Bounds Testing Approach Research Articles

The Linkage Between Government Expenditure and National Income: the Case of Bangladesh

Objective: This study examines the applicability of Keynesian and Wagner's law in terms of gross national expenditure (GNE) and gross national income (GNI) in Bangladesh. Theoretical Framework: According to Wagner's Law, a country's government spending rises in tandem with its national income. The opposite is true, according to the Keynesian Law, which claims that government spending increases GDP. Methodology: This study is a quantitative and secondary data based analysis. It makes use of time series data spanning the years 1981 to 2020. All variables' data were gathered from the World Bank's compilation of global development indicators. In order to exclude years with outlier data, the current study did not include variables' data from 1971 to 1980 (The abnormality occurred in 1971 for the war of liberty; in 1974 for the Famine and in 1975 for the political violence). Once the sequence of integration with ADF had been determined; the ARDL bounds testing technique and Granger causality test were used. Results and Discussion: According to the findings of the ARDL bounds test, there is a long-term correlation between government spending and gross domestic product. Government spending likely contributes significantly to the causes of national income, according to the slope coefficients from long-run equations. Granger causality findings show that government spending and national income have a one-way causal link but not the other way around. Research Implications: One possible explanation for this result is that recent government spending on development projects boost up the national income. Originality/Value: We contribute to the literature in two important ways. The first contribution is that we focus on more robust estimation methodologies. Unlike previous studies of Bangladesh context, we apply ARDL bounds test approach to co-integration. In addition to having advantageous small sample characteristics, the ARDL limits testing approach does not necessitate the same order of integration in the variables. With these considerations, this technique suits better in case of Bangladesh given that data would be of a small span. And second, we examined both of the Wagner’s Law and Keynesian Law for Bangladesh with two separate equations, unlike the previous studies on Bangladesh who investigated the Wagner’s equation only.

Estimating the causal relationship between external debt and inflation in Jordan: evidence from an ARDL and Toda–Yamamoto approaches

Purpose This study aims to investigate the causal relationship between external debt and inflation in Jordan over the period 1970 to 2020. Design/methodology/approach The external debt–inflation nexus is examined within a multivariate framework by including other determinants of inflation, including money supply and the nominal effective exchange rate. This study uses an ARDL bounds testing approach to cointegration to test the existence of a long-run relationship between the inflation rate and its drivers. An error correction model is estimated to reveal the short-run dynamics of the series. The direction of causality among the variables is examined using a modified version of the Granger non-causality test due to Toda and Yamamoto (1995). The analyses control for the presence of structural breaks in the underlying time series. Findings The empirical results show that external debt and money supply have a statistically significant positive effect on inflation in the long run. The authors also find that a nominal depreciation of the Jordanian Dinar raises inflation rates in the long run. The Toda–Yamamoto Granger non-causality test findings reveal a statistically significant bi-directional positive causality between inflation and external debt, between the nominal effective exchange rate and inflation and between money supply and inflation. Practical implications Proper management of the exchange rate policy, money supply and external debt levels is crucial to control inflation rates in Jordan. Originality/value To date, the authors are unaware of any empirical study that examines the impact of external debt on inflation in Jordan, and the current study aims to fill this gap in the literature.

Modelling the Relationship Between Public Expenditure, Tax Revenue and Economic Growth in Türkiye Using the AARDL Approach

This study aims to investigate the macroeconomic impact of fiscal policy in Türkiye, where fiscal policy faces several challenges. Using annual time series data from 1980 to 2021, we examine the impact of tax and public expenditure subcomponents on GDP using the augmented autoregressive distributed lag (A-ARDL) bound test approach proposed by Sam et al. (2019). The A-ARDL test results indicate that tax revenue has a positive impact on economic growth in the short run, while tax revenue has a negative impact on economic growth in the long run. Furthermore, we conclude that increases in current and investment expenditures have a positive impact on economic growth in the short and long run, while increases in transfer expenditures have a negative impact on economic growth in the short run.

Time Series Analysis of Poverty Reduction Indicators: Case of Pakistan, India and Bangladesh

This paper investigated the indicators of poverty reduction. The independent variables are financial development, military expenditure, remittances, trade openness and world oil prices. A time series analysis was conducted from 1980 to 2016. The ADF and Phillip-Perron unit root tests were applied to find the level of co-integration. The study researched the long-run relationship between independent and dependent variables by applying the Auto Regressive Distributed Lag (ARDL) Bound testing approach. The order of integration according to the unit root test is mixed for the variables. In all three countries, the ARDL bound testing approach found the long-run relationship between poverty and its indicators.

Environmental Degradation and its Effects on Health in Bangladesh

This study aims to analyze the impact of environmental degradation on health using the Autoregressive Distributed Lag (ARDL) method with data from 1976 to 2020. The primary focus is on the influence of CO2 emissions on life expectancy in Bangladesh, evaluating the short-term and long-term relationships among key variables such as CO2 emissions, urban population growth (UPG), money supply (M2), and renewable energy consumption (REC). The study employs unit root tests, including the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests, to determine the stationarity of the time-series data. Results indicate mixed integration orders, necessitating the use of the ARDL bounds testing approach to confirm cointegration. The findings reveal that CO2 emissions have a significant negative effect on life expectancy, while M2 and REC exhibit varying impacts. The ARDL model confirms a long-term relationship between the variables, with a significant speed of adjustment towards equilibrium. Diagnostic tests validate the model’s robustness, ensuring no issues with heteroskedasticity, autocorrelation, or model misspecification. The study underscores the importance of effective governance in mitigating the adverse effects of environmental degradation on health, advocating for stricter environmental regulations and improved public health policies. These findings have significant implications for policymakers aiming to enhance public health outcomes amidst growing environmental challenges..

The use of the joint simultaneous integration methodology to measure the impact of certain macroeconomic variables on the GDP: ARDL model

Purpose. The objective of this study is to analyse the evolution of public expenditure, exports, imports, and gross domestic product (GDP) in Algeria over the past four decades (1980–2022). It aims to measure the impact of each of these macroeconomic variables (public expenditure, imports, and exports) on GDP during the study period, in the long and short term. Additionally, the study intends to identify the most significant economic variables influencing GDP in Algeria by constructing an econometric model (autoregressive model) based on economic theory and previous studies. These variables are considered the driving force and effective activator for improving GDP. Results. The findings obtained using the ARDL bounds testing approach for cointegrated time series revealed the existence of a long-run equilibrium relationship between the independent variables (public expenditure, imports, exports) and the dependent variable (GDP). In the short run, most of the model variables were statistically significant, indicating their influence in explaining GDP. This allows us to conclude that there is a dynamic relationship between the model variables in Algeria during the study period. Additionally, the error correction coefficient was statistically significant at the 5 % level, while the speed of adjustment to equilibrium was 0.8828. Scientific novelty. Research in this field continues to provide new insights into the dynamic relationship between these important economic factors. While this topic has been explored in previous studies, our research distinguishes itself by examining the collective impact of public expenditure, imports, and exports on GDP. This study establishes a direct link between these variables and GDP. Modern studies emphasise the significance of the composition of public expenditure in determining its impact on GDP. Additionally, several studies have demonstrated the influence of exports and imports on GDP. Imports play a crucial role in enhancing production efficiency and reducing costs within the economy. The current study addresses the gap in previous research by simultaneously examining public expenditure, imports, and exports as independent variables, considering both the pre- and post-Algerian economic reforms period. Practical value. This study contributes to understanding economic growth trajectories and how various economic components impact GDP. By analysing the influence of public expenditure, exports, and imports on economic growth, the study offers significant added value. It empowers policymakers at the macroeconomic level to leverage these findings in formulating and implementing effective economic policies that can enhance GDP, thereby promoting economic growth and improving living standards through the management of the study variables such as public expenditure, export values, and imports.

Asymmetric Effects of Expected Oil Wealth on the Demand for Money in Nigeria

The paper investigates the asymmetric effects of expected oil wealth on the demand for money in Nigeria over the period 1986:Q1–2020:Q4, by using linear autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) approaches. The linear (ARDL) bounds testing approach shows that expected oil wealth has no significant effect both in the short and long run. However, when a NARDL model is applied, the effect of negative and positive expected oil wealth shocks on the demand for money is significant and unequal in the long run, with a higher long-term impact of negative shocks compared to positive shocks. This result highlights a long-run asymmetry in the transmission of expected oil wealth shocks. Expected oil wealth is thus rather a long-run phenomenon for the Nigerian money demand function.

Impact of Globalisation and Energy Consumption on CO2 Emissions: Empirical Evidence from Lithuania Using Linear and Non-linear ARDL Bound Testing Approach

Impact of Globalisation and Energy Consumption on CO2 Emissions: Empirical Evidence from Lithuania Using Linear and Non-linear ARDL Bound Testing Approach

The Asymmetric Effects of Oil Price Volatility on Stock Returns: Evidence from Ho Chi Minh Stock Exchange

This study is the first to investigate the asymmetric effects of oil price volatility on stock returns for the Ho Chi Minh Stock Exchange (HOSE). We utilized weekly series of VN30-Index, WTI crude oil prices, geopolitical risks (GPR) index, and gold prices spanning from 6 February 2012 to 31 December 2023 as data sources. Using a nonlinear autoregressive distributed lag (NARDL) bounds testing approach, we found that, in the shortterm, oil price volatility has negative asymmetric effects on market returns. Specifically, in the shortterm, a 1 percent increase in oil price volatility immediately leads to a 2.6868 percent decrease in the market returns, while a similar magnitude decrease in oil price volatility is associated with a 6.3180 percent increase in the market returns. In addition, the results obtained from the NARDL model indicated that, in the longterm, the negative and positive changes of oil price volatility have significantly negative effects on the market returns. Finally, the findings derived from the error correction model (ECM) show that a 98.21 percent deviation from the equilibrium level in the previous week is converged and corrected back to the long-term equilibrium in the current week.

The Impact of Fiscal Policy on Economic Growth in Lao PDR

There has been various studies research on the Impact of the Fiscal Policy on Economic Growth by testing the Wagner’s Law and Keynes theory. This study holds two objectives, the first objective is to review a performance of the implementation government expenditure, and second objective is to test on the government expenditure contributes to the economic growth in the Lao PDR. To reach these two objectives, this study applies two methodologies. The first methodology is descriptive approach to respond for the first objective, and second methodology is bound testing approach and vector error correction approach to respond for second. This study is applied for time series data in terms of annual data from 1981 to 2014 in all models. The source of the data is mostly the website of the Asia Development Bank (ADB) year 2016. The results of the first methodology shows that the performance of the government expenditure continued increase rapidly, especially in 1986, 1997 and policy changed in 2012-2013 in terms of current expenditure for salary and capital expenditure directly affected to real Gross Domestic Products growth. The results of the second methodology shows that the Keynes theory and Wagner’s Law are significant and satisfied for the Lao economy in the long run. It meant that government expenditure has directly contributed RGDP, and vice versa. However, in the short run are not significant and unsatisfied in any lag.

Analyzing the market conditions and long-term dynamics in the biodiesel industry

The Indonesian energy industry is working towards achieving net zero emissions by reducing energy composition between renewables and non-renewables. Based on this background, this study investigates the biodiesel market conditions and its long-term sustainability using monthly data from January 2014 to October 2023. The study applies the 3SLS, Johansen and bound test approach to cointegration for estimations. Findings from the study show that demand for biodiesel in Indonesia is price inelastic, which implies that the response of demand on small price changes is high due to the availability of substitute products. The Walrasian coefficient is negative and statistically significant, suggesting a partial disequilibrium in the biodiesel market. Furthermore, the blending mandatory of biodiesel is found to be sustainable in the long run as shown by the bound f-statistics and Johansens’ trace statistics. The increasing prices of crude palm oil, catalysts, methanol, and glycerin have a devastating effect on biodiesel production. Exchange rate depreciation is also a negative function of biodiesel production. These findings are crucial for industry stakeholders and policymakers to make informed decisions about resource allocation, cost management, and strategies to enhance the sustainability and efficiency of biodiesel production processes.

Divergence or convergence: trade globalization, regulatory and environmental quality in QUAD countries – a robust ARDL and decoupling index inquiry

PurposeThe Quadrilateral Group for Security Dialogues (QUAD), comprising Japan, Australia, India, and the USA, has experienced a noteworthy escalation in both environmental depletion and economic performance over the preceding 2 decades. Consequently, it becomes crucial to outline strategies through which the QUAD can attain a harmonious equilibrium between sustainable economic growth and ecological well-being. This research endeavors to dissect the intricate relationships among trade globalization, regulatory quality, and environmental sustainability within the QUAD for the period 1990–2021. The study checks for the Pollution Haven Hypothesis (PHH), and Pollution Halo Effect Hypothesis (PHEH).Design/methodology/approachThe long-run association is based on the autoregressive distributed lag (ARDL) model and bounds test approach to cointegration while divergence or convergence is studied with the help of decoupling index (DI). Results have been verified by applying serial correlation LM test, autoregressive conditional heteroskedasticity (ARCH), and cumulative sum of recursive residuals (CUSUM) tests to ensure the robustness and stability of the model.FindingsThe empirical results of this study affirm the applicability of the PHEH in the contexts of India, Japan, and the USA, whereas the PHH is validated in the case of Australia. Furthermore, the analysis reveals the existence of relative decoupling solely in the case of India. This testifies that the rate of growth of the Indian economy surpasses the rate of growth in ecological footprint (EF), indicating a relative reduction in the intensity of environmental impact per unit of economic growth.Research limitations/implicationsThe empirical findings of our study suggest that countries with effective regulatory systems are better positioned to control and mitigate the potential adverse environmental effects resulting from increased global trade. Thus, policymakers are prompted to reassess the development policies for sustainable economic growth that will minimize adverse environmental repercussions. The implication of the negative relation between urbanization and EF is paramount for policymakers in developing countries seeking strategies for balanced urban development that aligns with environmental sustainability.Originality/valueThe present study is a unique exploration of the impact of trade globalization and regulatory quality on EF, specifically on PHH/PHEH in the context of QUAD.

The Impact of Export and FDI on the Economic Growth Rate in India: An ARDL Bound Testing Approach

The Impact of Export and FDI on the Economic Growth Rate in India: An ARDL Bound Testing Approach

Does economic policy uncertainty and stock market development affect natural resources: Evidence from United States of America

AbstractThis study investigates the impact of economic policy uncertainty (EPU) and stock market development (SMD) on natural resources in the United States during the period between 1985 and 2021 by keeping the GDP and innovation as control variables. For empirical analysis, the autoregressive distributed lag model (ARDL) and Kernel Regularized Least Squares (KRLS) regression techniques were used to investigate the long‐ and short‐run relationships. To check the robustness of results, this study uses a machine learning approach, i.e., Canonical Cointegrating Regression (CCR). The results of the ARDL bounds test approach suggest the presence of long‐run relationships among the study variables, and these results were confirmed through KRLS and CCR. The long‐run results indicate that economic policy uncertainty and SMD increase natural resource rent. Moreover, GDP and innovation also increase natural resource rent. However, a weak relationship exists between innovation and natural resource rent in the short run. Policymakers need to provide stable and encouraging economic policies to promote sustainable resource management, while stock markets need to facilitate long‐term planning and responsible investment in natural resource industries.

The Impact of Financial Development, Net Foreign Assets and Domestic Businesses on Export Performance: A case of Singapore Economy

The effects of financial sector liberalization; foreign assets, domestic businesses in the form of listed companies and domestic manufacturing, and real interest rate on export performance of Singapore economy are tested by using ARDL bounds testing approach by covering period from 1978-2023. The empirical results suggest that liberalizing financial sector and foreign assets significantly accelerate export performance. This study considers two proxies for domestic businesses – listed companies and manufacturing. The results uncover the significantly expansionary effects of both indicators of domestic businesses on export performance. Lastly, real interest rate is adversely affecting export performance in Singapore. This study suggests that by expanding domestic businesses; increasing investments in foreign assets, liberalizing financial sector and reducing real interest rate can give boost to exports in Singapore.

The Dynamic Effect of Trade Openness, Debt, and Foreign Investment in Ghana’s Economy: An ARDL Bound Testing Approach

The Dynamic Effect of Trade Openness, Debt, and Foreign Investment in Ghana’s Economy: An ARDL Bound Testing Approach

The Effects of Exchange Rate Fluctuation on Bangladeshi Exports: An ARDL Bound Testing Technique

The Effects of Exchange Rate Fluctuation on Bangladeshi Exports: An ARDL Bound Testing Technique

Testing the validity of feminization U-shape hypothesis for female labor force participation and economic development in Pakistan: a reexamination

Purpose The participation of females in economic activity remains a challenge, and received a lot of attention for a better labor policy discourse. The empirical research focused widely on the relationship between female labor force participation (FLFP) and economic development, called the feminization U-shape hypothesis. However, the linear/nonlinear relationship has been questioned due to empirical and methodological anomalies. Hence, this study aims to extend the previous work by reexamining this relationship in Pakistan. Design/methodology/approach The annual data from 1980 to 2021, the unit root tests augmented Dickey–Fuller and Phillips and Perron, the conventional autoregressive distributed lag bound test approach by including the quadratic-term of GDP per capita and the novel Sasabuchi–Lind–Mehlum (SLM) U test (2010) used for empirical estimation. Findings The findings revealed the prospects of a long-run nonlinear association between FLFP and economic development in Pakistan. However, an inverse U-shape exists between the female labor force participation rate (FLFPR) and GDP per capita, predicting that FLFP may decline in the future. Research limitations/implications The traditional feminization U-shape hypothesis has little empirical support in the case of Pakistan. Therefore, the Government of Pakistan should enhance the enabling environment for females through the provision of better job opportunities, technical skills, on-the-job training and social security benefits during all phases of economic development. Originality/value The conventional approach of testing U-shape is insufficient. To the best of the authors’ knowledge, therefore, this study incorporated a wider data set in a time series that is less evident, an advanced methodology SLM U test (2010), to validate the feminization U-shape hypothesis in Pakistan for the first time.

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.

Asymmetric Effect of Shadow Economy on Environmental Pollution in Egypt: Evidence from Bootstrap NARDL Technique

This study examines the asymmetric effect of shadow economy (SE) on environmental pollution in Egypt during the 1970 and 2022 period. Using the bootstrap nonlinear autoregressive distributed lag (NARDL) bounds-testing approach, the study presents evidence of nonlinear cointegrating relationship between environmental degradation (carbon emission) and shadow economic activities (alongside globalisation, urbanisation, size of economic activity, industrial growth). In addition, the results demonstrate that the impact of shadow economy on environmental pollution (Env) is nonlinear, with the positive shock in shadow economy promoting environmental degradation and negative shocks promoting environmental quality, both in the short- and long-runs. However, the study discovered that the magnitude of the impact of the SE on Env is larger in the short-run. This is further validated by the dynamic nonlinear ARDL simulations technique which demonstrates that the short-run effect of the SE on Env is large. Additionally, the results suggest that income growth, urbanisation, and industrial growth are important drivers of environmental pollution. Therefore, the study recommends the adoption, and most importantly implementation, of policies and strategies geared towards reducing the shadow economy, and consequently environmental pollution.