Bounds Testing Approach Research Articles

Nonlinear Effects of Public Debt on Economic Growth: The Case of Rwanda

The purpose of this paper is to investigate the nonlinear impact of public debt on economic growth and establish the long and short run relationship between economic growth and its determinants in Rwanda. To this end, a quadratic polynomial function in debt combined with the autoregressive distributed lag (ARDL) bounds testing approach to co-integration have been employed for econometric analysis using time series data covering the period 1970-2020. Following previous empirical studies, this research assumed that at lower level, public debt may be growth-enhancing, while at higher level, it is detrimental to growth. Therefore, this study attempted to assess whether in the case of Rwanda, there exists a threshold level or a turning point above which the impact of public debt on economic growth shifts from positive to negative. The empirical results of this study strongly suggest the presence of an inverted U-shaped or concave relationship between public debt and economic growth in Rwanda. The turning point above which additional public debt becomes harmful to growth has been evaluated at a public debt-to-GDP ratio equal to 53.6%. The estimated threshold is relatively higher than the public debt convergence policy benchmark of 50% of GDP adopted in Rwanda within the East African Community. This result would be useful for policy makers in the design of a well-informed macroeconomic and public debt management strategy. JEL Classification: C23, E62, F34, H63, O40. Keywords: Economic growth, Public debt, Non-linear relationship, ARDL, Rwanda. DOI: 10.7176/JESD/14-6-05 Publication date: March 31 st 2023

Impact of CO2 emission on life expectancy in India: an autoregressive distributive lag (ARDL) bound test approach

As a developing country, one of the important objectives of India is to accelerate economic growth. This has a considerable impact on CO2 emission. Life expectancy has a probable connection with CO2 emission in two opposite ways. Given technological status, more CO2 emission consequents upon more production of output and higher income level which is likely to affect the life expectancy of people in a positive way. Conversely, CO2 emission is one of the important air pollutants that may reduce the span of human life. This paper aims to investigate the net impact of CO2 on life expectancy in India. Furthermore, the study seeks to search whether India has surpassed the optimal limit of CO2 emission in relation to life expectancy. Using World Bank time series data for the period 1991–2018 and applying ARDL cointegration technique, the study concludes the existence of a long-run and quadratic relationship between life expectancy and CO2 emission. The study finds that India has already surpassed its optimal atmospheric concentration of CO2 and thereby suggests adopting CO2 reduction strategies.

The dynamic nexus between economic growth, renewable energy use, urbanization, industrialization, tourism, agricultural productivity, forest area, and carbon dioxide emissions in the Philippines

Global climate change, intensified by greenhouse gas (GHG) emissions, particularly carbon dioxide (CO2), provides a massive threat to human life, the environment, development, and sustainability. Consequently, reducing emissions and improving environmental conditions are now a global priority for promoting sustainable growth and preventing the adverse consequences of global warming and climate change. However, there is a paucity of research employing econometric methodologies to investigate the potential of emission reduction factors, particularly in the case of the Philippines. Thus, the present study explored the dynamic effects of economic growth, renewable energy use, urbanization, industrialization, tourism, agricultural productivity, and forest area in the Philippines in order to accomplish environmental sustainability by lowering CO2 emissions. The Autoregressive Distributed Lag (ARDL) bounds testing approach and the Dynamic Ordinary Least Squares (DOLS) methodology were used to scrutinize time series yearly data from 1990 to 2020. According to the estimates, a 1% rise in economic growth, urbanization, industrialization, and tourism will raise CO2 emissions by 0.16%, 1.25%, 0.06%, and 0.02% in the Philippines, respectively. Furthermore, a 1% increase in renewable energy consumption, agricultural productivity, and forest area may result in CO2 emissions reductions of 1.50%, 0.20%, and 3.46%, respectively. Furthermore, the pairwise Granger causality test was employed to capture the causal relationships between the variables. This article provides policy implications on low-carbon economies, promoting renewable energy use, sustainable urbanization, green industrialization, eco-friendly tourism, climate-smart agriculture, and sustainable forest management, all of which could help ensure environmental sustainability by lowering emissions.

Towards sustainable development: The impact of transport infrastructure expenditure on the ecological footprint in India

The underlying objective of the study is to examine the role of transport infrastructure expenditure incurred by the public sector on ecological footprint while controlling the factors like urbanization, mobile use, electricity consumption, and economic growth in India. In order to implicate the relationship among the variables selected for the period spanning from 1990 to 2018, this study employs the ARDL bounds testing approach to cointegration for inculcating the short-run and long-run relationships of the formulated ecological footprint function. The evolved outcome validated the long-run relationship between the study variables. Further, the result indicates that transport expenditure and economic growth can reduce the ecological footprint, while urbanization, mobile use, and electricity consumption increase it both in the short and long run. In light of these outcomes, policy implications are recommended to expand the transport infrastructure expenditure and sustainable economic growth. Similarly, it urges the need for sustainable urbanization, eco-friendly mobile use, and renewable source-based electricity consumption in India.

Is export quality a viable option for sustainable development paths of Asian countries?

This paper investigates the role of export quality in climate action goal of the sustainable development goals in emerging Asian countries. For this purpose, the empirical model that observes the impact of real GDP, energy use and export quality index on carbon emissions is constructed and is analyzed by ARDL bounds testing approach for the period from 1970 to 2014. We also include the square of real GDP as independent variable to observe the existence of environmental Kuznets curve (EKC) hypothesis which implies the parabolic relationship between economic growth and environmental degradation. The findings show that increase in export quality leads to a fall in CO2 emissions for China and India. In contrast, the effect of increasing export quality increases CO2 emissions in Thailand and the Philippines. Lastly, our asymmetric causality results show that the positive shocks of export quality causes positive shocks of CO2 emissions in Thailand and Indonesia. Furthermore, we found that positive export quality shocks cause negative CO2 emissions shocks in India while negative export quality shocks cause positive CO2 emissions shocks in China. We also confirm the inverted U-shaped EKC hypothesis in China and Thailand.

Financial development, economic growth, globalisation and environmental quality in BRICS economies: evidence from ARDL bounds test approach

Financial development, economic growth, globalisation and environmental quality in BRICS economies: evidence from ARDL bounds test approach

EXTERNAL DEBT AND AGRICULTURAL PRODUCTION IN NIGERIA

The motivation for this paper stems from the rising debt profile of Nigeria, especially the foreign component, and its implication on growth prospects. In that regards, the study sought to establish the linkages between external debt and growth in productivity, specifically focusing on the agricultural sector. The study thus analyzed the relationship between external debt and Nigeria's agricultural production from 2006 to 2021 using secondary data obtained from the Central Bank of Nigeria (CBN) statistical bulletin and the World Development Indicators (WDI). ADF unit root test and the (ARDL) bound testing approach to cointegration were utilized, to achieve the objectives of the study. The parameters displayed a long-term association in both the short and long - run, according to empirical results, which demonstrated that the variables were cointegrated. External debt stock (EDS) and agricultural production, as assessed by agriculture gross domestic product (AGDP), had a substantial positive association, indicating that EDS positively impacted agricultural growth and that higher EDS accelerated agricultural growth over time. To be precise, a rise in EDS of 1% produced an increase in AGDP of 0.14%. Euro bond stock and bilateral loans also revealed positive relationships while External Debt Service Payment and Multilateral loans revealed negative relationships with AGDP. According to this research, the government must consider the strategy of diversifying its economy via agricultural output seriously. To lessen the cost and unfavorable effects of an excessive reliance on foreign exchange from oil and its price volatility, it is necessary to diversify the sources of external debt servicing, particularly in the non-oil sector including agriculture, mining, industry, and industrial production.
 Keywords: Debt, Agriculture, Loans, Output, Nigeria.

Renewable Energy Consumption-Economic Growth Nexus in Saudi Arabia: Evidence from a Bootstrap ARDL Bounds Testing Approach

The paper investigates the relationship between Saudi economic growth, renewable energy consumption and trade openness during the 1980-2017 period. By using the Bootstrap Autoregressive Distributed Lag (BARDL) approach and the Granger causality analysis, the results prove the existence of a cointegration relationship between the considered variables. In order to test for Granger causality in the presence of cointegration among the variables, the results indicate that there is a short-run unidirectional causality running from GDP to trade openness. Thus, a bidirectional causality is detected both between (REC-TOP) and between (PIB-REC). In contrast, in the long run, there is a one-way causal relationship running from renewable energy consumption, trade openness to economic growth. These new findings will help policymakers and government officials better understand the role of renewable energy and economic growth in Saudi Arabia's development.

Country Risk Effects and Government Domestic Debt Nexus in South Africa

Country risk rating is one of the factors that determine the stability of a given country’s economy and the government's access to both domestic and foreign loans. This paper aimed at assessing the relationship that exists between country risk rating and the South African government's access to domestic debts or loans. Monthly data from January 2008 to December 2019 was investigated using the ARDL bounds testing approach and the error correction model (ECM). The findings of this paper indicated that all country risk components (economic, financial and political) have a significant long-run effect on government domestic debt. While economic and financial risk scores have a positive effect on government debts, an inverse relationship was found between political risk and government debt. These results imply that in order to be independent of foreign debt which comes with terms and conditions; policymakers and the South African government leaders should strive to sustain the stability of the economy and the country’s financial conditions.

Asymmetric nexus between commercial policies and consumption-based carbon emissions: new evidence from Pakistan

The current study extends the previous literature by exploring the effects of a newly discovered driver, i.e., import taxes (as a proxy for commercial policies), on the consumption-based carbon emissions (CCO2e) for 1990Q1-2017Q4. For empirical analysis, several tests and methods, including Augmented Dickey–Fuller unit root test, Zivot–Andrews unit root test, asymmetric cointegration bound testing approach, non-linear ARDL, Wald-test, Granger causality test and wavelet quantile correlation (WQC) method are utilized. Furthermore, NARDL technique estimates reveal that contractionary commercial policy enhances the environmental quality by disrupting the detrimental effects of CCO2e. However, expansionary commercial policy escalates the environmental pollution by boosting the carbon emissions. Also, the exports and the renewable energy improve the ecological quality; however, GDP deteriorates the atmospheric quality by increasing the CCO2e. Besides, WQC method and the trivariate Granger causality test are deployed to confirm the robustness of the results. Based on the findings, some crucial policies are also recommended for sustainable and green development in Pakistan.

Economic policy uncertainty and the UK demand for money: evidence from the inter-war period

PurposeThis paper empirically investigates the effect of economic policy uncertainty (EPU) on the UK money demand stability during the inter-war period (1920–1938). Both a narrow definition (M0) and a broad definition (M3) of money are investigated.Design/methodology/approachThe empirical investigation is conducted by employing the autoregressive distributed lag (ARDL) bounds testing approach to cointegration.FindingsResults presented indicate a stable demand for both definitions of money only when EPU is included as one of the determinants of demand function. The EPU imposes a negative effect on the demand for both definitions of money. The causality test results further indicate long- and short-term causality from the determinants (including EPU) to both forms of money demand.Practical implicationsSignificant presence of the economic uncertainty weakens the effects of the monetary policy on the economy.Originality/valueThis is a historical economics paper. Given the turmoil and uncertainty associated with the inter-war period, an empirical investigation of UK money demand is an interesting exercise. This is the first such paper.

The Financial & Economic Impact of the Performance of Developing Countries’ Economies on Their Credit Rating {Applied study on Egypt’s credit rating during the period (1996-2018)}

This study aims to examines the dynamic effects of economic performance on credit ratings in Egypt during the period (1996-2018) consisting of quarterly observations for each variable. The study adopted the ARDL bounds testing approach to establish these relationships which showed that there exists a positive short run and long-run relationship between the credit rating, (GDP) growth domestic product and (FDI) foreign direct investment, while there are significant negative relationships in both short and long run between budget deficit, external debt, exchange rate and the credit rating. This result implies that GDP, FDI, foreign reserve and budget deficit are essential macroeconomic variables that influence the economic performance and the credit rating in Egypt.

Examining the effect of renewable energy on exchange rate in the emerging economies with dynamic ARDL bounds test approach

Macroeconomic indicators are crucial in the transitioning from the use of non-renewable energy (NRE) to renewable energy (RE). This study is an attempt to examine the relationship between RE and foreign exchange rate of the emerging economies, Brazil, China, Indonesia, India, Mexico, Russia and Turkey, the E7 economies. The study employs the dynamic ARDL bounds test approach from 1990 to 2019. The relationship between exchange rate and RE has not been widely done, yet this association is crucial considering the short-term high costs of RE and yet some countries import materials to harness RE, such as solar panels, due to poor technology in such countries. The current study differs from past studies that, it attempts to examine this association, in such a way that, provides a comparative analysis of the seven emerging countries. Past studies considered panel data analysis and single country analysis. The major findings of this study show that, different countries exhibit different links between RE and exchange rate, hence the need for region-specific studies to ensure proper policy making. Generally speaking, this research finds out that, GDP, BOP, real interest rate and RE promotes exchange rate appreciation, while inflation rate causes currency depreciation. Policy recommendations are also given, accordingly.

The effect of financial development and economic growth on ecological footprint in Azerbaijan: an ARDL bound test approach with structural breaks

The effect of financial development and economic growth on ecological footprint in Azerbaijan: an ARDL bound test approach with structural breaks

Testing the asymmetric effect of financial stability towards carbon neutrality target: The case of Iceland and global comparison

In the last decade, the CO2 emissions in Iceland continues to relatively decrease; simultaneously, the country has been one of the highly financially stable country in the world. However, Iceland has higher per-capita CO2 emissions than several other European nations. As a result, the major question arising is, “what are the environmental effect of financial stability in Iceland?” This research scrutinizes the asymmetric effect of financial stability on CO2 emissions in Iceland. Using the quarterly dataset that span from 1995 to 2019. We employ the nonlinear ARDL and Fourier-based approach to uncover these asymmetric interconnections. The empirical findings of non-linear bound test and Fourier-based approach uncover the evident of cointegration between CO2 emissions and financial stability and other exogenous variables (such as income, energy use, and trade openness). The outcomes of the NARDL showed that a positive variation in financial stability mitigates CO2 emissions, whereas negative variation has a neutral impact on CO2 emissions. Furthermore, the result of other exogenous variables suggested that a positive change in energy use have an increased effects on CO2 emissions while a negative variation in energy use have mitigating effects on CO2 emissions. Also, Positive variation in income triggers CO2 emissions, but a negative variation in income has a neutral effect CO2 emission. Conversely, a negative variation in trade openness have increased effects on CO2 emissions, while a positive change in mitigating effects on CO2 emissions. The Fully modified ordinary least square and Dynamic ordinary least square estimators reveal that energy use and income level increase CO2 emissions, while trade openness and financial stability mitigate CO2 emissions. Policymakers in Iceland should focus their significant efforts on enhancing financial stability to encourage environmental innovation, investment, and technology by reducing the negative effect of financial stability. Furthermore, strengthening the trade liberalization policies toward the flow of green goods and services extends the environmental impacts of trade openness in Iceland.

An autoregressive distributed lagged (ARDL) bound testing approach to electricity supply and electricity tariff in Nigeria

The paper empirically employed the Autoregressive Distributed Lagged (ARDL) Bound Test Approach to evaluate data acquired from the CBN Statistical Bulletin, NBS, MYTO-2015 Distribution Tariffs, NERC, PHCN, NEPA, and WB/WDI Database from 1971 to 2021. The ARDL result estimate indicates that in the short and long run electricity supplies is consequential but no influence on electricity tariff and gross domestic product. This indicates that when electricity supplies grow, so does electricity tariff and gross domestic product; however, the gain is not statistically significant. Long-run and short–run electricity supply has not favor and no influence on per capita income. This suggests that as electricity supply increase, per capita income declines. The ECM coefficient, which represents the disequilibrium, is adjusted and brought back to equilibrium at a rate of 22.9% the next year. The R2 of around (77.9%) percent and the adj-R2 of about (74.4%) percent indicated that the model fit well since these levels of total variations in power supply were explained by changes in the explanatory variables. We concluded that it is essential for the development of the Nigerian electricity supply business to have a tariff that would balance the interaction between electricity supply and electricity tariffs while also ensuring a margin of returns on investment. This study recommends that Federal Government of Nigeria should spend extensively in the transmission subsector of the Nigerian Electricity Supply Industry (NESI) to increase its efficiency. In addition, private sector investment in electricity should be encouraged, as industry predictions for the next decade show a favorable trend, coupled with continuous macroeconomic progress.

The Effect of Sectorial Contributions to GDP on Environmental Degradation: A Verification of the Environmental Kuznets Curve Hypothesis in Nigeria

This paper empirically verifies the validity of the Environmental Kuznets Curve (EKC) hypothesis in Nigeria by focusing on the relationship between key sectors of the Nigerian economy and environmental degradation. The study adopted the Autoregressive Distributed Lag (ARDL) model using time series data for the period 1981-2018. The bounds-testing approach proposed by Pesaran, Shin and Smith, (2001) was adopted to test for cointegration. The results show a long-run relationship between economic growth (disaggregated into key sectors) and environmental degradation measured by carbon dioxide emissions. In the short run, agriculture, industry and services sectors significantly explained the variation in carbon dioxide (CO2) emissions, while the construction sector does not have any significant effect on Carbon emissions both in the current and the future periods. Specifically, the industrial sector has a positive effect on CO2 emissions which confirms the short-run EKC hypothesis; while agriculture and services though were significant, have a negative effect on CO2 emissions, invalidating the short-run EKC hypothesis. In the long run, industry and services sectors were significant in explaining variation in CO2 emission. However, while the services sector shows a negative relationship with CO2 emission in line with the long-run EKC Hypothesis, the industrial sector invalidates the hypothesis with a positive effect. These results imply that the key sectors of the economy have varied effects on environmental degradation, hence the hypothesis is inconclusive. Nigeria is therefore advised to pursue economic growth via industrial and services sectors with an emphasis on environmental sustainability, which could be achieved through the use of renewable and cleaner technology in nation-building.

Insurance Penetration and Interest Rate Nexus in Nigeria; an Autoregressive Distributed Lag Approach

This study investigated the effect of interest rate on insurance penetration in Nigeria. Interest rate is a vital monetary instrument that helps in macroeconomic stability through proper mobilization and distribution of capital. It’s adjustment affects both banking industry as well as the non – banking financial institutions such as the insurance industry. For developing countries like Nigeria with social and economic problems, the issue of risk management and insurance services as related to economic stability is relatively determined by the structural arrangement of the insurance sector and such arrangement is relative to the performance of all economic actors and the overall social environment The study used Auto Regressive Distributed Lag (ARDL) bounds test approach. Data was sourced from the central bank of Nigerian statistical bulletin for the period of 1985 to 2019. The result indicated that an increase in interest rate significantly decrease the rate of insurance penetration in both short run and long run. Other control variables used are exchange rate and inflation rate, and the result for this variables indicates that exchange rate has a significant relationship whereas inflation rate has an insignificant relationship with insurance penetration. The result of the co-integrating equation indicates that every movement into disequilibrium is corrected for within one period at a significant rate. The study therefore suggested that prior to any adjustment in the monetary policies or other economic policy, a detailed investigation should be carried out to ensure a favorable compliance of the short run and long run effect of adjusting such on the macroeconomic indices and insurance penetration.

The Nexus between Maize Yield and Climatic Variables in Nigeria: A Bound Testing Approach

The Nexus between Maize Yield and Climatic Variables in Nigeria: A Bound Testing Approach

O impacto do agroecossistema na pegada ecológica: novas evidências para a perspectiva da agricultura verde existente no Paquistão

ABSTRACT: The focus of this research study investigated the impact of agroecosystem on the ecological footprint in Pakistan, using the time series data over the period from 1990 to 2019. The econometric methods of time series were employed to investigate the long-term association between an agroecosystem and ecological footprint. After performing the stationarity tests Johansen approach was employed. Results of the Johansen method imply that long-term co-integration exists between the exogenous and endogenous variables. Moreover, the ARDL model was performed and long-run results were validated by the bound testing approach. The elasticity of the short-run form of the ARDL model reveals that agricultural land, employment, energy consumption, fertilizer use, and biomass burned dry matter in agriculture have a positive relationship with the agroecosystem. In contrast in the log-run form of ARDL agricultural land, employment, energy consumption, fertilizer use in agriculture and temperature have a positive impact on ecological footprint. Results of the impulse response function revealed that employment and fertilizer use in agriculture have positive while energy consumption and livestock in number have a negative influence on the ecological footprint. Thus, rigorous practices of agriculture for higher production put extra pressure on the agroecosystem. As a result, the stability of the agroecosystem deteriorates and reduces. To minimize the ecological ecosystem, modern technology is required to reduce carbon emission, enhance greener production and improve the biocapacity of the land in the country. This study would help the researcher, planner, policymaker and academicians to provide a proper guideline and vision to provide sustainable food and environment.