Cointegration Techniques Research Articles

An ARDL Co-integration technique to examine the investment behaviour of institutional investors

An ARDL Co-integration technique to examine the investment behaviour of institutional investors

The effectiveness of emerging markets' legal structure in explaining financial development.

This article examines the role of legal structure in explaining financial development in twenty-three emerging markets, which has not been explored in institutional economics literature before. This study relied on Pedroni, and Kao cointegration tests, which is followed by the renowned panel cointegration technique. The results of the Pedroni and Kao cointegration tests show that the variables understudy is cointegrated in the long-run. These findings are confirmed by the panel cointegration showing that legal structure (LS) has positive impact on financial development (FIND) in long-run that support Law and Finance, and New Institutional Economics theories in emerging markets. This study is the first to directly examine the long-run impact of LS on FIND in emerging markets, and the result remains consistent across alternative measure of FIND. The findings of this study have important policy implications for emerging markets. Policymakers should focus on creating a legal environment that is conducive to financial development. This includes strengthening the legal framework, improving regulatory regimes, and promoting market autonomy. Additionally, policymakers should work to attract foreign investment, which can help spur economic growth and development in emerging markets. The findings of the study are consistent across battery of robustness testing.

Cointegration technique to account for environmental variability in a concrete dam

Cointegration technique to account for environmental variability in a concrete dam

Private Sector Financing of Public Infrastructure, Exchange Rate Dynamics and, Economic Growth Process in Nigeria

This study examined the nexus between private sector financing of public infrastructure, exchange rate dynamics and economic growth in Nigeria through the application of unit root, cointegration test, and granger causality. The result of the cointegration techniques suggests the existence of long run relationship among the variables. Granger causality result show that economic growth plays a pivotal role in driving infrastructure investment. However, the immediate feedback loop from infrastructure investment to economic growth is less clear, possibly due to the time lag inherent in the realization of infrastructure benefits. Other economic factors like interest rates, exchange rates, inflation, and FDI are influenced by broader macroeconomic and global conditions, showing less direct causality with infrastructure investment and economic growth in the short term. It is therefore recommended that Government at all levels must promote Public-Private Partnerships (PPP) to leverage private sector expertise and financing in infrastructure projects. Clear and transparent PPP frameworks will attract more private investments. Additionally, the Central Bank of Nigeria (CBN) should carefully manage interest rates to balance economic growth with inflation control. High interest rates can deter private investment, so a balanced approach is necessary

An ARDL co-integration technique to examine the investment behaviour of institutional investors

An ARDL co-integration technique to examine the investment behaviour of institutional investors

Impact of Islamic Financial Inclusion on Economic Growth in Nigeria

Although the connection between finance and growth is well deliberated in literature, attentions are now geared to non interest inclusive finance with understanding the deficiency of traditional inclusive finance. However, the impact of interest free inclusive finance on growth still is partly examined. This research work dealt with Islamic inclusive finance - growth nexus. The research employed quarterly data spanning from (2010-2020). In this work, a novel index of Islamic financial inclusivity was constructed using the (PCA) and a recently developed Bootstrap ARDL (BARDL) Cointegration technique was used in analyzing the data. The finding indicates a number of results. First, the results of BARDL demonstrates a robust association among Islamic Inclusive finance and Growth. As such, it demonstrates the presence of positive and statistically significant nexus between Islamic inclusivity finance and growth. Moreover, findings also reveal presence of cointegration among Islamic inclusivity finance and growth. As such, interest free finance can be used as a tool to help nations to exit from economic recession and other macroeconomic challenges.

Exploring the impact of public investment on income, energy consumption, and CO2 emissions in ASEAN: new insights from a panel cointegration approach.

Policy adjustments can help strike a balance between economic growth and environmental sustainability, which has increasingly been the heart to nations and regions throughout the World. This paper examines how public investment affects economic growth, energy consumption, and CO2 emissions in eight ASEAN countries: Cambodia, Myanmar, Malaysia, Indonesia, the Philippines, Singapore, Thailand, and Vietnam. Extension of a Cobb-Douglas production function and application of panel cointegration techniques reveal bidirectional Granger causation between public investment and both private development and CO2 emissions from 1980 to 2019. Public investment Granger causes energy usage, the opposite does not hold statistically. More findings from pooled mean group estimations show a mean-reversion dynamic that corrects disequilibria by 14% yearly. State investment crowds in private sector growth, energy use, and carbon footprint. It also finds an inverted U-shaped relationship between public investment and energy consumption, and a U-shaped relationship between public investment and CO2 emissions, indicating complex regional interactions. It is suggested the implementation of public investment policies that enrich green infrastructure projects to foster growth while minimizing environmental impacts, and encourage a strategic approach to public investment for prioritizing environmental sustainability and thus, achieving Sustainable Development Goals 7 to 9 and 11 to 13 in this region.

The race between education and technology in Chile and its impact on the skill premium

While studies using pre-2000 data for Chile implied that technological change drives the skill premium evolution, post-2000 data suggests that the supply of skilled labour expansion has reduced this premium. In contrast, literature shows a consistent link between technology and the growing demand for skilled labour, despite educational improvements, leading to skill premium increases. We examine these interactions under the race between education and technology model (RBET) for Chile between 1980 and 2018 considering the inconsistent findings (e.g., negative elasticities) reported by past studies. We also find inconsistencies using cointegration techniques. Alternatively, we apply an Unobserved Component Model using a Bayesian estimation that enforces the required economic and theoretical conditions. We find that, before the 2000s, the technological change dominated. However, in the 2000s, the demand was surpassed by educational supply increases, reducing the premium. The estimated elasticity of substitution between skilled and unskilled labour is 6.5, implying that both are more substitutable than commonly thought.

An Econometric Analysis of Volatility Discovery

We investigate information processing in the stochastic process driving stock’s volatility (volatility discovery). We apply fractionally cointegration techniques to decompose the estimates of the market-specific integrated variances into an estimate of the common integrated variance of the efficient price and a transitory component. The market weights on the common integrated variance of the efficient price are the volatility discovery measures. We relate the volatility discovery measure to the price discovery framework and formally show their roles on the identification of the integrated variance of the efficient price. We establish the limiting distribution of the volatility discovery measures by resorting to both long span and in-fill asymptotics. The empirical application is in line with our theoretical results, as it reveals that trading venues incorporate new information into the stochastic volatility process in an individual manner and that the volatility discovery analysis identifies a distinct information process than that based on the price discovery analysis.

Nexus between government stability and environmental pollution

Previous literature has been aimed at evaluating the economic factors that determine pollution, omitting the role of governments. This research aims to evaluate the impact of government stability on environmental pollution index in 96 countries worldwide. This relationship is moderated by globalization, knowledge, and economic progress between 1990 and 2019. Unlike previous research, we classify countries following a convergence criterion and propose environmental mitigation policy lessons for each convergent club. Specifically, we use convergence models, second-generation cointegration techniques, quantile regressions, and panel data causality techniques. The results show that government stability and knowledge are the fundamental pillars to mitigate environmental deterioration. Globalization and economic progress have heterogeneous impacts on environmental sustainability. Policymakers should promote long-term government stability as a novel environmental mitigation strategy. Likewise, government stability and knowledge can be used to promote Sustainable Development Goals 11 and 13.

Developing economies and environmental impact: A VECM analysis of external debt, ODA, and CO2

The objective of this study is to examine the carbon dioxide (CO2) emissions in Asian economies between 1990 and 2019, with a specific focus on their relationship with net official development assistance (NODA) and external debt. Utilizing the IPAT model as a theoretical framework, we employ various econometric methodologies to estimate both long-term and short-term outcomes. These methodologies encompass panel unit-root tests, cointegration techniques, and the VECM method. The findings of the research provide additional substantiation for the presence of cointegration among all variables. The analysis of long-term data revealed a robust and statistically significant relationship between gross domestic product (GDP) and carbon dioxide (CO2) emissions. Conversely, a strong and inverse connection was identified between foreign debt and net official development assistance (NODA). The results indicated a modest but favorable relationship between the size of the Asian population and the levels of CO2 emissions. The segment of recommendations encompasses comprehensive proposals and an extensive examination of various alternatives.

Fiscal and Monetary Measures in Achieving Green Ecology: Evidence from Nigeria

Abstract Research background In light of the apparent density of the carbon output in the ecosystems of emerging regions, the United Nations has established a manual that puts an emphasis on carbon taxes as one of the quick fixes to environmental uncleanness in evolving states. Purpose The purpose of this research is to look into the impact of monetary and fiscal policy measures on reducing carbon emissions in the ecosystems of Nigeria. Research methodology The study employs the Autoregressive Distributed Lag (ARDL) co-integration technique or the bound co-integration technique to confirm the existence of long and short term nexus and the influence of selected financial instruments on pollutant reduction. The study spans 1991 to 2021 and relies on World Bank Development Indicators data on inflation and CO2 discharges in millions of metric tons. The statistics on tax earnings is derived from the Central Tax Authority in billions of national currency, but the figures on the state’s outlay and broad money supply are generated from the database of the Apex Bank in the country. Result According to the analysis, financial instruments are not yet being directed toward reducing air pollution and environmental devastation in the country. Further investigation reveals that tax revenue gathering is positively irrelevant, but CO2 has a strong positive effect on its reduction at lag 1, implying that a more eco-friendly financial strategy is required to combat environmental hazards in Nigeria. Novelty A Green financial system is a big issue of contention in the global public discussion about rising temperatures. Presently, there are few studies on the management of pollution using financial instruments in emerging regions. This study will serve as one of the leading investigations to align with the United Nations goal to restore our biodiversity through green fiscal and monetary policies. The study strongly suggests that the Nigerian government should pursue green fiscal and monetary mechanisms that include: issuance of green bonds; potential and cost-effective green payment plans, carbon taxation, and ecologically responsible national budgets and investment opportunities.

Is French (dis)inflation explained by conflicting-claims theory? Evidence from cointegration with structural break

ABSTRACTThe aim of this article is to provide an explanation of French (dis)inflation based on the conflicting-claims theory. Making use of cointegration techniques with structural breaks, we bring some empirical evidence suggesting the soundness of such a theory in order to explain the variation of inflation in the long run. Amongst our main results, we show that the transition from the Great Inflation of the 1970s to the Great Moderation was the consequence of a dramatic collapse in the bargaining power of both workers and firms. As a secondary objective, it is also an attempt to fill the gap with other competing theories of inflation since the conflicting-claims approach is characterized by a relative paucity in terms of empirical works.

Investigating the ecological footprint and green finance: evidence from emerging economies

PurposeConsidering the evolving importance of green finance, this study uses climate-related development mitigation finance as a proxy of green finance and investigates the impact of green finance on ecological footprint as an indicator of environmental quality along with the influence of economic growth, renewable energy, greenhouse gas emissions, trade openness and urbanization across 47 developing countries over the period 2000–2018.Design/methodology/approachAfter finding the presence of cross-sectional dependency among variables, the second-generation panel unit root test was employed to detect the order of integration among the variables. Since all the variables were found to be stationary, Westerlund cointegration technique was employed to detect the long-run relationship among the variables. Then, the long-run elasticity among the dependent and independent variables was tested using fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS) and pooled mean group–autoregressive distributed lag (PMG–ARDL) approaches.FindingsThe empirical findings suggest the presence of long-run relationship among all the variables, namely, ecological footprint, green finance, economic growth, renewable energy consumption, greenhouse gas emissions, trade openness and urbanization for the selected developing countries in the sample. Furthermore, economic growth, greenhouse gas emissions, trade openness and urbanization, all have a positive and significant impact on the ecological footprint, whereas renewable energy consumption and green finance have a significant and negative impact on the ecological footprint, which supports the view that environmental quality is improved with the greater use of renewable energy technologies and allocation of greater amounts of more green finance.Originality/valueThe empirical results of this study offer policymakers and regulators some implications for environmental policy for protecting the countries from ecological issues.

Revisiting long-run dynamics between financial inclusion and economic growth in developing nations: evidence from CS-ARDL approach

PurposeThis study aims to analyze the long-run dynamic relationship between financial inclusion and economic growth for developing nations.Design/methodology/approachThis study develops a comprehensive financial inclusion index based on the UNDP methodology for 53 developing nations. The authors use second-generation unit root tests, cointegration techniques and an advanced dynamic common correlated effects estimator model called cross-sectional augmented autoregressive distributed lags (CS-ARDL) to examine long-run dynamics among variables.FindingsThe tests confirm the presence of slope-heterogeneity and cross-sectional dependency. The second-generation panel unit root tests show the chosen variables are stationary at first difference. The bootstrap Westerlund cointegration result shows the variables are cointegrated in the long run. The CS-ARDL estimates conclude that financial inclusion positively enhances gross domestic product per capita in selected developing countries. The robustness check through augmented mean group estimation validates the findings.Originality/valueThe study makes three important contributions: first, it constructs a comprehensive financial inclusion index using 10 variables for a panel of 53 developing nations; second, the potential cross-section dependence and slope heterogeneity of panel data have been accounted for by applying the second-generation unit root tests; third, the study uses the dynamic common correlated effects estimator model (CS-ARDL) to examine long-run dynamics among variables.

Does financial repression inhibit or facilitate private investment? The case of Ethiopia

This study examines the impact of financial repression (FR) on private investment in Ethiopia over the period 1980 to 2020. Investigating the consequences of FR policies makes use of the cointegration technique. The dynamic ordinary least square (DOLS) estimation result demonstrated that FR has a detrimental and statistically significant impact on private investment, resulting in considerable lost opportunities for private investors by driving away banks' productive investment. In addition, the structural reforms implemented since 2011 have a beneficial and significant influence on private investment. The effects of financial development, per capita GDP, and domestic lending to the private sector all produce similar consequences. Additionally, Ethiopia's private investment is negatively impacted by trade liberalization and inflation. The primary findings are used to infer potential policy implications.

Assessing the COVID-19 impact on economy, health and natural resource prices: An evidence from selected Asian economies

This study examines the impact of COVID-19 policies on industrial production and natural resource prices in four Asian economies, Bangladesh, China, India, and Pakistan. It examines the relationship between health indicators and economic performance. The data spans 2016M01 to 2022M12. The study finds that government response is most effective in controlling the epidemic, while economic support index is counterproductive. Panel cointegration technique under dynamic OLS assumption is used for empirical findings. We find robust results for the hypothesis that the infection outbreak is most commonly a result of economic activity. These results imply that the natural resource prices are subject to the pandemic outbreak. The hypothesis that these selected Asian economies show resilience to the future epidemic shocks is not supported and the preparedness for any future calamity is not observed. For short run, authorities should focus on reducing intensity and protecting vulnerable individuals during natural disasters. For medium term, government measures and economic support are crucial for controlling outbreaks, but they also affect the labor market. Long-term, governments should increase health budgets for infrastructure to mitigate future calamities.

Gross Capital Formation, Infrastructure and Economic Development in Nigeria

In Nigeria, the extent to which the decline in capital formation as well as the dismal and disrepair state of most infrastructural facilities impair the growth potentials of the nation are relatively unknown. Given this, this study utilized the Johansen co-integration technique and the Vector Error Correction Model (VECM) to examine the impact of gross capital formation and infrastructure on economic development in Nigeria from 1991 to 2021. The findings of the co-integration analysis revealed the existence of a long-run relationship among the variables while the Vector Error Correction Model (VECM) indicated that gross capital formation did not exert a statistically significant effect on economic development in Nigeria within the study period. However, it was observed that infrastructure had a significant positive effect on the development of the economy. Based on the findings, the study recommended a collaborative effort between the government and private sectors to establish a conducive environment that promotes capital investments within the country. Also, capital formation should be efficiently utilized with a sizable amount accorded to infrastructural development which in turn translates to economic development.

Disaggregated energy consumption, industrialization, total population, and ecological footprint nexus: evidence from the world's top 10 most populous countries.

High population, energy consumption, industrialization, and environmental degradation are inherently linked, making the study of ecological footprints in the most populous countries crucial for understanding their environmental impact and guiding efforts to minimize ecological degradation through sustainable resource management and conservation. Therefore, this study examines the effects of disaggregated energy consumption, industrialization, and total population on the ecological footprint of the world's top 10 most populous countries namely Bangladesh, Brazil, China, India, Indonesia, Mexico, Nigeria, Pakistan, Russia, and the USA, using data for the period of 1990-2020. The research employs Kao and Pedroni techniques of cointegration to determine whether the variables are cointegrated in the long run. The long-term equilibrium association is measured utilizing panel autoregressive distributed lag/pooled mean group (ARDL/PMG), and method of moment quantile (MMQ) regression methods. Furthermore, to test for the causal relationships between the selected variables, we used the Dumitrescu and Hurlin (D-H) panel causality method. The findings of the study reveal that renewable energy consumption, as well as GDP square, have a significant negative influence on ecological footprint, implying that renewable energy and GDP square reduce ecological footprint and thus enhance environmental quality. Furthermore, non-renewable energy, industrialization, total population, and GDP have a detrimental impact on environmental quality by increasing ecological footprint. It is also found that there is a one-way causality from non-renewable energy and industrialization to ecological footprint and a bidirectional causal relationship between ecological footprint and total population, GDP, and GDP2. Important policy implications are drawn based on the findings.

Extending the resource curse hypothesis to sustainability: Unveiling the environmental impacts of Natural resources rents and subsidies in Fossil Fuel-rich MENA Countries

The resource curse hypothesis (RCH) has been extensively studied in various domains, including economic growth, democracy, and financial development. However, the relationship between RCH and environmental degradation has been largely overlooked. In this study, drawing on the experience of the MENA region, we aim to extend the RCH to environmental degradation and hypothesize that the resource curse also affects the environment. Applying the resource curse framework, we investigate the effects of natural resource rents (NRR), fossil fuel subsidies (FFSs), and Gross National Income (GNI) on the transition from fossil fuels consumption (FFC) to renewable energy consumption (REC), a critical aspect of achieving sustainability. Using the PMG ARDL panel cointegration technique and panel data from 2009 to 2021 for nine fossil fuel-rich MENA countries, which are among the top 20 most heavily subsidized fossil fuel markets globally, we provide a comprehensive analysis. Our findings confirm the existence of the resource curse, as both NRR and subsidies have negative effects on the transition to REC, while GNI positively influences REC. We further support these results by employing the FMOLS panel cointegration approach as a robustness check. The study highlights the necessity of implementing various policy interventions, such as diversifying energy sources, undertaking energy pricing reforms, phasing out fossil fuel subsidies, and promoting renewable energy adoption.