Causality Approach Research Articles

Interdependency between Indian and US market indices: A granger causality approach

The Granger causality model is used in the current study to analyze the short-run cause–effect relationship between two stock market indices between 2001 and 2021 using time series data of the daily closing prices of the BSE Sensex and S and P 500 indices listed in the Indian and US stock markets, respectively. The Granger causality model and the augmented Dickey–Fuller test for data stationarity were used in the study to examine the short-term causal link between two market indices during the time period. The outcomes demonstrated the connection between the Indian and US stock markets. The findings imply that both markets have a dynamic, bidirectional relationship. This study provides the investor’s essential inputs for investment decision-making and portfolio diversification. In the current era of globalization, the study is crucial because investors and fund managers now place a high priority on stock market integration. Through fund diversification across equity markets, this study subsequently makes it easier to reduce portfolio risk by providing useful insights on diversification strategies across the stock markets.

An empirical analysis of Malaysian palm oil export to world major palm oil importing countries: evidence from a panel cointegration model

The paper explores the long-term causal relationships of Malaysian palm oil exports with the real effective exchange rate of the respective importing countries, palm oil consumption, vegetable oil production, and GDP growth. The study applied panel cointegration and causality approaches based on data from 10 main palm oil importing countries between 2004 and 2018. The impacts of economic growth, the effective real exchange rate, and the production of other vegetable oils by the main palm oil importing countries on Malaysian palm oil exports were found to be negative. However, palm oil consumption by the main palm oil importers was found to be a statistically significant positive determinant of Malaysian palm oil exports. This finding indicates that consumption has a direct positive effect on the demand for exports. A panel Granger causality analysis revealed a unidirectional causality between importing countries’ production of other vegetable oils and Malaysian exports of palm oil.

Local and Network-Wide Time Scales of Delay Propagation in Air Transport: A Granger Causality Approach

Complex network theory, in conjunction with metrics able to detect causality relationships from time series, has recently emerged as an effective and intuitive way of studying delay propagation in air transport. One important step in such analysis is converting the discrete set of landing events into a time series representing the average delay evolution. Most works have hitherto focused on fixed-size windows, whose size is defined based on a priori considerations. Here, we show that an optimal airport-dependent window size, which allows maximising the number of detected causality relationships, can be calculated. We further show how the macro-scale but not the micro-scale structure is modified by such a choice and how airport centrality, and hence its importance in the propagation process, is strongly affected. We finally discuss the implications of these results in terms of detecting the characteristic time scales of delay propagation.

Trade off Between Military Expenditure and Fixed Capital Formation on Economic Growth: Panel Study of Some SAARC and ASEAN Countries

This paper intends to investigate the relationship between military expenditure and fixed capital formation on economic growth of some SAARC and ASEAN countries including Nepal with balanced yearly panel data of military expenditure (MILEX), gross fixed capital formation (GFCF) and constant GDP as the proxied for the variables of interest over the period of 2001 to 2020. The quantitative strategy is applied to establish the presumed relationship. The paper employs the cross-sectional dependency test, then panel generalized least square (GLS), fully modified ordinary least square (FMOLS), and finally Dumitrescu-Hurlin panel causality approaches. The CD test shows the cross-section dependency among the panel groups. The panel GLS reveals that there is positive relationship between both military expenditure and fixed capital formation on economic growth. However fixed capital formation is more crucial than military expenditure on economic growth. FMOLS suggests that military expenditure and fixed capital formation can promote economic growth but more by fixed capital formation. However, D-H panel causality does not support the view of casual relationship between military expenditure and fixed capital formation on economic growth. But there is unidirectional relationship between economic growth on explanatory variables and there is bidirectional causality between military expenditure and fixed capital formation. The stylized facts suggest to sampled countries that they need to focused on fixed capital formation with maintaining the minimal level of military to accelerate the growth. This paper has an attempt to fill the empirical gaps in Asian countries with Nepal. The updated panel data and comparative studies support to scientific communities cum policy makers of respective countries.

Relationship between Public Debt and Exports in Nigeria: A Granger Causality and Threshold Analysis Approach

This paper examines the relationship between public debt and exports of Nigeria, ranging from the period 1981 to 2017. It analyses the trend of public debt and its measure of sustainability and how it relates to the export earnings of Nigeria. Granger causality was used to test the causality effect of public debts on Nigeria's exports (oil and non-oil exports). Also, threshold regression analysis was used to investigate the relationship between public debt and exports of Nigeria. Granger causality results show that the export of goods and services of Nigeria granger causes external debt while external debt does not granger cause the export of goods and services. Domestic debt has a statistically significant influence on exports of Nigeria, but a threshold exists for this to avoid the crowding-out effect and higher interest rate, which will influence exports negatively. Hence, for Nigeria as a nation to maintain the sustainability of its domestic debt in relation to exports, there is an existence of a maximum threshold limit of ₦6,538 billion, while external debt should be below ₦3,178 billion.

Patents on Environmental Technologies, Financial Development, and Environmental Degradation in Sweden: Evidence from Novel Fourier-Based Approaches

This article seeks to capture the effects of patents on environmental technologies and financial development on environmental degradation in Sweden between 1995Q1 and 2019Q4 using Fourier ARDL and Fourier Toda Yamamoto (Fourier TY) causality approaches. In the estimated models, the control variables employed are economic growth and renewable energy. The Fourier ARDL long-run estimates indicate that: (i) both patents on environmental technologies and renewable energy have negative effects on environmental degradation; (ii) improvements in both financial development and economic growth positively affect environmental degradation. Finally, the Fourier TY estimates indicate that patents on environmental technologies, growth, and renewable energy have unidirectional causal effects on environmental degradation. These findings have significant policy implications, particularly for financial development and patents on environmental technologies in Sweden. The government of Sweden can enact strict regulatory policies to control the adverse impacts of financial development. In addition, the government can increase investments in patents on environmental technologies and renewable energy use to reduce carbon dioxide emissions (CO2E).

Stock markets and carbon emissions nexus in Nigeria: Evidence from nonlinear ARDL and causality approaches

This paper examines the nexus between stock market development and carbon emissions for Nigeria based on annual data from 1981 to 2020. The study employs a multi-methodological approach, including the nonlinear autoregressive distributed lag approach, vector-error correction modeling, and Granger causality test. The nonlinear ARDL bounds test supports a long-run relationship between carbon emissions, energy intensity, population density, and gross domestic product per capita. Asides, the results show that perturbations in stock market development measured as stock traded have an asymmetric effect on carbon emissions in the short and long run. The results suggest that positive shocks in stock traded have an increasing insignificant effect on carbon emissions. In contrast, negative shocks in stock market development have a significant reducing impact on carbon emissions. Moreover, the results show that causality runs only from decreased stock traded to carbon emissions. Therefore, policy maker must strictly enforce all environmental regulations designed to control carbon emissions that might arise from increased manufacturing activities occasioned by improved stock market developments.

Natural resource dependency and environmental sustainability under N-shaped EKC: The curious case of India

Even though the literature is becoming more swamped with research on the causes of environmental degradation, the uniqueness of some nations that strongly emphasize resource depletion has been largely ignored. Following the concept of the Environmental Kuznets Curve (EKC), this study considers the resource richness of India while examining the consequences of natural resource rent (NRR), GDP, and the interaction of NRR and GDP on environmental degradation controlling urbanization and energy use. To this end, we harnessed data from 1970 to 2018 and applied dynamic autoregressive distributed lag (DARDL) simulation and frequency domain causality (FDC) approach. The baseline model reveals that economic activities have heterogeneous yet significant impacts on environmental quality, and we validate the existence of an “N-shaped” EKC hypothesis in India in the presence of CO2 emission as the dependent variable. However, we failed to verify the N-shaped EKC with the ecological footprint as our dependent variable. The natural resource rent, energy consumption, and urbanization are also positively linked to long-term environmental degradation. The interaction term of NRR and GDP positively impacts CO2 emissions and ecological footprint. In addition, the value of the turnaround point was higher with the interaction term compared to that without the interaction term, further indicating the negative externalities of the interaction term. According to FDC's results, a feedback loop between economic development and CO2 emissions is highlighted. The robustness check further endorses the findings of our baseline models. The insights have far-reaching policy implications, discussed in the ultimate section.

Does political stability contribute to environmental sustainability? Evidence from the most politically stable economies

The study evaluates the effect of political risk on CO2 emission in the top 10 most politically stable economies (Australia, Canada, Germany, Finland, Denmark, Norway, Netherlands, New Zealand, Sweden, and Switzerland) from 1991/Q1 and 2019/Q4. To the investigators' understanding, this is the first empirical analysis that inspects the effect of political risk on CO2 emissions in the top 10 most politically stable economies. Therefore, the current paper fills a gap in the existing literature. Innovative quantile-on-quantile regression and quantile causality approaches are applied to explore this nexus. The quantile-on-quantile regression results reveal that in the majority of the quantiles, political risk enhances environmental quality for the case of Norway, Sweden, Canada, and Switzerland. Moreover, political risk degrades the quality of the environment in Australia, Germany, and Denmark, while the outcomes were mixed for the rest. Since political stability has encouraged international corporations to invest. As a result, guaranteeing political stability will attract more foreign investment, pressuring the governments of these countries to treat the climate catastrophe more urgently. Moreover, reforms should be aimed at sustaining existing environmental policies related to the green economy, while local and international firms should vigorously pursue investments in renewable energy sources and energy-saving-efficient technologies.

Is there any recovery power for economic growth from green finance? Evidence from OECD member countries

This paper investigates the dynamic interactions between green finance, economic growth, and green energy consumption for the Organization of Economic Cooperation and Development (OECD) members. The econometric analysis is conducted on annual data gathered throughout 2010–2020 using different estimation techniques of the Vector Autoregressive model, causality, and co-integration approaches. The main results confirmed a positive bi-directional relationship between GDP and green energy consumption. In addition, there is a two-way relationship between the volume of green bond issuance and the use of green energy in OECD countries. The recommended practical policy recommendations are establishing a unified green bonds market among OECD member states, prioritizing green projects to support the issued green bonds, improving the financial system, and financing rural electrification and electric vehicle transition by green bonds.

Sukuk ve Ekonomik Büyüme İlişkisi: Türkiye Üzerine Bir Uygulama

Amaç: Bu çalışmanın amacı Türkiye’de katılım bankaları tarafından ihraç edilen sukuklar ile ekonomik büyüme arasındaki ilişkinin incelenmesidir. 
 
 Yöntem: Bu çalışmada yöntem olarak Engle-Granger eş-bütünleşme ve Grenger nedensellik yaklaşımlarından faydalanılmıştır. Türkiye’deki tüm katılım bankalarının ihraç etmiş olduğu sukuk ve reel GSYH rakamları 2013Q4-2021Q3 dönemi için analiz edilmiştir. 
 
 Bulgular: Yapılan Engle-Granger eş-bütünleşme testinin sonucunda sukuk ihracı ile reel GSYH arasında uzun dönemli istatistiksel olarak anlamlı bir eş- bütünleşme ilişkisi bulunamamıştır. Bununla beraber Grenger nedensellik testi sonuçlarına göre reel GSYH’dan sukuk ihraçlarına doğru tek yönlü Grenger nedensellik ilişkisi bulunmuştur. 
 
 Sonuç: Bu çalışmanın sonucuna göre Türkiye’de katılım bankaları tarafından piyasaya sunulan sukuklar ile ekonomik büyüme arasında eş-bütünleşme ilişkisi yoktur. Diğer bir deyişle değişkenler arasında uzun dönemli bir denge ilişkisinin bulunmadığı sonucuna ulaşılmıştır. Ayrıca ekonomik büyümeden sukuk ihracına doğru tespit edilen tek yönlü Grenger nedensellik ilişkisi katılım bankalarının sukuk enstrümanı ile ekonomik büyümeye katkı sunamadıklarını aksine ekonomik büyümeden istifade ettiklerini göstermektedir. Çalışmanın sonuçları beklenen sonuçların tersi yöndedir. 
 
 Özgünlük: Çalışmanın özgünlüğü, değişkenler arasındaki ilişkiyi Türkiye bağlamında Engle-Grenger Eşbütünleşme ve Grenger nedensellik yaklaşımını kullanarak inceleyen ilk çalışma olmasıdır.

The Effects of Imports and Economic Growth in Chinese Economy: A Granger Causality Approach under VAR Framework

This study inspects the association between economic growth and imports from China, based on data sourced from 2000 to 2021. For this reason, a quantitative research approach is used to determine the causality between the variables and their impact on the economy. The null hypothesis of the paper implies that the import growth rate has a significant impact on the GDP growth rate in the Peoples Republic of China. This hypothesis was rejected via the Granger causality test, as the only single directional relationship was found. However, further analysis was conducted by applying a Vector Auto-Regression (VAR) model that included leading macroeconomic variables, such as the inflation rate, the bank rate, and the exchange rate between the US dollar and Chinese yuan. The impulse responses of the model, aligned with the economic theory and the results, suggested that the import growth rate is negatively related to the GDP growth rate, while the GDP growth rate has an initial positive impact on the imports for the first three quarters, which later changes to a negative impact. This time lag suggests that while the impact between the variables is important, negative outcomes could be avoided if proper economic policy is implemented. The government of China should focus on policy implications that further promote export and substitute imported goods with domestic production.

Testing the export-led growth hypothesis in Turkey: New evidence from time and frequency domain causality approaches

This study investigates the validity of Turkey's export-led growth hypothesis (ELG) with the time domain and frequency domain causality methods using quarterly data for the 1998Q1–2021Q4 period. We also test whether government expenditure is an important channel within the framework of the ELG hypothesis. The time-domain causality results indicate that the feedback and import-led growth (ILG) hypotheses are valid. The frequency-domain causality results imply that the hypothesis of the growth-led export (GLE) is valid. Therefore, the time and frequency domain causality findings indicate that the ELG hypothesis is invalid. Turkey, which has followed an export-oriented industrialization strategy since 1980, is far from successful in this policy. Therefore, policymakers need to revise Turkey's foreign trade strategy.

A cointegration analysis of New Zealand’s economic development, fossil fuel usage and transport emissions

This study examines the relationship between New Zealand's (NZ) economic development, fossil fuel usage, and carbon dioxide (CO2) emissions from the transport sector from 1977 to 2013. The Autoregressive Distributed Lag (ARDL) bounds testing to cointegration procedure is conducted, followed by the Granger causality approach, to validate the hypothesis of the transport-energy environmental Kuznets curve (EKC). The empirical results of the study reveal an inverted U-shape between income and transport emissions for the sample period. The turning point is approximately US$31,070 in constant 2010 price, and NZ reached this income per capita level around 2002. Specifically, unidirectional causality between economic development and transport-related emissions was found in the short run, and it runs from economic development to transport emissions. Our findings deliver several policy implications. First, NZ’s carbon reduction policy programs should focus more on transitioning from a carbon-based energy system to renewable energy. Second, push and pull measures to address carbon emissions reduction in the transport sector will not harm economic development. Given the important role that full cells play in decarbonising the heavy transport sector, future research should also incorporate the roll-out and deployment of hydrogen vehicles on the country’s economic development, fossil fuel usage, and transport emissions.

The Dynamic Impact of Renewable Energy and Economic Growth on CO2 Emissions in China: Do Remittances and Technological Innovations Matter?

Several investigations show that remittances, renewable energy, and innovation promote the socioeconomic advancement of a nation. Nevertheless, the impacts of remittances and renewable energy on ecological quality are yet to be evaluated thoroughly. Therefore, the current investigation assesses the effects of remittances and renewable energy on CO2 emissions while taking into account the roles of technological innovation, globalization, and economic growth. Toward this end, this paper depends on yearly data between 1990 and 2019. The study employed bounds testing and its results disclosed long-term connections between CO2 and the regressors. Moreover, unlike prior studies that employ time-domain causality, we employed frequency domain causality, which considers causality at different frequencies. Furthermore, the ARDL long- and short-run results showed that economic growth amplified CO2 emissions, while green energy, remittances, and globalization lessened CO2 emissions. Lastly, the frequency domain causality approach revealed that globalization, renewable energy, economic growth, technological innovation, and remittances could predict CO2 emissions in the long-term. These findings’ sturdiness was established utilizing DOLS and FMOLS regression. Several policy recommendations are suggested in light of these ground-breaking discoveries.

Interface between energy consumption, CO2 emissions, economic growth, and macroeconomic openness in financial action task force countries through the lens of a causality approach.

There is strong scientific evidence to suggest that carbon dioxide (CO2) emissions are one of the key drivers of global warming. Rising CO2 emissions across the globe have been traced back to increasing global trade and rapid industrial development powered by fossil fuels. High CO2 emissions have had an adverse effect on the quality of life and economic growth of communities across the globe. In this study, the Granger causality approach is used to examine scientifically some causal relationships between energy consumption, CO2 emissions, economic growth, and key macroeconomic variables (trade openness and foreign direct investment) in the panel of Financial Action Task Force (FATF) countries. FATF countries are signatories to agreements to adhere to good financial practices to ensure sustainable development of their economies. The empirical analysis was conducted for the period 1980 to 2020. Results indicate a strong endogenous relationship between the variables in the short and long run. The analysis suggests that careful co-curation of economic, trade, energy, foreign direct investment, and environmental management policies is needed to ensure sustainable economic development in the FATF countries. Global trade and foreign direct investment policies must foster new environmental-friendly industries and greater use of clean renewable energy among these countries. Note: Arrows indicate direction of possible causal links between the variables.

Bank Efficiency, Competition and Concentration in MENA Region Countries: A Granger Causality Approach

In this paper, we aim to explore the causal relationship among the bank efficiency, competition, and concentration in the banking systems of 15 countries in the MENA region (Jordan, UAE, Bahrain, Algeria, Saudi Arabia, Kuwait, Morocco, Turkey, Tunisia, Oman, Palestine, Qatar, Lebanon, Egypt, and Mauritania), by modeling econometric panel data over 2008–2018. Banking efficiency is measured by Data Envelopment Analysis (DEA), while the level of competition is measured by the Boone Indicator, and the level of concentration is measured by the HHI index. Granger causality is used to estimate the relationship among these variables. Results indicate the presence of a significant effect of banking efficiency on banking competition and banking concentration.

More than just investment: Causality analysis between foreign direct investment and economic growth

This study examines the causal nexus between Foreign Direct Investment (FDI) and the economic growth of seven (7) regions encompassing 117 countries. A more recent panel dataset over the period 2010-2020 was analysed using the Granger causality approach and panel VAR/block exogeneity test to conduct predictive analysis among the panel series. Wavelet coherence techniques too were adapted in bringing novelty and further justifications to the research in exploring the interaction effects of the variables, which are yet to be popularised in the studied discipline. The empirical results indicate the presence of bi-directional causality between FDI and economic growth globally and in the Asian region. In contrast, the causality is uni-directional in the American region. A non-directional causality was discovered in European, Oceanian, Mediterranean, and African regions, and the findings were consistent with the outcome of the wavelet coherence technique results. The study further classifies the regions into three cross-market categories such as developed, emerging and frontier markets. The results imply no causality for most developed and emerging economies in the regional analysis. Findings also provide insights for governments and policymakers worldwide to formulate policies on directing FDI flows and propositions for a host country to become a more conducive destination for FDI and accelerate economic growth.

Asymmetricity in the Effect of Economic and Environmental Factors on Social Sustainability: Empirical Evidence from Eastern European Economies using Dynamic Analysis with CCEMG & D-H Causality Approaches

Asymmetricity in the Effect of Economic and Environmental Factors on Social Sustainability: Empirical Evidence from Eastern European Economies using Dynamic Analysis with CCEMG & D-H Causality Approaches

Exploring the causal links between investor sentiment and financial instability: A dynamic macro-financial analysis

Investor sentiment may not only influence financial instability, it may also be shaped by it. Moreover, such causal links may differ over time, in crisis and non-crisis periods. This is a groundbreaking paper that tests these two hypotheses from a macro-financial perspective using the bootstrap rolling window sub-sample Granger causality approach to look at the case of the U.S. financial market between January 1990 and January 2021. We find that bullish sentiment can reduce financial instability as it promotes financial market entry and then liquidity during non-crisis periods, while higher financial instability is associated with less bullish sentiment leading to a shift to crisis periods. The results also reveal a positive (negative) effect of bearish (bullish) investor sentiment on financial instability during crisis periods, including the 2007–2008 financial crisis, the 2010 flash crash, the 2015–2016 Chinese stock market turbulence, and the February 2020 stock market crash. Finally, the study highlights the important role of the “betting against beta” strategy in the U.S. financial market, showing a negative effect of financial instability on bearish investor sentiment during several pre- and post-crisis periods.