Combined Cointegration Test Research Articles

Does Political Stability Matter to the Profitability of Banks?

This study examines the impact of net interest margin, non-interest income, non-performing loans, and Political Stability Index on the banks’ profitability regarding return on assets in developing Asian countries, focusing on how political stability affects the bank’s profitability. The secondary data from 14 developing countries used in this study are collected from the World Bank and World Financial Studies Report. The dataset includes 154 data points spanning from 2012 to 2022, focusing on 14 underdeveloped countries of Asia. Exploratory and analytical research designs are utilized. Data are analyzed by using EViews 12. Econometric tools such as descriptive statistics, correlation analysis, panel unit root testing, Fisher-Johnsen combined co-integration test, panel vector error correction model, and Wald test investigate the relationship between response and predictor variables. The net interest margin, non-interest income, non-performing loan, and Political Stability Index are jointly integrated to determine the bank’s profit of developing countries of the Asia continent. Interest margin, non-interest revenue, non-performing loans, and the Political Stability Index all show a 38.6 percent variance in bank profit. It has been discovered that for every unit that rises in net interest margin and Political Stability Index, the bank profitability of developing Asian countries increases by 0.4867 and 0.2221 percent, respectively. Non-interest income has little bearing on the profitability of banks. Meanwhile, non-interest income exhibits minimal influence, suggesting a need for a strategic focus on interest margin enhancement and fostering political stability to optimize banking sector profitability in the region.

COVID-19 pandemic, oil prices and Saudi stock market: empirical evidence from ARDL modeling and Bayer–Hanck cointegration approach

In 2020, the world experienced several significant events, including the coronavirus (COVID-19) pandemic and the collapse of international crude oil prices. The rapid spread of this pandemic has dramatic impacts on financial markets all over the world, thereby increasing market risk aversion in an unprecedented way since the subprime financial crisis. The decline in stock markets implied volatilities of equity and oil prices, thereby heightening turmoil in global financial markets despite comprehensive and substantial financial reforms. To this end, we investigated the likely effects of this pandemic on the Saudi stock market while controlling for oil prices based on daily data for a period from 1/1/2020 to 19/9/2022. To ascertain the existence of a long-run equilibrium relationship between the variables, we applied autoregressive distributed lag (ARDL) modeling and the error correction model, with this ultimately revealing the existence of strong cointegration in the long run. The ARDL bounds test was found to be robust by combined cointegration tests, thus providing further evidence of a strong relationship in the long run. Granger causality tests also yielded evidence of causality between the variables in both directions. The total COVID-19 confirmed cases and oil prices also caused movements in stock returns in the short run. Our findings have some prominent implications for asset managers and policymakers to improve stock market efficiency and boost global economic activity. Saudi authorities can consequently remove the regulatory and legal obstacles to develop their stock market and better improve the risk management, which will allow to make quick decisions in response to any oil price volatilities. Policymakers should also adopt proactive strategies that can comfort stock investors’ anxieties over the increasing oil price volatilities. Finally, the findings should be treated with some cautions because of the limited sample size and the tests’ statistical inference. Nevertheless, they do open opportunities for further studies to look in more detail at how the COVID-19 pandemic affected, over the short and long run, monetary and fiscal policy coordination, financial stability, and various other macroeconomic indicators in Saudi Arabia.

Do bitcoin shocks truly Cointegrate with financial and commodity markets?

This study examines the long-run relationships between Bitcoin and various financial and commodity markets. Utilizing a novel methodology termed the Implicit Asymmetric Combined Cointegration Test (IACC), an augmented variant of the Bayer Hanck combined cointegration method (BH), this research applies ten-minute frequency time series data to test asymmetric shocks associated with Bitcoin, stock markets, futures indices, sectoral stock indices, Islamic stocks, commodities, and foreign exchange markets. The principal finding reveals a hidden cointegration between negative Bitcoin shocks and both negative and positive shocks in almost all examined financial instruments, indicating an absence of decoupling in the connections between Bitcoin shocks and other financial instrument shocks. The study demonstrates Bitcoin's centrality in financial investments and establishes long-run relationships between Bitcoin price shocks and those of other financial instruments. The findings suggest caution for participants in both financial and commodity markets, as Bitcoin emerges as a major source of the recent volatility observed in these instruments' prices.

Unveiling the dynamic impact of energy generation on economic sustainability in Canada: A roadmap towards sustainable development

Economic sustainability is a critical concern when considering the dynamic effects of renewable and nonrenewable energy generation. This study aims to investigate the impact of renewable and non-renewable energy generation, energy technology, the labor force, and capital formation on economic sustainability in Canada from 1990 to 2021. As a step further, we also explore the moderating role of energy technology using a dynamic ARDL simulation model and Bayer and Hanck combined cointegration test. Study results reveal that renewable energy generation positively impacts economic sustainability in both the short and long term. Nonrenewable energy generation shows positive effects in the short term but has a negative impact on economic sustainability in the long term. Labor availability initially affects economic sustainability negatively in the short run but becomes insignificant over time. Gross capital formation consistently contributes positively to economic sustainability. The study also highlights the importance of integrating renewable and nonrenewable energy generation with energy technology for enhanced economic sustainability. To stimulate economic sustainability, policymakers should prioritize promoting renewable energy due to its consistently positive impact in the short and long term. A gradual transition from nonrenewable energy is crucial to mitigate long-term disadvantages. Labor development should adapt over time, and encouraging capital formation is vital. Integrating energy sources with advanced technologies maximizes economic sustainability. These measures aim to support economic sustainability and foster a sustainable and resilient future for Canada.

Nexus between economic policy uncertainty and institutional quality: evidence from India and Pakistan

ABSTRACT The motivation of this study is to gauge the asymmetric effects of economic policy uncertainty (EPU) on institutional quality (IQ) in India (Pakistan), spanning the period 2003Q1 to 2019Q4 (2010Q1 to 2019Q4). The study applied DF-GLS and Zivot–Andrew, ARDL bound test, nonlinear ARDL and directional causal with the Toda-Yamamoto causality test. According to the combined cointegration test, the long-run economic policy uncertainty was exposed to adverse association with institutional quality in India and Pakistan. Both long-run and short-run asymmetries were confirmed between EPU and IQ. The causality test revealed the feedback hypothesis in explaining the causality between EPU and IQ.

Quantile on Quantile Analysis of Natural resources-growth and geopolitical risk trilemma

The prevailing literature delivers contradictory evidence vis-à-vis the empirical association between economic growth and natural resources and geopolitical risk. Regarding, the current study re-evaluate the nexus between these variables in China throughout 1985M1-2022M4. Using the Bayer-Hanck combined cointegration test, the variables are found cointegrated. Due asymmetrical data distribution, this study employed the novel Quantile-on-Quantile regression and explores the optimistic impact of natural resources on economic growth. Hence, this study validates the resource-growth assumption in the country. On the other hand, the predicted results asserted that geopolitical risk has a mixed influence on economic growth. The positive and negative impacts are evident in medium and “lower and upper” quantiles, respectively. Further, this research acknowledged the two-way causal association between the study variables. Based on the empirics, this research recommends the sustainable extraction and use of natural resources and the stability of political and economic risks in the country.

Nexus between financial developments, renewable energy consumption and environmental sustainability in Bangladesh: Evidence from ARDL and NARDL

The goal of this research was to examine the effects of Bangladesh’s economic growth, trade liberalization, renewable energy consumption, financial development, and FDI on environmental sustainability from 1990 to 2019. Both the combined cointegration and Makki cointegration tests and the cointegration test with symmetry and asymmetry found evidence of long-run cointegration between the explained and explanatory factors. As shown by the coefficients of FD, TO, and FDI, population haven theory suggests that FD, TO, and FDI have hastened environmental deterioration in Bangladesh. Furthermore, the asymmetric evaluation revealed the nonlinear association between explained and explanatory factors throughout the long and short term.

Does Environmental Degradation-Led Remittances Flow? Nexus between Environmental Degradation, Uncertainty, Financial Inclusion and Remittances Inflows in India and China

The motivation of the study is to gauge the role of economic policy uncertainty (EPU), environmental degradation (ED), and financial inclusion (FI) on remittances in India and China for the period 2003Q1-2022Q1. The study performed several econometrical tools such as both conventional and structural break unit root tests, long-run cointegration between variables investigative by performing the novel combined cointegration test, augmented autoregressive distributed lagged (AARDL) implemented for exploring long-run cointegration and explanatory variables magnfititutes on remittances both in the long-run and short-run and directional causality performed with Fourier TY causality test. Combined cointegration and the AARDL test ascertained the long-run association in the empirical equation. Refers to long-run coefficients of EPU, ED, and FI, it revealed a positive and statistically significant linkage with remittance inflows in the economy. In addition, the causality test reveals directional effects available between FDI, GLO, and remittances, but the direction differs from among economics. Furthermore, the study performed a robustness test by implementing dynamic OLS, fully modified OLS and CC regression and supported the earlier model established relationship, especially in the long-run the coefficients of EPU, ED, and FI.

The spillover effects of uncertainty and globalization on environmental quality in India: Evidence from combined cointegration test and augmented ARDL model

Environmental quality and climate change have become hot topics among academics in all scientific fields in recent decades due to their impact on human health and economic development. Hence, this paper investigates the key factors of carbon dioxide emissions in India from 1970–2020 through the Bayer-Hanck test and Augmented ARDL framework on an augmented STIRPAT model, introducing uncertainty and globalization. We employ a set of unit-root tests and a combination of cointegration techniques (DOLS and FMOLS), which permit us to estimate the long-run and short-run relationships. Empirical findings confirmed that the series is I(1) series and there is the existence of a long-run relationship between our variables using three cointegration tests, meaning that the variables have the same behavior in the long run term. The findings revealed that India has an inverse U shape of the Environmental Kuznets curve (EKC) due to the positive association between GDP per capita and CO2 emissions until reaching a threshold, after which the link becomes inverse due to the negative impact of GDP square on CO2 emissions. Furthermore, the findings demonstrated a positive influence of uncertainty and a negative impact of globalization on long-term environmental degradation. Besides, energy consumption and population density are positively associated with CO2 emissions in the long and short run. We advocate for policies that promote more trade openness by entering new markets and cooperating with new trading partners.

Nexus between environmental sustainability, good governance, financial inclusion, and tourism development in Bangladesh: Evidence from symmetric and asymmetric investigation

Over the past decade, tourism’s contribution to economic Section progress has emerged as an alternative avenue for socio-economic development, especially in the productive economy with natural beauty. On the other hand, the potential effects of tourism on the environment have also been unveiled in the literature, along with macroeconomic misbehavior due to erratic environmental changes. However, the study’s impetus is to inspect the reaction of tourism contribution to Bangladesh’s economy from 1991–2019 with ecological sustainability, good governance, and financial inclusion in the empirical assessment. With the implementation of both linear and non-linear frameworks, the present study has explored the elasticities of core explanatory variables on explained variables; for directional causality, the novel Fourier Toda and Yamamoto causality test has been executed. According to the combined cointegration test, Bangladesh has a long-run association between environmental sustainability, good governance, financial inclusion, and tourism development. Inferring from long-run symmetric and asymmetric cointegration, the test statistics revealed statistically significant at a 1% level, suggesting the long-run relations in the established empirical model. Considering the linear autoregressive disoriented lagged, the study established a negative and statistically significant linkage between environmental sustainably and tourism contribution, suggesting that the excessive inflows of carbon emission that environmental degradation dwindles the progress of tourism contribution. Whereas a positive and statistically significant influence runs from good governance and financial inclusion to tourism development, the suggestion of easy access to financial services and effective institutional activities prompts tourism activities, especially in the long-run. The asymmetric investigation established non-linearity in the empirical model for the long and short-run. In terms of asymmetric coefficients, the study unveiled the positive and negative shocks of environmental sustainability exposed negatively and statistically significant. In contrast, the asymmetric shocks of financial inclusion and good governance established positive and statistically substantial Bangladesh tourism development in the long and short-run. The directional causality assessment revealed bidirectional causality running between explanatory variables to tourism development.

Innovation-Led FDI Sustainability: Clarifying the Nexus between Financial Innovation, Technological Innovation, Environmental Innovation, and FDI in the BRIC Nations

Spatial adequacy and capital formation are impactful macro factors in achieving economic sustainability; therefore, offering a conducive ambiance for foreign investors entices them to the technology and capital mobilization in the host economy. The purpose of the study is to highlight the nexus of the innovation-led FDI in BRIC nations from 1990–2019. The study has implemented several econometric techniques to establish the empirical nexus, including a unit root test with a structural break, a combined cointegration test, an augmented autoregressive distributed lagged, a nonlinear autoregressive distributed lagged and the Fourier Toda–Yamamoto causality test. The structural break test divulged one break year in the data set, and the study incorporated the structural break effects in line with the explained variable. The long run association between the explanatory explained and the control variables has been unveiled with the test statistics of the combined cointegration. Furthermore, the long run cointegration in the empirical equation has been found in the linear and nonlinear assessment. In terms of the symmetric investigation, the coefficient of innovation, that is, TI, FI, and EI on FDI, were revealed to be positive and statistically significant at a 1% level, suggesting the innovation culture boosts the inflows of the FDI in the economy, both in the long run and short run. Furthermore, the asymmetric association has been confirmed by implementing the standard Wald test with the null of symmetry in the long and short runs. Inferring to the asymmetric coefficients, it is apparent that the positive and negative shocks of TI, FI and EI have established a positive tie to FDI, which is significant at a 1% level. According to the elasticities of the asymmetric shocks, the positive innovation disclosed a more prominent impact than the negative innovation on the FDI inflows. Thus this study advocated for ensuring a conducive innovation environment by mobilizing economic resources. Finally, the causality test documented the feedback hypothesis to explain the causal association between technological innovation and FDI and environmental innovation and FDI.

Nexus between FDI and globalization-led energy diversification in BRICS: Fresh evidence from a newly constructed Energy diversification index

The motivation of the study is to gauge the role of foreign direct investment and globalization on energy diversification in BRICS (Brazil, Russia, India, China and South Africa) for the period 1985–2019 by utilizing a newly constructed energy diversification index. The study performed several econometrical tools such as both conventional and structural break unit root tests, long-run co-integration between variables investigative by performing the novel combined co-integration test, augmented autoregressive distributed lagged (AARDL) implemented for exploring long-run co-integration and explanatory variables coefficients on energy diversification both in the long-run and short-run and directional causality performed with Fourier TY causality test. Stationary tests established variables are integrated in mixed order, suggesting variables become stationary at a level or after the first difference but neither for the second difference. Combined co-integration and the AARDL test ascertained the long-run association in the empirical equation. Refers to long-run coefficients of FDI and GLO, it revealed a positive and statistically significant linkage with energy diversification. In addition, the causality test reveals directional effects between FDI, GLO and energy diversification index, but the direction differs from among economics. Furthermore, the study performed a robustness test by implementing dynamic OLS, fully modified OLS and CC regression. It is found to the sign of long-run coefficients, especially FDI and GLO, as in the same line of robust tests. On policy grounds, it is undoubtedly established that to ensure energy sustainability through energy source diversifications, the critical role of FDI and globalization have to grab with a serious note in BRICS nations.

Interplay between Finance and Institutions in the Development Process of the Industrial Sector: Evidence from South Africa

Despite the importance of the financial system and quality of institutions to the attainment of economic development goals, the mediating role of institutions in how finance influences the development of the industrial sector across countries has not been given adequate attention in the literature. Therefore, this study assessed the moderating role of institutions in the relationship between finance and industrial development of South Africa for the period 1984–2021. To evaluate the long-run relationship among the variables, the combined cointegration test of Bayer and Hanck was used, while fully modified least squares, dynamic least squares and canonical cointegrating regression were employed to estimate elasticity relationships. The findings of the study revealed that finance impacts industrial development positively in South Africa, but this positive impact is diminished by the quality of institutions in the country. Therefore, the financial system in South Africa needs to be rooted in a high-quality institutional structure for its beneficial impact on the industrial sector to be reinforced for sustainable development. Moreover, there is a need for more reforms in the financial system to promote efficiency that would translate growth in finance into more inclusive growth gains in the industrial sector.

A symmetric and asymmetric nexus between environmental sustainability and tourism development in BRIC nations: What is the role of good governance and globalization?

The motivation of the study was to gauge the impact of environmental quality (EQ), good governance (GG), and globalization (GLO) on tourism development in BRIC nations for the period 1990–2021. The study implements linear and nonlinear frameworks for evaluating the elasticity of explanatory variables on tourism and the directional association by using the non-granger causality test. Combined cointegration test statistics show a long-run association between EQ, GG, and GLO and tourism development in BRIC nations. Furthermore, the long-run association in the empirical estimation is established in both linear and nonlinear framework assessments. Referring to linear assessment, the study documents the positive, statistically significant linkage between good governance, globalization, and tourism development, implying that political stability, governmental effectiveness, and accountability foster tourism development. Furthermore, global economic and financial integration opens a window for tourism development by inducing the economy’s international tourism. On the other hand, environmental degradation reveals adverse statistically significant influences on tourism development, suggesting that the environmental stability in the form of healthy and amicable ambiance positively triggers tourism development, especially in the long run. According to the test statistics of the standard Wald test, it is obvious that there is an asymmetric association between explanatory variables such as EQ, GG, and GLO and tourism development in the long-run and short-run assessment. The directional causality test documented bidirectional causality in explaining the causality between environmental quality and tourism development in Brazil, India, and China, good governance and tourism development in India, and globalization and tourism development in China. On a policy note, the study advocated that BRIC has to ensure environmental protection and governmental effectiveness to promote sustainable development in the tourism sector.

<p>The Nexus between Financial Instability, Renewable Energy and Environmental Quality in the presence of Structural Breaks: Empirical Evidence from Nigeria</p>

The goal of the study is to look at the link between financial instability, renewable energy, and environmental quality from 1970 to 2020. To check for stationarity and cointegration among the variables, the study uses second-generation econometric approaches of Lee and Strazicich as well as Bayer and Hanck combined cointegration tests, and then uses autoregressive distributed lag (ARDL) to investigate the long and short-run dynamics of the relationship, respectively. The study's long-term findings show that financial instability, oil prices, FDI, and GDP all have a significant positive effect on CO2 emissions, which degrade environmental quality, whereas increased in renewable energy consumption decreases CO2 emissions, thereby improving the quality of the environment. The findings of this study provide policymakers with new information to help them create comprehensive financial, economic, and energy supply strategies that will reduce the damaging effects of pollution on the environment.

Research methods in economics to evaluate the role of energy efficiency and financial inclusion in achieving China’s carbon neutrality target

In the recent literature, energy efficiency got the attention of scholars due to its discouraging impact on CO2 emissions, which is considered the most prevalent greenhouse gas that human activities produce. Data reports that China is the leading CO2 emitting country across the globe, and still the environmental degradation is in progress. Thus, the current paper empirically investigates the impact of energy efficiency (ENEF), financial inclusion (FD), GDP, export diversification (EXD), and human capital index (HCI) on the environmental degradation of China over the period from 1988 to 2018. This study uses various time-series tests to empirically investigate the determinant of CO2 emissions, including normality tests, unit root tests, and combined cointegration tests. Besides, the long-run coefficients are analyzed via the fully modified ordinary least square (FMOLS), dynamic OLS (DOLS), and the Canonical Cointegrating Regression (CCR) estimators. The empirical findings reveal that all the variables are cointegrated in the long run. However, the coefficient estimate shows that ENEF and HCI significantly promote environmental sustainability. While GDP, FD, and EXD significantly promote environmental degradation by enhancing the CO2 level in the atmosphere. This study recommends practical policy implications based on the empirical findings: energy-efficient products and energy sources could be promoted.

Economic growth and sectoral level electricity consumption nexus in India: new evidence from combined cointegration and frequency domain causality approaches

ABSTRACT The re-assessment of energy – economy nexus in developing economies like India is necessitated by the constant evolution of their growth path and sectoral progression. This sectoral level examination is intended to find new evidence for the dependence of economic growth on the electricity sector in India. Using annual data of per capita real GDP and sectoral level consumption of electricity from 1971 to 2019, the combined co-integration test and Frequency domain causality approaches are employed. The estimated results show the negative impact of agricultural sector electricity consumption on growth, whereas both the Industrial and service sector enhances the production. In addition, the results of the Frequency domain causality approach support the Growth hypothesis for the study period in India, as Uni-directional causality from three sectors to economic growth were found at least in a frequency of short run to medium run. The sustainability of the growth-enhancing role of electricity consumption will depend on more sector-specific energy policies and public spending on energy infrastructure development than bland subsidies.

Interest rate sensitivity of demand for money and effectiveness of monetary policy: fresh evidence from combined cointegration test and ARDL approach

Interest rate sensitivity of demand for money and effectiveness of monetary policy: fresh evidence from combined cointegration test and ARDL approach

Does Tourism Induce Sustainable Human Capital Development in BRICS Through the Channel of Capital Formation and Financial Development? Evidence From Augmented ARDL With Structural Break and Fourier-TY Causality

The motivation of the study is to explore the nexus tourism-led sustainable human capital development (HCD) in Brazil, Russia, India, China, and South Africa (BRICS) for the period 1984–2019. The study applied several econometrical techniques for exposing the empirical association between tourism and HCD, such as the conventional and structural break unit root test, the combined cointegration test, long-run and short-run coefficients detected through implementing the Augmented Autoregressive Distributed Lagged (AARDL), and directional causality by following Toda-Yamamoto with Fourier function. The unit-roots test established variables are integrated in mixed order, wherein variables are stationary at a level or after the first difference. The estimated test statistics from the combined cointegration test and AARDL confirmed the long-run association between tourism, gross capital formation, financial development, and HCD. Tourism revealed a positive and statistically significant tie with HCD in the long run. Moreover, the joint effects of interactive terms TOR*GCF and TOR*FD (TOR, GCF, and FD denoting tourism development, gross capital formation, and financial development, respectively) established a positive and statistically significant relationship with HCD. In addition, the causality test revealed the feedback hypothesis available between tourism and HCD in all sample countries except India. In conclusion, the role of tourism development is critically important for sustainable HCD in BRICS. Therefore, in case of a policymaking concern, it is inevitable to address the tourism issues with care for capitalizing on the benefits for tourism development.

Environmental consequences of foreign direct investment influx and conventional energy consumption: evidence from dynamic ARDL simulation for Turkey.

The preponderance of emerging economies confronts significant trade-offs between economic growth and environmental sustainability considerations, and Turkey is no exception. This study draws strength from the United Nations Sustainable Development Goals (UN-SDGs-7,11,12 & 13). To this end, the present study explores the role of the environmental Kuznets curve (EKC) hypothesis for the case of Turkey for annual frequency data from 1970 to 2020. The present study leverages on the novel dynamic autoregressive-distributed lag (DARDL) methodology and Bayer and Hanck combined cointegration test. The combined Bayer and Hanck cointegration test alongside ARDL bounds test traces equilibrium relationship between economic growth, urbanization, FDI, energy use, and CO2 emission over the investigated period. Empirical results from the DARDL simulation analysis validates the EKC hypothesis. These results suggest that environmental quality is being compromised for economic growth at the earlier stage of economic growth (scale stage). The EKC phenomenon is affirmed as a 1% increase in economic growth increase emission level by 0.1580% and quadratic economic growth decrease emission by 0.1095% in the short and long run, respectively. Similarly, urbanization and energy used in both the short and long run also worsen environmental quality while FDI influx in the long run improves environmental quality in Turkey. These outcomes have far-reaching environment-urbanization growth implications. From a policy lens, the current study subscribed to the environmental stick policies and investment on strategies on a paradigm shift from fossil-fuel energy consumption base to renewables. Further insights are highlighted in the concluding section.