Cointegration Approach Research Articles

Macroeconomic Conditions and Private Equity in Morocco: A Bounds-Testing Cointegration Approach

Private equity plays a pivotal role in fostering entrepreneurship, innovation, and job creation across many economies. In Morocco, the private equity sector is in its developmental stage and faces significant macroeconomic challenges that hinder its growth. This study seeks to address the gap in the literature by examining how key macroeconomic factors—including GDP growth, exchange rates, government spending, inflation, gross domestic savings, interest rates, and industrial production—affect private equity fundraising in Morocco between 1990 and 2019. Employing the autoregressive distributed lag (ARDL) model, we investigate both short- and long-term relationships between these macroeconomic variables and private equity fundraising. The results reveal that GDP growth and interest rates significantly influence private equity fundraising in both the short and long run, while inflation and government spending have a more pronounced long-term effect. These findings highlight the need for policies focused on stabilizing macroeconomic conditions to attract private equity investments. Policymakers should prioritize fostering a stable economic environment characterized by sustainable growth, low inflation, and moderate interest rates to create a favorable investment climate.

Are natural resource volatility curses or blessings for economic performance? Stories of resource-rich regions

This paper analyses the time-varying and non-linear effects of natural resource volatility on economic growth in 10 countries using the smooth transition regression (STR) model and further examines the long-run and short-run relationships using the autoregressive distributed lag (ARDL) cointegration approach. The conclusions exhibit that natural resource rents are linearly and non-linearly associated with economic growth in countries with different levels of economic development, and display long-term cointegration and short-term equilibrium state. This study provides guides for policymakers in considering differences in national development to implement management strategies that combine the long and short term.

Wheat Price Dynamics in Hungary: Resilience to Shocks

This study investigates the impact of recent global disruptions, focusing on the Covid-19 pandemic and the ongoing Ukraine-Russia war, on Hungary's wheat-flour supply chain, with a focus on price transmission and market integration. While much research has explored food supply chain disruptions and rising prices globally, there has been limited analysis of their effects on Central and Eastern European agricultural markets, particularly Hungary. This study fills that gap by using linear and non-linear cointegration approaches to examine price relationships along the wheat supply chain. Causality tests indicate a strong bidirectional relationship between producer and consumer prices, demonstrating a tightly integrated market. Cointegration analysis reveals a long-term equilibrium between these prices, with no significant structural breaks during either the pandemic or the Ukraine war. Despite short-term price asymmetries, the study finds that producer-level price changes are ultimately transmitted to consumer prices in the long run, offering insights into Hungary’s unique agricultural market dynamics.

Comparative analysis of futures contract cross-hedging effectiveness for soybean: models and insights

ABSTRACT The purpose of this research is to investigate the use of cross-hedging in the South African soybean market, by using the JSE BEAN contract as a cross-hedge instrument for the JSE SOYA contract. The research study involves a detailed assessment of the data, which includes the use of stationarity tests such as the Phillips-Perron and Augmented Dickey-Fuller, as well as the Johansen co-integration approach to analyse long-term relationships between the variables. To evaluate the efficiency of cross-hedging strategies, three distinct hedging models are used: the ordinary least squares (OLS) model, error correction model (ECM) and EC-GARCH. The results demonstrate that these models produce significant hedge ratios. Through back-testing and the application of hedging strategies, it is determined that the JSE BEAN contract holds the potential to serve as a cross-hedge for the JSE SOYA contract in the South African soybean market. This study provides useful information for market participants and model selection in the context of cross-hedging.

Do higher public and private debt levels benefit the wealthy? An empirical analysis of top wealth shares in the UK

Purpose Despite the concomitant rise in recent decades in both debt levels (public as well as private) and wealth inequality, empirical evidence on the relationship is absent in existing literature. This is striking especially since recent theoretical contributions point to a link between debt and wealth inequality. We contribute to the debate by investigating empirically whether higher levels of UK public and household debt increase the UK wealth concentration at the top 1 and 10% of the wealth distribution.Design/methodology/approach We employ the Autoregressive Distributed Lag (ARDL) cointegration approach with UK time series data from 1970 to 2019. For robustness, a further analysis using panel data fixed effects estimation on a cross-country sample that also includes France and the USA is undertaken. We also use bootstrapping to conservatively estimate statistical significance.Findings Higher levels of public and household debt are found to increase wealth concentration at the top 1 and 10%. The effect is stronger for household debt. Fixed effects estimation on a cross-country dataset supports the results for the UK.Originality/valueThis study is the first to investigate empirically whether rising levels of UK public and household debt benefit the wealthy and thus widen the gap between the “haves” and “have-nots”.

Effects of FDI on the Growth of Agricultural Sector in Côte d'Ivoire: An Empirical Analysis Based on Toda-Yamamoto Causality Tests and ARDL Cointegration

This paper analyses the contribution of Foreign Direct Investment (FDI) to agricultural growth in Côte d'Ivoire over the period 1980-2021. The data come from World Development Indicators WDI (World Bank). The Toda-Yamamoto causality test and the ARDL cointegration approach are used. The results of the Toda-Yamamoto test show no causal link between FDI and agricultural growth, while those of the ARDL approach indicate that FDI has a negative impact on agricultural growth. There are several reasons for these results: insufficient resources allocated to the agricultural sector and the predominance of FDI in other sectors of activity in Côte d'Ivoire. Our results also show the role that the State must play in building infrastructure and increasing foreign trade.

The dynamic relationship between ASEAN+6 exchange rates and stock markets: application of the ARDL model

PurposeThis study investigates the short- and long-run relationship between stock prices and exchange rates in the Association of Southeast Asian Nations (ASEAN)+6 markets. In the short run, support is found for both the theory of a goods market where exchange rates influence stock returns and portfolio balance theory, where stock returns influence exchange rates.Design/methodology/approachThe co-integration approach of linear and nonlinear augmented autoregressive distributed lag (ARDL) models was applied to daily data from 2 January 2017 to 30 June 2023.FindingsThe findings provide evidence that the goods market theory is supported solely in Indonesia and Singapore, while the portfolio balance theory is supported for Australia, China, India and Malaysia.Practical implicationsPolicymakers and investors should seriously consider the importance of the study findings. The results show that all ASEAN+6 countries experience a short-term interaction between the two markets. This illustrates that exchange rates and stock price movements play vital roles in other markets. Stakeholders, particularly policymakers, should be aware of this critical relationship.Originality/valueThis is the first study to dynamically examine how the ASEAN+6 framework influences currency rates and stock markets.

Determining the Relationship Between Economic Growth, Carbon Emission and Energy Consumption: Panel Cointegration and Causality Approach in G20 Countries

As it is known, CO2 is a greenhouse gas. Greenhouse gases contained in fossil fuels mix with the atmosphere and cause global warming on earth. Global warming causes many negative situations such as irregular rainfall, drought, difficulties in accessing fresh water, and changes in living biology. Thus, life on earth is becoming increasingly threatened. In this study, the relationship between CO2 emissions and renewable and fossil-based energy use, which are among the factors affecting economic growth, was applied in G-20 countries with panel data analysis. The data of the study were collected from the World Bank. A total of 589 data were studied in 19 countries and 31 time dimensions. AMG method was used for long-term estimation of the data by performing cross-section dependence, unit root tests and homogeneity tests. Granger causality test was performed between the variables. A positive relationship was found between GDP growth and CO2, and it was found that a one-unit increase in CO2 use would cause a 0.88-unit increase in GDP growth. Additionally, the study found that there is a unidirectional causality from renewable energy, fossil energy consumption and CO2 usage to GDP growth.

From public policy towards the green energy transition: Do economic freedom, economic globalization, environmental policy stringency, and material productivity matter?

The green energy transition is essential to addressing climate change and ensuring sustainable development, yet it faces numerous challenges related to securing financing, implementing effective public policies, and improving material efficiency. This study aims to elucidate the complex interaction of these factors by investigating the impact of economic freedom, economic globalization, environmental policy stringency, and material productivity on the green energy transition in OECD countries for the period 1995-2020. Despite widespread theoretical discussion, the effects of these factors, which act as drivers for each other, have been neglected. The study contributes to Sustainable Development Goals 7, 8, 9, and 12 by focusing on affordable and clean energy, decent work and economic growth, industry innovation, and responsible consumption and production. Using the Westerlund and Edgerton cointegration approach, the study finds a long-run relationship between these variables. The long-run estimators, RCCE and AMG, are used to assess the magnitude of this relationship. The results show that increased economic freedom positively affects the green energy transition in the Republic of Korea. In contrast, economic globalization is negatively impacting the transition in Spain, Italy, and Portugal. Stricter environmental policies are encouraging green energy adoption in Slovenia and Korea. Material productivity is supporting the green energy transition in both the OECD panel and in individual countries such as the Czech Republic, Spain, and Hungary. The study recommends policy measures to encourage green energy adoption, including establishing industrial standards for recycling, increasing material productivity, and strengthening renewable energy-based production processes. While environmental policies have proven effective in some countries, the overall framework across OECD countries is inadequate. Policymakers are called upon to critically review and improve current policies by balancing the implementation of disincentives that increase costs for polluting activities with subsidies that reduce the financial burden of the green energy transition. The study emphasizes the need for a balanced approach to regulation. Excessive regulation or excessively pro-market policies can hinder the green energy transition. It is therefore important for policymakers to find a middle ground that promotes environmental sustainability while promoting economic freedom.

What is the role of environmental stress on public health? Asymmetric evidence on carbon emissions, ecological footprint, and load capacity factor

The aim of this paper is to analyze the effects of carbon emission, ecological footprint, which takes into account the demand side of the environment, and load capacity factor, which takes into account both the supply and demand sides of the environment, on health expenditures with conventional and quantile methods. According to the conventional co-integration approach, there is no relationship between the environment and health expenditures. The other side, the findings obtained from the quantile co-integration method, which can give robust results in the presence of tailed distributions and possible endogeneity problems and consider the asymmetric structure in the data set, show the existence of a long-term relationship between the variables. According to the coefficient estimates, while carbon emission and ecological footprint increase health expenditures, the load capacity factor decreases.

The impact of digitalization and economic diversification on economic growth: evidence from Saudi Arabia

The present study aims to assess the impact of economic diversification and digitalization on economic growth in Saudi Arabia during the period 1990–2021. We have looked into this relationship in both the overall economic and non-oil economic sectors using the autoregressive distributed lag (ARDL) cointegration approach. The empirical results offer compelling evidence that economic diversification and digitization affect economic growth both directly and indirectly through their effects on non-oil GDP growth. The findings indicate that there is a long-run dynamic between economic growth, economic diversification, and digitalization. In the long run, digitalization contributes to the progress of non-oil economic growth and, therefore, sustainable economic growth. In addition, the causality test revealed that economic diversification develops the economy of new knowledge, which reinforces economic diversification, and non-oil economic growth supports digitalization. Consequently, digitalization played an important role in the Kingdom’s economic transition toward economic diversification. Indeed, our results prove that digitalization increases non-oil income and then reduces the supremacy of the oil sector in the economy, which promotes economic diversification. The KSA authority must accelerate the energetic transition process in order to support economic diversification and attract more foreign investment in information and communication technologies (ICTs).

A Co-Integration Approach to Assess the Impact of Nigeria Monetary Policy on Economic Growth

This research examines the impact of Nigeria’s monetary policy on her economic growth by developing a model that is able to investigate how monetary policy of the government has affected economic growth through the adoption of multi-variable regression analysis. GDP representing economic growth which was used as the dependent variable against the explanatory variables which is Monetary Policy Variables: money supply, exchange rate, interest rate, and inflation rate. The time series data is the market-controlled period covering 1960-2020. The study determined the relationship between monetary policy instruments and GDP, and it also determined the adequacy of the model. The study adopted a co-integration approach and also conducted a unit root test. The study showed that monetary policy variables included in the model has combined significant impact on GDP in Nigeria. In addition, the core finding of this study showed that exchange rate and money supply have positive and statistically significant relationship with GDP in Nigeria. However, inflation rate has negative impact on GDP and a non-statistically significant relationship with GDP, interest rate has positive and statistically insignificant relationship with GDP. The results from the study proved that monetary policy have a significant relationship with GDP. In conclusion, based on the outcome of the Study. The study recommended among others that the regulatory authority (CBN) is advised to reduce interest rates and increase money supply such that both loans and funds will be easily accessed by manufacturing/industrial outlets to enhance manufacturing output in the Nigeria economy.

Pure contagion vs. financial interconnection in the subprime crisis context: Short- and long-term dynamics

This paper examines the difference between pure contagion and financial interconnection by studying the U.S. and some American and Asian markets in the subprime crisis context. These markets are affected by the mortgage crisis, with data available from January 1, 2003 to December 30, 2011. The paper first identifies the turmoil period via the wavelet technique and adopts cointegration and Granger causality approaches by estimating vector autoregressive (VAR) and vector error correction models (VECM) models. Based on daily returns from stock market indices in five American countries (Mexico, Brazil, Canada, Argentina, and the U.S.) and eight Asian ones (Hong Kong, Japan, India, Indonesia, Malaysia, Singapore, Korea, and China), the results show eight cases of pure contagion and 10 cases of financial interconnection. In addition, there were high co-movements in the short term and low co-movements in the long term for financial interconnection cases. These findings have several implications for investors looking to diversify their portfolios internationally and for portfolio managers to expect and limit market risk. The results provide additional guidance to regulators and policymakers.

Emergence of Forest Environmental Kuznets Curve in Africa: Some New Evidences

ABSTRACT: The African continent, renowned for its diverse landscapes and abundant biodiversity, grapples with a critical environmental challenge – deforestation. The swift depletion of forests, serving as the primary habitat for 80% of the world’s terrestrial animals and plants, poses a severe threat in Africa. Human activities, including logging, agricultural expansion, and urbanization, have jeopardized numerous ecosystems, exacerbating the overarching global climate crisis. Beyond serving as mere collections of trees, forests are intricate ecosystems supporting a staggering diversity of flora and fauna. The repercussions of forest loss in Africa are profound, resulting in a significant decline in biodiversity. Numerous species, some exclusive to these ecosystems and found nowhere else on the planet, now teeter on the brink of extinction. The predicament of deforestation in Africa is intimately intertwined with the broader global challenge of climate change. Urgency is paramount in addressing this crisis, as the loss of forests impacts not only local ecosystems but also exacerbates the overarching climate emergency. Reforestation emerges as a pivotal solution, offering an opportunity to reverse the damage inflicted on these vital ecosystems. This study examines whether forest natural resources can explain the environmental Kuznets curve hypothesis in African countries. The empirical strategy is based on the second-generation cointegration approach, cross-sectional dependency autoregressive distributed lag (CS-ARDL) and Augmented Mean Group (AMG) estimator. The findings show a potential long-run relationship between the forest rent and the environment. Further analysis highlights the importance of effective management of natural forest resources for improving environmental quality in Africa. We recommend that policymakers prioritize the restoration of ecosystems that have suffered carbon depletion due to human activities. Restoration efforts should strategically aim to enhance carbon sequestration capacity and rebuild biodiversity. Additionally, the establishment of robust monitoring and reporting systems is imperative to track current carbon emissions from forests. This entails regular assessments of forest carbon stocks, land-use changes, and the effectiveness of ongoing conservation and restoration initiatives.

Effects of Transmission Mechanism of Monetary Policy Channels on Economic Growth in Ethiopia: Cointegration and Causality Analysis Approach

The study aimed at investigating and analyzing factors those effects of transmission mechanism of monetary policy channels on economic growth in Ethiopia using a 36 years’ time series data. To this end, variables such as economic growth (dependent variable), and other regress variables such as real lending rate, real effective exchange rate, credit for private sector, consumer price index, trade of opens, gross capital formation, and money supply are considered. An empirical model linking the real GDP to its theoretical effects is then specified. This study had employed the co-integration and vector error correction model (VECM) analysis with impulse response and variance decomposition analysis to provide robust long run effects and short run dynamic effects on the real GDP. All variables under consideration are integrated of order one I (1) and also co-integrated. Vector Error Correction Model/VECM/ results show that real GDP was positively and significantly affected by the real effective exchange rate, money supply, gross capital formation (investment), credit for private sector, trade of openness over a period of long-run; while real leading interest rate and consumer price index (inflation) have significant negative effect. The estimate of the speed of adjustment coefficient found in this study indicates that about a 31 percent of the variation in the real GDP from its equilibrium level is corrected within a year. The study suggests that lowering the lending interest rate can encourage more private investment because it will encourage private investors to borrow more, which will increase investment in Ethiopia. Since investment is one of the factors that determine the gross domestic product, this will result in an increase in the GDP.

Structural Effects of Economic Shocks on the Macroeconomic Economy–Electricity–Emissions Nexus in India via Long-Term Cointegration Approach

For developing nations to achieve net-zero targets, macroeconomic linkages impacting the decoupling of emissions from economic growth must account for non-linear business cycles and economic shocks. This study aims to delineate decarbonization policy pathways for the Indian electricity sector in the aftermath of COVID-19 by analysing the long-term evolution of the economy–electricity–emissions (3E) nexus during the 2008 financial crisis and during COVID-19, covering the period of 1996Q2 to 2020Q3. Upon testing multiple theoretical 3E systems, it was found that a model internalizing trade, inflation, and stochasticity was able to minimize the reproduction errors from growth to recession phases, as well as predict the rebound effect from an economic crisis. This was revealed to be due to more information within the coefficients in a trade stochastic model. Our results confirm the existence of electricity-associated emission decoupling with capital formation in the long-run, post-crisis, while economic growth and inflation increase CO2 emissions. The main finding highlights the negative feedback loop of inflation->trade->emissions, which shows that GDP and emissions are not directly causal. This long-run macroeconomic dynamic death spiral causes decoupling to be inhibited, where fossil fuel imports should not be subsidized for economic shock rebound, and the risk hedging of energy transition investments should occur in the post-COVID-19 era.

The asymmetric effects of exchange rate volatility on UK–Pakistan trade flows: New evidence from nonlinear ARDL approach

Using the nonlinear autoregressive distributed lag (NARDL) method, the current study explores the effects of exchange rate variations on commodities trade between Pakistan and the United Kingdom. The current study contends that the limiting assumption of symmetry between the exchange rate and the trade flows may have hampered the empirical results, despite the fact that earlier studies primarily used the symmetric cointegration approach. From 1980 to 2020, the study examines the symmetric and asymmetries effects of exchange rate variations on 35 sectors in Pakistan that import from the UK and 35 industries that export to the UK. The findings suggest that there is evidence of a considerable influence of asymmetric exchange rate variations on trade flows in both the short and long term in over half of the importing and exporting industries that participate in trade with the UK. By highlighting the significance of taking into account asymmetry in the analysis and exposing the sector-specific effects of exchange rate changes on trade flows, the study adds to the body of current work.

A deep connection among the natural resources, technical progress, efficient energy and sustainability: The mediating role of governance

Many changes in the environment are causing worry among people all around the world. Several variables are at play here, including climate change, desertification, deforestation, coastal ecosystem erosion, land degradation, excessive fishing, extinction of species, and biodiversity loss. These problems, according to many observers, are the long-term, cumulative effect of human activity on the environment, which has significantly altered Earth's surface. Society and the economy cannot be improved without using natural resources. Yet, environmental deterioration and resource depletion have resulted from unsustainable usage, putting human and environmental health at risk. Reducing carbon emissions is often believed to depend on technological advancements. Using data from 2000 to 2021, this research intends to examine the 20 Emerging economies' CO₂ emissions concerning its potential drivers, including conservation of energy and materials, technical innovation, and governance. We provide more comprehensive evaluations of various multivariate econometric methods, including various cointegration approaches (e.g., Padroni and Kao), long-run estimates of fixed and random effects, robustness checks using cointegration regressions (e.g., FMOLS and DOLS), and the frequency-domain PMG method. Although technical innovation and good governance can improve the environmental quality of emerging economies, our findings demonstrate that energy and land conservation reduce CO2 emissions. Furthermore, carbon emissions are adversely affected by the governance interaction term (GOV) with natural resources. Policymakers may use these results to help Emerging Markets achieve sustainable development.

Examining the confluence of climate change and conflicts on agricultural and livestock exports in Somalia

Climate-induced extreme weather events and conflicts are jointly contributing to disruptions in agricultural supply chains and destabilizing global food trade. Since the literature has identified that variations in climatic conditions hamper farming and animal raising, it is necessary to explore the consequences of climate change on crop and livestock exports in order to implement policies that mitigate the exposure and enhance exports. In this context, this study aims to examine the confluence of climate change and conflicts—internal and external—on agricultural and livestock exports in Somalia during 1985–2017. The evidence from the cointegration analysis verified the presence of a consistent long-run cointegration between the variables. The empirical results of the ARDL approach indicate that average rainfall enhances agricultural and livestock exports in Somalia in the short-run and long-run, while mean temperature particularly hampers agricultural exports in the long-run. Despite livestock production was found to be statistically insignificant, crop production positively contributes to agricultural exports. In addition, increases in rural population enhance both export categories in the short-run and long-run. A striking finding from the study indicates that internal and external conflicts decrease crop and animal exports in the long-run, although the coefficients of external conflicts were statistically insignificant. The long-run findings were validated using the FMOLS cointegration approach. Moreover, the causality findings demonstrate a unidirectional causality from agricultural exports to precipitation, temperature fluctuations, and internal conflicts. Furthermore, the study shows that agricultural labor Granger causes farm and livestock exports. To this end, this study recommends policymakers promote product diversification, foster sustainable land management practices, facilitate market access, and invest in resilient farming systems.

The Nexus between Insurance and Economic Growth of Tanzania: Autoregressive Distributed Lag Bounds Cointegration Approach

The Nexus between Insurance and Economic Growth of Tanzania: Autoregressive Distributed Lag Bounds Cointegration Approach