Combined Cointegration Test Research Articles

Dynamics between economic growth, labor, capital and natural resource abundance in Iran: An application of the combined cointegration approach

This paper discusses the missing case of Iran and tests the resource curse hypothesis using the updated time-series data over the extended period of 1965–2011. This study incorporates economic growth as a function of natural resources, exports, capital and labor in a Cobb–Douglas production function. The results of Bayer-Hanck combined cointegration test confirm that the underlying variables are cointegrated, while the finding from the long-run analysis validate the resource curse hypothesis and suggest that the natural resource impede economic growth in Iran. A 1% increase in natural resource production results in a 0.47% decline in GDP. This suggests that the exploitation of natural resources negatively affects the competitiveness of other sectors and limits their ability to contribute to economic growth. Furthermore, the results of the causal analysis conclude that there is a feedback effect between natural resource abundance and economic growth. These findings are useful for the development of policy controls in the case of Iran.

Exchange Rate Volatility and Growth Dynamics: Evidence from Selected Sub-Saharan African Countries

The objective of this paper is to examine the relationship between the volatility of real exchange rate of own country and the G-3 countries (United States of America, Japan, and Germany/ or Euro zone) and the economic growth in developing countries. We draw a sample of African economies namely Nigeria, Kenya, Ghana, Malawi, Zambia and Mali and utilize quarterly data from the period 1980 -2013 which is divided into two periods 19802001 and 2002 – 2013. We apply the residual based cointegration test of Kao and Johansen –Fisher combined cointegration test to detect the long run relationships among the variables. Finally, we employ the Fully Modified Ordinary Least Squares of Philips and Hansen to estimate the long run coefficients of the model. The main results are: the long run relationships among the variables are strongly stable in the period 1980 – 2001 Original Research Article Onwuka and Obi; BJEMT, 6(1): 61-77, 2015; Article no.BJEMT.2015.043 62 but ambiguous in the period 2002 –2013. The financial system is underdeveloped and it negatively affects the economic growth in the selected African Countries. The own country’s real exchange rate volatility tends to depress the economic growth in both periods. The G-3 countries’ real exchange rate volatilities have mix results. While the Yen/Dollar and the Deutsche mark/Dollar improve economic growth, the Yen/Deutsche does not have any appreciable effect on economic growth in the developing African countries in the period 1980 2001. However, the period 2002 – 2013, the G-3 countries’ real exchange rate volatility tends to depress the economic growth in the developing African countries. These findings suggest that greater stability in international exchange rate system and lower G-3 currency volatility are desirable to promote higher growth in developing countries and which might reduce the possibility of occurrence of exchange rate crises.

Human Capital Outflow and Economic Misery: Fresh Evidence for Pakistan

This paper visits the impact of economic misery on human capital outflow using time series data over the period of 1975–2012. We have applied the combined cointegration tests and innovation accounting approach to examine long run and causal relationship between the variables. Our results affirm the presence of cointegration between the variables. We find that economic misery increases human capital outflow. Foreign remittances add in human capital outflow from Pakistan. The migration from Pakistan to rest of world is boosted by depreciation in local currency. Income inequality is also a major contributor to human capital outflow. The present study is comprehensive effort and may provide new insights to policy makers for handling the issue of human capital outflow by controlling economic misery in Pakistan.

Revisiting linkages between financial development, trade openness and economic growth in South Africa: fresh evidence from combined cointegration test

This study revisits the impact of financial development on economic growth in South Africa by incorporating trade openness in the production function. The paper covers the period of 1970–2011. We apply the Bayer–Hanck combined cointegration approach to examine the long run relationship between the variables. Our results indicate that financial development stimulates economic growth. Capital use adds in economic growth but trade openness impedes economic growth. The demand-side hypothesis is validated in South Africa. This paper suggests that government should redirect trade policies to reap optimal fruits of financial development for long run economic growth.

How stable is the tourism-led growth hypothesis in Malaysia? Evidence from disaggregated tourism markets

We contribute to the tourism-growth literature by applying the newly developed combined cointegration test and the recursive Granger causality test to re-assess the stability of the tourism-led growth hypothesis in Malaysia with respect to 12 different tourism markets. The cointegration test results suggest that economic growth of Malaysia is cointegrated with all the 12 selected tourism markets. However, the recursive Granger causality test shows that the tourism-led growth hypothesis in Malaysia is valid and stable with respect to tourist arrivals from only 8 out of the 12 tourism markets. Almost all of them are from developed countries. Hence, not all international visitor arrivals could effectively drive the growth of the Malaysian economy. In light of this, tourism marketing policies should focus more on those tourism markets that could significantly stimulate economic growth. However, there should not be total neglect of others as they potentially contribute to the economies of scale.

Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis

During the late 1970s and early 1980s, many African countries experienced a profound slowdown in economic growth. The growth rate of real per capita GDP fell from 0.4% per year during the 1973-80 period to 1.2% per year during the 1980-89 period.' The causes-internal and external-of Africa's economic decline and the strategies for restoring economic growth are much debated. Nevertheless, broad consensus has emerged on the importance of (i) increasing total investment and (ii) promoting private-sector development and increasing its share of total investment for long-term growth.2 It is widely recognized that gross domestic investment fell substantially in Africa during the 1980s and remains severely depressed across the region. The proportion of total domestic investment in GDP fell from 20.8% per year during 1973-80 to 16.1% per year during 1980-89. In some countries, investment has fallen to less than 10% of GDP-a level that is insufficient even to replace depreciated capital. In Africa, the minimum investment needed to replace depreciated capital is estimated at 13% of GDP.3 In recent years, there has also been a growing recognition among many African leaders, faced with new realism and pragmatism, that the private sector could play a significant role in economic development. The focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private-sector development as the basis for achieving sustainable economic growth. In addition, multilateral and bilateral institutions have developed new initiatives with priorities for private-sector development. In 1989, the International Finance Corporation, an affiliate of the World Bank, es-