Difference GMM Research Articles

Achieving zero emission targets: The influence of green bonds on clean energy investment and environmental quality

The effectiveness of green finance in driving clean energy and environmental sustainability in the current era is receiving attention. Therefore, this study proposes an empirical framework highlighting the effects of green bonds (GB) on clean energy investment (CEI), clean energy investment efficiency (CEE) and environmental sustainability of 29 green bond issuing countries between 2014 and 2022. Using system and difference GMM approaches, this study finds that (i) green bond issuance drives clean energy investment. (ii) Green bonds sufficiently enhance the selected countries' environmental quality. These results supplement the promotion of green bonds in increasing the transfer of funds towards renewable energy projects by reducing reliance on fossil fuels. (iii) Using Driscoll & Kraay, Fully Modified-OLS, and changing the dependent variable, this study further supported the idea that green bonds effectively promote the CEE and environmental sustainability of the chosen countries. (iv) Similarly, this study conducted income heterogeneity, showing that green bonds improve high- and middle-income countries' CEI and environmental quality. (v) Finally, the results indicate that resource consumption escalates CO2 emissions by declining the CEI. Technological innovations increase CEI, whereas they do not mitigate CO2 emissions directly, hinting at the requirement for a comprehensive approach. Therefore, inclusive policies on green bond frameworks, robust incentives, and rigorous environmental criteria should be implemented to attract investment in clean energy development and ensure the environmental sustainability of the selected countries.

Financial performance and capital structure – an econometric approach for Romanian e-commerce companies during the COVID-19 pandemic

The study investigates the inverse relationship between financial performance and capital structure for the Romanian B2C e-commerce companies, based on a representative sample of 437 companies active in the period 2005–2020. Statistical analyzes show the evolution of financial performance and the impact of the COVID-19 pandemic on it, depending on the company category. All company categories had better financial performance in 2020 compared to 2019, based on sample results. The study reveals valid reference values for the financial ratios of Romanian electronic commerce, being a model to be applied in any industry. The analysis of the causality of the financial variables and their correlations, on the sub-periods 2005–2008 and 2009–2020, both at the company category level and at the sample level, are the basis of the GMM approach. The econometric models Difference GMM and System GMM explain the relationship between financial performance and capital structure leading to interesting conclusions. As e-commerce has a sustainable development, the findings and conclusions of the study provide guidance for economic policies at the sectoral level. Financial performance in relation to strategic debt management depends on the company category. Stimulating the development of those categories of companies that ensure the efficient performance framework can be the key to a sustainable development of the national economy. The study is useful for managers, investors, financial analysts, decision makers, in financial education as well as for the banking system.

Financial instability in Europe: Does geopolitical risk from proximate countries and trading partners matter?

Using a spatial econometric approach, we measure 28 European countries' foreign geopolitical risks (GPR) from their proximate countries, export destinations, and import origins from January 1985 to January 2024 at a monthly frequency. Based on difference GMM estimation on dynamic panel data model, we find that the foreign GPRs increase Europe's financial instability through potential channels of surging energy inflation and capital flight to the U.S. Compared with high-income countries with a bank-based financial system, low-income countries with a market-based financial system are more fragile to the foreign GPRs. These findings can help European financial authorities improve prudential regulation policies.

An empirical assessment of the impact of network effects on competitive processes in the operating systems market

Modern technology markets are characterized by the presence of a network effect, a phenomenon that significantly affects network adoption. While providing the advantage of belonging to a network, network effects can curb the diffusion of alternative technological products, which can negatively influence public welfare. The purpose of this article is to work out a method of a compound impact analysis of direct network effect, critical mass and standardization when assessing changes in the competitive environment on a two-sided software market using the case of operating systems (OS). The theory of network effects constitutes the methodological framework of the study. The research method is an econometric analysis of the impact of the installed base of users, switch of standards and gain of a critical mass of users by applying a basic within model and a difference GMM model. The database consists of monthly country data on website visitors’ activity from the StatCounter web analytics service by desktop, mobile, and tablet devices for the period from 2009 to 2019. The study shows that, due to the saturation effect, markets experience a slowdown in the influence of network effects. The desktop OS market is characterized by the presence of a de facto standard, that is Windows OS, which indicates the monopolization of this segment. OSX, Android, and iOS are industrywide standards. The proposed approach allows analyzing a direct network effect jointly with gain of a critical mass of users and switch of standards.

The effect of education on economic institutions

ABSTRACT This research is the first to use the Heritage Foundation economic freedom index as a measure of economic institutions in order to examine the relationship between education and economic institutions. It presents a variety of empirical evidence to show that education predicts economic institutions whereas the inverse is not true. It uses 2SLS, with the level of education in 1950 as the instrument for the level of education in 2015, and finds that the effect of education on economic institutions is positive and statistically significant. Also, this paper uses fixed effects in order to control for country-level omitted variables that may affect both economic institutions and the instrument. Finally, it uses difference GMM, and system GMM. These regressions exploit both the cross sectional and the time series variation in the data, address endogeneity, and confirm that the effect of education on economic institutions is positive and statistically significant.

Does Digitalization Moderate the Link Between Innovation and Economic Growth? A Two-Step Difference GMM Analysis of Developed and Developing Countries

Does Digitalization Moderate the Link Between Innovation and Economic Growth? A Two-Step Difference GMM Analysis of Developed and Developing Countries

Dynamic Analysis of Environmental Degradation and Economic Activities in the Asia-Pacific Region

Economic growth is crucial for assessing a country's economic success, measured by its per capita income increase over time, primarily through Gross Domestic Product (GDP). This study investigates the impact of Gross Fixed Capital Formation (GFCF), energy consumption, CO2 emissions, and renewable energy on economic growth in the Asia-Pacific region from 2016 to 2021. Using the Difference Generalized Method of Moments (Difference GMM) and Stata 14, the findings show that GFCF positively influences economic growth in developing countries but not significantly in developed ones. Energy consumption positively affects economic growth in developing countries, but not in developed ones. CO2 emissions have no significant impact on economic growth. Renewable energy negatively affects economic growth in developing countries, while its impact is insignificant in developed ones.

The Relationship of Economic Growth and Implied Tax Subsidy Rates on R&D Expenditures: A Dynamic Panel Data Analysis For OECD Countries

The current study examines the effect of implied tax subsidy rates on research and development (R&D) expenditures for large-scale firms on economic growth within the scope of 26 OECD countries. A panel data analysis is employed by using annual data for the period 2004-2020. Difference GMM, one of the dynamic panel data analysis methods, is used in the analysis. Annual growth rate is used as explained variable. Implied tax subsidy rates on R&D, gross fixed capital formation as a share of GDP, secondary school enrollment rate, and the ratio of labor force participation rate are also used as explanatory variables in the estimated model. Results show that there is a statistically significant effect of the implied tax subsidy rates on R&D on economic growth. The tax subsidy rate on R&D expenditures has a positive impact on economic growth. This study underscores the importance of the tax subsidies on R&D expenditures for economic growth.

Market Concentration, Bank Characteristics, Macroeconomic Conditions, and Indonesian Islamic Bank Financing

As the latest player in the banking market in Indonesia, Islamic banks are not as experienced as their counterpart conventional banks. In addition, the types of Islamic bank financing (loans) are different from conventional bank loans. Our work investigates the determinants of Islamic bank financing in Indonesia. Our concern variables are market concentration, bank fundamentals, and macroeconomic conditions, including Covid-19. This study examines all Islamic banks in Indonesia from 2015 to 2020 using quarterly data. Our data set is 724 observations with unbalanced panel data. We employ the dynamic panel data using the two-step system GMM that is more robust than two-step difference GMM. Market concentration encourages financing. Profitability, bank size, and financing loss provision also enhance financing. However, a high degree of risk aversion and inefficiency reduces financing. Furthermore, Islamic bank financing also depends on macroeconomic conditions. Economic upturns strengthen financing. Strong bank fundamentals, particularly bank size, are the key to success for Islamic bank financing. The results draw an important practical implication. Large Islamic bank is a necessary condition to compete with a conventional bank. Accordingly, the spin off policy of Islamic bank windows to full-fledged Islamic bank should be implemented immediately.

The Role of Innovation in Promoting Economic Diversification In Mena Oil-Exporting Countries: An Empirical Study

This paper casts light on the role innovation seems to play in accelerating economic diversification in 11 MENA oil-exporting countries over the period 1996-2019. More specifically, the novelty of this paper principally lies in detecting the rate of increase in the level of economic diversification if these countries’ rates of innovation will be on par with those of a country that has successfully diversified its export base, like Canada. The results gleaned from using the Arellano-Bond difference GMM estimator demonstrate that strengthening innovation can give a sturdy impetus to economic diversification in oil-rich MENA countries. More precisely, the GCC countries' level of innovation-driven economic diversification is likely to increase more rapidly than that of non-GCC countries. The findings also illustrate that MENA oil exporters’ economic diversification seems to be positively and significantly influenced by governance, human development, credit to the private sector, and economic freedom. Surprisingly, oil rents appear to genuinely frustrate these countries' efforts to diversify their economies. Furthermore, good governance and oil revenues can jointly speed up these countries’ economic diversification. More importantly, the results distinctly unearthed that MENA oil exporters’ economic diversification will increase by 1.77% if their innovation rates can catch up with those of Canada. By and large, encouraging innovation and technological development proved to be a truly giant step forward in these countries’ endeavors for economic diversification.

Navigating banking transitions: insights into competition and stability from Vietnam’s experience

ABSTRACT This article investigates the relationship between bank competition and stability within a transitioning economy, focusing on Vietnamese banks from 2007 to 2018. Set against the backdrop of a transformative banking landscape post the collapse of the socialist bloc, the article utilises the Lerner Index to measure bank competition. The Z-score is used as a measure of bank stability. Panel fixed effects and difference GMM estimations suggest that heightened competition correlates positively with bank stability. Notably, these dynamics hold true even after omitting state-owned banks, signifying that government-controlled banks do not exclusively drive the observed relationships. Policymakers, hence, face the crucial task of balancing liberalisation efforts with safeguarding bank stability and emphasising the need for robust risk management and strong corporate governance in transitioning economies dominated by public ownership. This article thus offers valuable insights for policy refinement in similarly poised nations.

Sustainable Development and Competitiveness: Is There a Need for GCI Reconstruction?

Abstract Starting from competitiveness as the ability of an entity (company, sector, state) to successfully increase sales on the domestic and/or international market, and through a balance surplus to create growing revenues for its company and/or residents, i.e. the entire country, the concept of competitiveness should be transformed according to today’s business conditions. Competitiveness was initially related to cost, and sales grew due to lower product prices, and later due to productivity and better product quality. Today’s consumer is not only interested in price and quality, but also in environmental sustainability and social responsibility, and customers are looking for sustainable products. This paper investigates the relationship between the Global Competitiveness Index (GCI) and the Sustainable Development Goals (SDG) index on a sample of 27 member states of the European Union in the period 2007-2017, with the main goal and purpose of determining the direction and strength of the relationship and creating a platform for the necessity of redesigning the GCI. The impact of climate change on the GCI was examined by the Sustainable Development Index. For this purpose, Difference GMM was used. The results show that SDG12 (waste generation) hurts competitiveness, while SDG14 (maritime, ocean conservation) has a positive impact on competitiveness. This study contributes to the ongoing discourse on the intersection of competitiveness and sustainability, providing a foundation for future discussions and potential reconstructions of indices that reflect the changing global environment.

Fresh Insight on the Determinants of Economic Growth with Focus on Inflation-Growth Nexus Evidence from Developing Countries

This study is the empirical effort of inquiring the link between inflation and economic growth in the context of other factors determining economic growth in selected developing countries. While utilizing Generalized Method of Moments (Difference and System GMM), the study found an inverse insignificant connection between inflation and economic growth. Furthermore, the sample developing countries tend to have highly positively evaluated by their lagged economic growth as well as the government consumption expenditures and agriculture sector productivity and all of these are having robust role on economic growth. Additionally, the economic impact of trade openness and money supply is mixed and even significant in some cases designating that developing countries can improve their economic growth through financial and trade development. These findings help rethink economic policy makers in developing countries for following inflation targeting policies and to utilize their public developmental expenditures to improve their primary sector (agriculture) productivity in order to enhance economic growth.

Pollution halo impact in context of productive capacities, energy poverty, urbanization, and institutional quality.

The Belt and Road Initiative (BRI) represents a substantial development strategy spearheaded by China. Its central aim is to foster connectivity across a vast geographical area that includes countries spanning Asia, Europe, and Africa. This project played a pivotal role to develop the region on the one side and also raised serious environmental concerns on the other side. There is extensive literature explored the various dimensions affecting the environment in BRI partner countries but there is hardly any study examining the impact of productive capacities, energy poverty, FDI, urbanization, and institutional quality on CO2 emission in the BRI region. Moreover, pollution halo impact is also explored so this study used panel data of 52 nations engaged in the BRI covering time span of 2001-2022 by applying OLS, Difference GMM, System GMM, Cross sectional-ARDL techniques. The results suggest that enhancing productive capacities, FDI and institutional quality significantly reduces carbon emissions in the region, while energy poverty, urbanization and economic growth is linked to higher carbon emissions. Moreover, 'pollution halo effect' is proved because of adoption of eco-friendly technologies through foreign corporations lead to reduction in carbon emission. The study advocates for policy measures that emphasize the promotion of productive capacities, the utilization of renewable energy sources, the adoption of practices regarding sustainable urban development, the implementation of efficient institutional structure, and inflow of eco-friendly technology through FDI.

Unlocking Profitability: Exploring the Impact of Bank-Specific and Macroeconomic Determinants on Return on Equity in Commercial Banking Sector of Bangladesh

This study investigates the factors influencing Return on Equity (ROE) within the banking sector of Bangladesh by analyzing a comprehensive dataset spanning from the year 2011 to 2020. Utilizing a combination of econometric techniques, including the one-step difference GMM, Driscoll-Kraay estimator, and Panel-Corrected Standard Errors (PCSE) methods, this study analyzes the influence of various bank-specific and macroeconomic variables. The findings reveal a nuanced pattern of impact on ROE. Earnings Per Share (EPS), Capital Adequacy Ratio (CAR), and Bank Spread exhibit a significant positive influence on ROE, reflecting the importance of profitability, capital strength, and interest rate spreads. Conversely, asset size, operating cost-to-loans ratio, total equity-to-debt ratio, and inflation exert a significant negative impact on ROE, highlighting the challenges associated with growth, cost efficiency, leverage, and inflationary pressures. These findings provide a multifaceted perspective on the dynamics of ROE, offering valuable insights for banks and policymakers striving to optimize financial performance and stability in the ever-changing economic landscape.

Differentiated impact of spread determinants by personal loan category: Evidence from the Brazilian banking sector

The empirical literature on the determinants of banking spreads has considered banks as providers of one single product. According to this approach, the study of the effect of bank spreads determinants has assumed that this effect is uniform across the different types of loans offered by banks. The present study assesses the hypothesis that banking spreads attributes have a differentiated impact on spreads, according to the loan category. To this end, we adopt a dynamic model, estimated through System GMM based on a dataset of interest spreads charged on three categories of personal loans in Brazil. Our results support the hypothesis of differentiated impacts according to loan category, and are corroborated by a robustness check, carried out through Difference GMM estimation of the adopted model. Overall, these findings also suggest that regulators should observe the composition of banks’ loans portfolios when designing and implementing policies aiming at banking spread reduction.

The threshold effect of export sophistication on natural resources-trade diversification nexus

This study is an investigation into the influence of export sophistication on the complex nonlinear relationship between natural resources and trade diversification. It aims to explore if export sophistication’s threshold value affects the relationship between natural resources and trade diversification. A panel data of 106 nations was collected for the period of 2000–2018. This study develops its dynamic panel threshold model estimated with the difference GMM model. Our results reveal that natural resources and trade diversification have an inverse U-shaped relationship which is mediated by export sophistication. It implies that abundant natural resources, which give access to various markets, might assist trade diversification in nations with low export sophistication. However, in highly developed economies, resource wealth may prevent trade diversification since horizontal specialization patterns result in high prices, restricting market accessibility. The results of the study also explain the complex interactions between resources abundance, export sophistication, and trade diversification and offer critical insights for effective management of natural resources in emerging and industrialized economies. The study confirms the “resource curse” and the Dutch Disease effect, which demonstrates the means to deal with economic issues through the export sophistication. The research makes useful contribution to the existing literature on economic development and resource management by adding the dynamic threshold model and enhancing the robustness to the existing understanding on the issue.

Air Pollution and Health in Africa: The Burden Falls on Children

This study sought to examine the impact of air pollution on health in Africa. Air pollution is a major public health concern around the world. Exposure to air pollution has been linked to a slew of negative health consequences, ranging from subclinical effects, physiological changes in pulmonary functions and the cardiovascular system, to clinical symptoms, outpatient and emergency-room visits, hospital admissions, and finally to premature death. Health impact assessments indicate that sub-Saharan Africa suffers a high burden of disease and premature deaths, attributable to environmental pollution in the world. The health and economic repercussions of rapid pollution increases could jeopardize African efforts to enhance economic development, establish human capital, and achieve the Sustainable Development Goals (SDGs). Despite all these, literature on pollution and health is still scanty in the case of Africa. This study was quantitative in nature, and it used a difference GMM approach to estimate its model. The GMM results showed that children are negatively affected by pollution. Children under the age of five are especially at risk, and the effects are believed to be most severe in developing countries, where exposure to high levels of ambient air pollution throughout childhood is thought to lower total life expectancy by an average of 4–5 years. Based on the findings of this study, it is recommended that African countries must not overlook the pollution problem. They must promote and use low carbon technologies and services. In the absence of active intervention, pollution will soon raise morbidity and death.

Role of financial inclusion and ICT for sustainable economic development in developing countries

Sustainable economic development and its close link with financial inclusion have gained so much attention in the empirical literature in the past. However, with the advent of information and communication technology and its association with financial platforms, a system has emerged that offers new opportunities to fill the wealth gaps in the developing world. Empirical investigations are rare in the context of the developing region, and this study strives to fill this gap. We aim to investigate this link for developing countries based on innovation diffusion theory. For this purpose, we select an extended sample of 110 developing countries from 2004 to 2020. Through principal component analysis, we formulate composite financial inclusion and ICT indicators based on broader attributes. We employed Driscoll–Kraay standard errors (D-K), Generalized linear model (GLM), feasible general least squares (FGLS), and difference GMM to obtain compressive and consistent regression coefficients without the need to address temporal dependence and heteroscedasticity. The robust panel estimation illustrates a significantly positive effect of financial inclusion, information communication and technology and sustainable economic development. Our results hold for subsamples based on different income levels of countries. The policymakers are recommended to develop policies for an inclusive financial system and access to ICT on an equitable basis to ensure sustainable economic growth.

An empirical assessment of the tripartite nexus between environmental pollution, economic growth, and agricultural production in Sub-Saharan African countries.

A lot of attention has been paid to environmental pollution worldwide, due to the increase in anthropogenic activities. Massive investment in non-renewable energy options raises questions regarding environmental sustainability and how to maximize food and non-food output while still preserving a healthy ecosystem. To this end, the present study explores the three-way nexus between economic growth, CO2 emission, and agriculture-value added will accounting for other control variables across a balanced panel of selected African economies from 1997 to 2020. Panel econometrics method of the generalized method of moments (two-step difference GMM) is used to obtain a robust result. From the present study, the environmental pollution model shows that economic growth significantly contributes to environmental pollution in Africa. Additionally, the food price index, capital, and FDI promote pollution, while agricultural production and labor decrease pollution. In the case of the economic growth model, the findings reveal that environmental pollution supports the growth-led pollution hypothesis. Also, the food price index and capital ameliorate economic growth, while foreign direct investments decrease economic growth. Finally, the agricultural production model indicates that economic growth increases agricultural production when the interaction term between GDPC and FDI is included in the model. In summary, the combination of explanatory variables, environmental pollution, capital, and foreign direct investment decreases agricultural production. On the contrary, the food price index and labor promote agricultural production in Africa. Furthermore, the study provides a lot of policies for authorities and stakeholders in Sub-Saharan African countries and other developing economies.