometric and judgmental methods were combined to forecast the possible paths to tourism recovery in Hong Kong. The autoregressive distributed lag-error correction model was used to generate baseline forecasts, and Delphi adjustments based on different recovery scenarios were performed to reflect different levels of severity in terms of the pandemic's influence. These forecasts were also used to evaluate the economic effects of the COVID-19 pandemic on the tourism industry in Hong Kong.

Relationship between economic diversification and CO2 emissions: ARDL-EC modeling in South Africa

ABSTRACT Economic diversification transforms an economy to utilize multiple sectors for growth. The problem is that developing countries have been slow in shifting away from mineral-energy complex-based development. However, sector-heterogeneity either reduces or increases exposure and/or adaptive capabilities to greenhouse gas emissions. The objective of the study was to ascertain the relationship between economic diversification and carbon dioxide (CO2) emissions in South Africa. The study utilized the autoregressive distributed lag-error correction model (ARDL-ECM) and included macroeconomic variables such as gross domestic product (GDP), population, foreign direct investment and trade balance. The Tress Index of 10 industries was utilized to measure economic diversification. Annual data from 1993 to 2020 were used in the study. The study found that in the short run, CO2 Granger caused economic diversity but in the long run, there was no association. Population also had a long- and short-run relationship with economic diversification, while CO2 emissions had a long- and short-run relationship with GDP. The study concludes that there is a unidirectional causality between economic diversification and CO2 emissions in the short run and no relationship in the long run. Economic diversification should be considered in national, economic and climate change policies of the country.

The Effects of Macroeconomic Factors on Road Traffic Safety: A Study Based on the ARDL-ECM Model

This paper attempts to examine whether socioeconomic volatility produces differentiated effects on road traffic accident indicators. Adopting the Autoregressive distributed lag error-correction model (ARDL-ECM), this paper explores the long-term equilibrium and short-term interactions between five common economic indicators, namely, average salaries (AS), employment (EM), unemployment (UE), total mileage of highway (TMH), and private vehicle ownership (PVO), as well as road traffic-related indicators including the number of road traffic accidents (RTA), injuries (IN), fatalities (FA), and direct economic losses (DEL), using data of road traffic accidents spanning from 1999 to 2018 in China. The study found that all economic indicators except average salaries showed a long-term equilibrium with road traffic accident indicators. The Granger causality test showed that, over the short term, an increase in employment could lead to an increase in injuries, and an increase in private vehicle ownership could cause a rise in fatalities. This study demonstrates that the volatility in economic indicators indeed produces differentiated effects on road traffic accident indicators, providing a theoretical basis for improving road safety performance and formulating relevant policies.

Unbundling interest rate and bank credit nexus on income inequality: structural break analysis from Nigeria

PurposeIncome inequality stalls economic growth with undesirable socio-economic consequences. Despite various measures targeted towards reducing the inequality gap, disparities in income distribution persist in Nigeria. Therefore, this study aims to explore a new line of argument to the finance mechanism in reducing income inequality.Design/methodology/approachThe study uses time-series data on Nigeria from 1980 to 2015 with analysis conducted using the autoregressive distributed lag-error correction model approach of Pesaran et al. (2001).FindingsThe results show amongst others that the channel of real interest rate on income inequality is through bank credit, real interest rate has an indirect relationship to income inequality and bank credit has an equalising impact on income inequality when the model is augmented for a structural break. The results show amongst others, that, on average, ceteris paribus, a 1% point increase in the real lending interest rate is associated with a 0.45% decline in the volume of bank credit.Originality/valueThis paper engages a new line of argument by unbundling how financial intermediation impacts on income inequality. The extant literature submits that finance directly impacts income inequality, whereas this study investigates further to show that interest rate impacts income inequality through bank credit. That is, the transmission mechanism by which finance affects income inequality is modelled and analysed.

Other Determinants of Inflation in Nigeria

Inflation is a continuous macroeconomic concern that has dominated thoughts at major economic fora due to its pervasive effect on the economy. The quantity theory of money isolates money supply as the major cause of inflation. The economic reality in Nigeria contravenes the theory. The study examines other determinants of inflation in Nigeria using the autoregressive distributed lag (ARDL) method on quarterly data from January 1999- December 2018. Findings show that poor infrastructural development, exchange rate, political instability, corruption, and double taxation significantly stimulate inflation rather than just money supply. The results show a causal relationship between other determining factors and inflation. The ARDL result shows a significant long-short run relationship. The study recommends that non-monetary factors of instigating inflation should be controlled and security expenditure should be review along with-related mechanisms to achieve low inflation at single digits at most and economic growth and development. Keywords: inflation rate, money supply, Nigeria, economic indicators, ARDL Error Correction Model

Do financial development, urbanization and trade affect environmental quality? Evidence from China

It is of great significance to study the impact of financial development on carbon emissions for the development of low-carbon economy. Although many empirical studies reveal significant correlations between financial development and various environmental pollution variables, few studies differentiate financial scale and efficiency from other factors, and pay attention to the impact of securities capital market on carbon emissions. In view of the complexity of financial development impact mechanism on carbon emissions in China, this paper classifies financial development into two dimensions: financial scale and securities size. We establish a broader autoregressive distributed lag-error correction model (ARDL-ECM), which is used to measure the dynamic relationship among financial scale, securities size, urbanization, economic development, trade openness and China’s carbon emission intensity. The study indicates that there is positive short-run and long-run relationship among financial scale, economic growth and carbon emission intensity. This reflects that the current development of financial scale has stimulated the development of China’s economy, but brought carbon emissions. The size of securities has a relatively small impact on carbon emission intensity both in the short run and long run. This shows that China’s current securities market mechanism of regulating carbon emissions needs further improvement. The above conclusions are convinced by the robustness tests. This paper provides empirical evidence for policy makers to support the implementation of financial and low carbon economy growth.

The Effects of Foreign Direct Investment, Economic Growth, Industrial Structure, Renewable and Nuclear Energy, and Urbanization on Korean Greenhouse Gas Emissions

This study analyzes the effects of foreign direct investment (FDI), economic growth, industrial structure, renewable and nuclear energy, and urbanization on Korean greenhouse gas (GHG) emissions from 1981 to 2014. The cointegration relationship of the variables is examined using autoregressive distributed lag (ARDL) bounds test. The test confirmed the long-run equilibrium among the variables. After that, the short-run and long-run coefficients are estimated by an ARDL error-correction model. The result shows that in the long run, economic growth and urbanization are the main contributors to the increase of GHG emissions, while manufacturing industry share, renewable energy and nuclear energy contributed to the reduction of GHG emissions. The inflow of FDI has led to the increase of greenhouse gases, but the coefficients is negligible. In the short run, economic growth has caused an increase in GHG emissions, while renewable and nuclear energy have contributed to the reduction in GHG emissions. FDI and urbanization did not play a role in increasing of GHG emissions in the short term.

Effect of Economic Growth on Unemployment and Validity of Okun’s Law in Mauritius

This study examines the relationship between unemployment and economic growth in Mauritius. The methodology adopted for this study is the autoregressive distributed lag (ARDL) bounds cointegration test, ARDL error-correction model (ARDL-ECM) using the ordinary least square (OLS) approach and Okun’s law-gap version. ARDL-ECM estimates the long-run and short-run relationship between economic growth and unemployment. The validity of Okun’s law is tested in the Mauritian context and Okun’s coefficient is thereby estimated. The results obtained from the tests show that both in the long run and short run, there is a negative cointegration between economic growth and unemployment, but it is not statistically significant. Whereas, the result of Okun’s law-gap version shows that Okun’s law is indeed valid in the small economy of Mauritius. From the Okun’s coefficient obtained, it is concluded that 4 percent change in gross domestic product (GDP) growth rate changes unemployment rate by 1 percent in the opposite direction in Mauritius.

Pull and push factors as determinant of foreign portfolio investment in the emerging market

The study investigates the pull and push factors as determinants of foreign portfolio investment flows in the emerging market from 1986 to 2018. The study employs autoregressive distributed lag (ARDL) bound cointegration test and ARDL error correction model (ECM). This work is intended to explore the determinants of foreign portfolio investment (FPI) in Nigeria and compare the result explored by Kaur and Dhillon (2010) in India. The result revealed that of all the explanatory variables, only MCAP, DMINT, REER, USGS and USINFR have a positive effect on FPI while GDPGR, USGDPGR, USGS and USINFR are significant. From the result of the analysis, the study agrees with Kaur and Dhillon (2010) that the host country gross domestic product (GDP) growth rates and the United States of America (the U.S.A.) inflation rates are among the significant pull and push factors that determine FPI flows in the long run. Based on these findings, the study recommends that economic policymakers in the host country should be more committed to strengthening its economy by boosting its GDP in order to push foreign investors to the economy since the dwindling in economic growth, low rate of return and rise in inflation rates of the developed countries such as the U.S.A. could push foreign investors to the emerging markets.

Transport and regional economic integration: Evidence from the Chang-Zhu-Tan region in China

Better transport and regional economic integration are correlated. However, the relationship between them is still ambiguous. This study selects the Chang-Zhu-Tan region, one of the most important manufacturing areas in the Yangtze River economic belt, as a study area. It analyzes regional economic integration using economic linkage and urban flow intensity models and examines transport investment and mobility levels. Finally, autoregressive distributed lag and autoregressive distributed lag-error correction model approaches are applied to estimate the long-run and short-run relationships among the three variables, respectively. The results indicate transport investment and mobility have significant positive effects both in the short and long run and that investment contributes more to economic integration than mobility. In addition, regional economic integration and mobility can promote transport investment and transport investment can promote mobility. Further, there are short-run dynamic adjustments among them. This study, therefore, determines that it is crucial to understand effective transport investment and mobility in promoting regional economic integration.

Long Run Determinants of Private Consumption Spending: Evidence from Nigeria

Of great concern to policy makers and researchers are the factors that influence private consumption spending owing to the important role it plays in aggregate demand of a country. Thus, this study investigated the long run determinants of aggregate private consumption spending in Nigeriaover thequarterlyperiodsof 1981 to 2016. The Auto Regressive Distributed Lag Error-correction model (ARDL-ECM) was employed to take care of short-run dynamics. In line with theories, variables included in the model were disposable income, credit facility, financial assets, government expenditure, interest rate and inflation rate. The empirical results showed that in the short run, disposable income, financial assets, interest rate and government expenditure influence private consumption spending while disposable income, financial assets, credit facilities and government expenditures are the major long run determinants of private consumption spending in Nigeria. The result equally showed that disposable income has more impact on consumption spending in the long run than it has in the short run. The policy implication is that policy interventions directed towards these variables are essential to increase spending as a major component of aggregate demand.

Impact of Infrastructure on Foreign Direct Investment in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach

This study examines the roles infrastructure play in attracting foreign direct investment (FDI) into Nigeria for the period between 1981 and 2014. It also investigates the type of infrastructure that has more impact on FDI attraction. The unit root test results show that none of the variables in the study is integrated of order two, that is, I(2), a condition which justifies the use of Autoregressive Distribution Lag (ARDL) framework. The ARDL Bounds Test approach to cointegration was employed to determine the long-run relationship among the variables in our model and the result shows that there is a long-run relationship between infrastructure and FDI in Nigeria. The result of the estimation of the selected ARDL Error Correction Model shows that none of the infrastructure variables (tractor, telephone lines and electricity) employed in this study is significant to attract FDI into Nigeria in the short-run although electricity production (power supply) was found to influence FDI in the long-run. The study thus recommends that the power sector be revitalized and should be given priority as it will attract FDI, increase national output and move Nigeria closer to actualizing her dream of becoming one of the twenty leading economies in the world by the year 2020.

Relation between Sectoral Distribution of Commercial Bank Credit and Economic Growth in Sri Lanka

This study investigates the impact of sectoral distribution of commercial bank credit on economic growth in Sri Lanka based on data from 2005 to 2017. The Auto-regressive Distributed Lag (ARDL) model is used to investigate short and long run impact of sectoral distribution of commercial bank credit on Gross Domestic Product (GDP). The findings of the ARDL Error Correction model indicate that the commercial bank sectoral credit distribution is significantly explaining the short run economic growth. Moreover, ARDL long run form and bounds test shows that there is a long run relation between the variables. The industrial sector has a long run positive relationship with GDP while the other sectors are insignificant in explaining long run economic growth. According to the results, the government can motivate banks to distribute credit facilities to the industry sector to boost GDP in the long-run. This is the first study that discusses the sectoral distribution of commercial bank credit on economic growth of Sri Lanka as per the best of the authors‟ knowledge. Keywords Commercial bank, Credit, Economic growth, Gross Domestic Product

PENGHINDARAN RISIKO KREDIT INVESTASI OLEH DEBITUR DI INDONESIA PASCA KRISIS 1997

This research aimed to estimate the short run and long run (steady state) model on credit market, which influenced on risk hindering behavior by debtor, and taking banking regulation into model as a shock. Analyzing on investment credit market is related with asymmetric information problem and dynamic decision. This research was using Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) to analyze this behavior because all variables were integrated on different level. In the short run, the debtor behaviors is only influenced by real interest rate on rupiah working capital, and in the long run his behavior influenced by real interest rate on rupiah working capital, and expected on real national income. But debtor behavior do not influence by real interest rate on rupiah investment credit in short and long run. Banking regulation do not influence the investment credit risk hindering behavior on debtor. On average, every change in explanatory variables need 24 days by debtor to adjust his behavior on investment credit market.

PENGHINDARAN RISIKO KREDIT INVESTASI OLEH DEBITUR DI INDONESIA PASCA KRISIS 1997

This research aimed to estimate the short run and long run (steady state) model on credit market, which influenced on risk hindering behavior by debtor, and taking banking regulation into model as a shock. Analyzing on investment credit market is related with asymmetric information problem and dynamic decision. This research was using Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) to analyze this behavior because all variables were integrated on different level. In the short run, the debtor behaviors is only influenced by real interest rate on rupiah working capital, and in the long run his behavior influenced by real interest rate on rupiah working capital, and expected on real national income. But debtor behavior do not influence by real interest rate on rupiah investment credit in short and long run. Banking regulation do not influence the investment credit risk hindering behavior on debtor. On average, every change in explanatory variables need 24 days by debtor to adjust his behavior on investment credit market.

Using the ARDL-ECM Approach to Explore the Nexus Among Urbanization, Energy Consumption, and Economic Growth in Jiangsu Province, China

ABSTRACTTo better understand the relationship of the urban, economic, and energy systems in Jiangsu, the most well-developed province in China, the nexus of urbanization, energy consumption, and economic growth is explored. Autoregressive distributed lag (ARDL) bounds testing is applied to examine the cointegration relationship of the variables. After confirming the long-run equilibrium among the variables, the short-run and long-run coefficients are estimated by ARDL error-correction model (ARDL-ECM). We find that Jiangsu is an energy-dependent economy at the present time while urbanization has become a growth engine for her economic development. Suggestions for reducing energy usage while keeping the economy growing at a proper speed during urbanization are also presented.

The Environmental Kuznets Curve and Effect Factors of CO<sub>2</sub> Emissions in China: Dynamic Econometric Test Based on ARDL Model

For discussing the shape, turning point and influencing factors of Environmental Kuznets Curve (EKC) for Chinese CO2 emissions, by using data for 1960-2009, the dynamic relationship between income, other affecting factors and CO2 emissions was studied utilizing the Auto Regressive Distributed Lag - Error Correction Model (ARDL-ECM) and boundary test methodology. The results suggest the existence of cointegration relationship among variables and presence of an inverted-U shape relationship in both short and long-run, thus supporting the EKC hypothesis. At present China has not surpassed the curve’s turning point. Energy intensity is key influencing factor for CO2 emissions. Industry structure is positively correlated with CO2 emissions. However, trade openness has little influence on it. The short-run environmental negative effect of urbanization and long-run positive effect of population density are both significant, the regression coefficient of energy consumption structure is positive in long-run but negative in short-run.

Demand for fertilizer in Nigeria: An application of cointegration and error correction modeling

Input-output price ratio is an important factor in the use of purchased farm inputs. Sufficient empirical evidence is needed to guide rational and accurate prediction of fertilizer demand in a predominantly peasant, external input-driven agro-ecosystem. This study employed time series data for the years 1970 to 2005 to estimate relative price elasticities of fertilizer demand in Nigeria using price ratios of fertilizer to cassava. The autoregressive distributed lag error correction model (ARDL-ECM) produced a plausible estimate of short-run and long-run price elasticities of fertilizer demand with respect to the relative price ratio. The ECM coefficient showed a slow adjustment of fertilizer use to the error correction term, indicating that fertilizer use responds slowly to shifts and shocks in the determining variables. This implies that inspite of the inherent difficulties associated with using fertilizers in Nigeria, the farmers still recognize its relevance in crop production as well as the attendant economic benefits. Another plausible finding of the study was the positive correlation between fertilizer use and irrigation. Following these outcomes, it was advocated, in the main, that farmers should be well informed on market opportunities with consideration given to input and output prices. The onus lies in establishing a workable market information system that would provide timely information with respect to spatial and temporal price variations in both input and output markets. In this same vein, emphasis was laid on developing irrigation infrastructure as a major policy thrust for fostering fertilizer use across the country