Driscoll-Kraay Standard Errors Research Articles

Does social development increase the happiness level? Evidence from global panel data

Abctract. This study attempts to examine the links between social development and happiness. Social development plays a very important role in increasing the level of happiness. Social development leads to better education, health and more economic growth. The analysis is captured by employing panel data of 125 countries over the period 2014-2018. The empirical analysis is based on Fixed Effects Method (FEM), Random Effects Method (REM), Instrumental Variable Fixed Effects Method (IVFE), Generalized Method of Moments (GMM) and Driscoll-Kraay Standard Errors. The empirical analysis demonstrates that social development has a positive impact on happiness. The study suggests that government should encourage such projects, which enhance the level of social development. Keywords. Happiness, Social development. JEL. D63, I30, I31.

Security Governance: Mafia Control over Ordinary Crimes

Objectives:This study tests whether mafias, as archetypical criminal organizations that exert control over local communities, protect their territories against ordinary criminality. Our hypothesis is that mafias have both the incentives and the capacities to supply security governance to specific territories. This is a distinctive feature of mafias that deserves to be considered.Method:To understand whether mafias’ territorial control is associated with lower levels of ordinary criminality, we conduct a panel data analysis on 110 Italian provinces (2004 to 2015). System generalized method of moment and Driscoll–Kraay standard errors are performed to test our hypothesis. This study exploits an aggregated measure of thefts, robberies, and assaults as dependent variable. A standardized index derived from the number of active mafia groups in a province is our proxy of mafia control.Results:The article statistically shows that mafias limit ordinary criminality, whereas less stable and unstructured criminal groups do not.Conclusions:The results indicate that crime prevention and the maintenance of public order should be considered among the pillars of mafia’s governance. By controlling and reducing ordinary crimes, mafias overcome the role of law enforcement and institutional justice increasing consensus among the population. Consequently, the state may better contrast mafias by becoming a stronger supplier of security.

Impact of Financial Risks on the Profitability of Systematically Important Banks in Nigeria

This study examines the impact of financial risks in form of credit, interest rate and liquidity risk on the profitability of systematically important banks in Nigeria over the period from 2010 to 2016. The fixed effects regression model is estimated with Driscoll–Kraay standard errors in order to produce results that are robust to heteroscedaticity, autocorrelation, cross-sectional dependence and temporal dependence. After controlling for some bank-specific, industry-specific, macroeconomic and institutional factors, the empirical results show that credit and liquidity risks have a positive impact on bank profitability while interest rate does not have an impact. The results are robust to alternative measures of profitability.

An empirical evaluation of financial development-carbon footprint nexus in One Belt and Road region.

The aspiration of study is to explore the financial development-carbon footprint nexus in One Belt and Road initiative (BRI) region utilizing the panel dataset from 1990-2017. The cross-sectional dependence tests and second-generation panel unit tests were applied to affirm the cross-section dependence and integration level. The panel regression estimators from the Driscoll-Kraay standard error method for robust estimators in the presence of cross-sectional dependence have been applied to compute the estimators concerning the financial development-carbon footprint nexus for One Belt and Road economies. The estimates infer that financial development, urban population, and FDI have an adverse effect on carbon footprint. Furthermore, economic growth and energy consumption pollute the environment by enhancing the carbon footprint. Based on findings, it infers that financial development is a potential instrument to keep the environment through financial reforms. The estimates signify that it is necessary to allocate resources for renewable energy, energy efficiency, and energy conservation projects in order to moderate environmental degradation.

Foreign direct investment flows to Mexican states: A study of the automobile industry, 2004–2014

AbstractThis study examines the subnational flow in foreign direct investment (FDI) to Mexican states, with a focus on the finished vehicle industry. Although prior studies have examined subnational FDI in Mexico, research on the automobile sector has been scant. Utilizing a framework associated with the theory of asset specificity, we examine the influence of human capital and labor conditions, infrastructure, subnational policies, and security. The study employs a data set on finished vehicle FDI across 31 states and the Federal district for the period of 2004–2014. We adopt a two‐part model. The first part, which includes all states and the Federal district, is estimated with pooled logistic and Firth logistic regressions. In the second part, we examine variation in levels of FDI among states selected for investment with pooled ordinary least squares with panel‐corrected and Driscoll Kraay standard errors. Labor conditions are significant for both state selection and levels of FDI, but education is influential only in the selection stage. In addition, states with trunk rail lines linked to the U.S. border are more likely to be selected and receive higher FDI. After controlling for these influences, murder and homicide rates, and state development have no significant effects.

Non-linearity of FDI and human capital development in Africa

In this paper, we model the non-linear effect of FDI on disaggregated levels of human capital development in selected African countries. Our sample is based on a panel data consisting of nine African countries from 2000 to 2017. To ensure robustness in our analysis, we employed a GMM instrumental variable estimation technique with Driscoll–Kraay standard errors to control for endogeneity, sectional and temporal dependency. The result indicates that different level of human capital reported mixed findings. The effect of FDI on primary education is characterised by an inverted U-shaped relationship, whereas tertiary education exhibits a U-shaped pattern. Conversely, the relationship between FDI and secondary education is insignificant. The non-linear term of FDI indicates that there is a turning point before/after which the human capital-augmenting hypothesis is supported. Policy implications drawn from this study suggest FDI can be used as a catalyst to augment primary and tertiary education enrolment rates, skills enhancement and human capital development. However, not all levels of FDI will result in positive gains. The optimal effect of FDI depends on the quantity of FDI before/after the turning point.

Analyzing the role of information and telecommunication technology in human development: panel data analysis.

Economic growth in modern-day world get attention primarily through innovation and higher productivity, which places technology and knowledge at the core of the issue on economic policy. In this regard, information and communication technology (ICT) has a unique place for offering the potential to improve efficiency, promote the sharing of knowledge, and improve innovation leading to an overall change in social and human development processes around the globe. This study examines the role of ICT and economic growth on human development. A family of econometric series robust to cross-sectional dependence is applied for a panel of five selected South Asian countries over 1990-2016. The ICT in the study were measured through mobile phone and internet penetration. The results of Driscoll-Kraay standard errors algorithm suggest that mobile phone usage promotes human development, whereas internet usage does not seem to do so. Apart from it, its economic growth does contribute to the promotion of human development. Policy implications are required in the direction for internet usage to produce its role in human development.

Modeling the non-linear relationship between financial development and energy consumption: statistical experience from OECD countries.

The linkage between financial development and energy consumption is widely investigated in the literature. However, the non-linear relationship between financial development and energy demand is still under debate. Therefore, this study aims to examine the non-linear relationship between financial development, economic growth, and energy consumption in OECD countries. The study uses the Driscoll-Kraay standard errors panel regression model for spanning from 1980 to 2016. The empirical findings indicate that an inverted U-shape relationship exists between financial development and energy consumption as well as between economic growth and energy consumption. Moreover, the feedback hypothesis is found between financial development and energy use. Additionally, income and energy use granger cause each other. The innovative findings contribute to extant literature, which is of special interest to the country's policymakers regarding energy efficiency.

The effect of wind and solar power forecasts on day-ahead and intraday electricity prices in Germany

This study analyzes the effects of wind and solar power generation forecasts on electricity prices. Converse to the existing empirical literature in this area, we apply a panel data analysis to control for endogeneity due to unobserved heterogeneity. We use a dataset with 24 daily observations of day-ahead and intraday prices from 2010 to 2016, and we apply a fixed effects regression under consideration of robust Driscoll-Kraay standard errors. A noteworthy element of the regression model is the simulation-based design of a variable indicating the power generation technology that is price-determining at a certain point in time. In this context, we differentiate between the fuel types coal, gas, and others, to model the nonlinear price behavior for a varying demand. For 2016, we find price dampening effects of both wind and solar power of approximately 0.6 €/MWh per additional GWh of feed-in. Along with the rapidly increasing shares of wind and solar power of the total power generation during the last years, their price dampening effect has declined since 2013, due to a drop in fuel prices. Another finding is that a reduction in forecasting errors on the power generation from wind and solar, and smoothing of the cyclical demand would lead to a decreased price volatility.

Effect of foreign direct investments, economic development and energy consumption on greenhouse gas emissions in developing countries

In accordance with the Sustainable Development Goal 17 of improving global partnership for sustainable development, this study examined the effect of foreign direct investment inflows, economic development, and energy consumption on greenhouse gas emissions from 1982 to 2016 for the top five emitters of greenhouse gas emissions from fuel combustion in the developing countries, namely; China, India, Iran, Indonesia and South Africa. The study employed a panel data regression with Driscoll-Kraay standard errors, U test estimation approach and panel quantile regression with non-additive fixed-effects. The study found a strong positive effect of energy consumption on greenhouse gas emissions and confirmed the validity of the pollution haven hypothesis. The environmental Kuznets curve hypothesis is valid for China and Indonesia at a turning point of US$ 6014 and US$ 2999; second, a U-shape relationship is valid for India and South Africa at a turning point of US$ 1476 and US$ 7573. Foreign direct investment inflows with clean technological transfer and improvement in labour and environmental management practices will help developing countries to achieve the sustainable development goals. Mitigation of greenhouse gas emissions depends on enhanced energy efficiency, adoption of clean and modern energy technologies, such as renewable energy, nuclear, and the utilization of carbon capture and storage for fossil fuel and biomass energy generation processes.

Spending Up the Ranks? The Relationship Between Striving for Prestige and Administrative Expenditures at U.S. Public Research Universities

ABSTRACTDespite occupying a central position in contemporary U.S. higher education discourse, empirical research on administrative costs is limited. The purpose of this study was to extend existing research on administrative spending in higher education by empirically examining whether recently shifting to research university status in the Carnegie Classification influences administrative costs. Informing the analysis was a theoretical framework consisting of neo-institutional theory and the revenue theory of costs. The study examined 164 public research universities between 2004 and 2012 using a a pooled regression model with Driscoll-Kraay standard errors and a first-order autoregressive (AR1) lag. Results showed that shifting to research university status had a significant, positive influence on administrative spending at public research universities. Nevertheless, the influence of reclassification on administrative spending dissipated over time and to the point where the difference was no longer statistically significant. Importantly, results also showed that state appropriations and tuition revenue were positively associated with administrative spending, while enrollment was negatively associated with administrative spending. These results have important implications related to understanding and managing administrative spending among U.S. public research universities

Exploring the link between environmental pollution and economic growth in EU-28 countries: Is there an environmental Kuznets curve?

This study examines the Environmental Kuznets Curve hypothesis (EKC), considering the primary energy consumption among other country-specific variables, for a panel of the EU-28 countries during the period 1990–2014. By estimating pooled OLS regressions with Driscoll-Kraay standard errors in order to account for cross-sectional dependence, the results confirm the EKC hypothesis in the case of emissions of sulfur oxides and emissions of non-methane volatile organic compounds. In addition to pooled estimations, the output of fixed-effects regressions with Driscoll-Kraay standard errors support the EKC hypothesis for greenhouse gas emissions, greenhouse gas emissions intensity of energy consumption, emissions of nitrogen oxides, emissions of non-methane volatile organic compounds and emissions of ammonia. Additionally, the empirical findings from panel vector error correction model reveal a short-run unidirectional causality from GDP per capita growth to greenhouse gas emissions, as well as a bidirectional causal link between primary energy consumption and greenhouse gas emissions. Furthermore, since there occurred no causal link between economic growth and primary energy consumption, the neo-classical view was confirmed, namely the neutrality hypothesis.

Sales nationality and debt financing impact on firm’s performance and risk

PurposeThe purpose of this paper is to examine the impact of debt financing on both performance and systematic risk in Amman Stock Exchange listed firms. The authors focus the study to analyze the differences between services and industrial firms in one sense and the differences between international and domestic firms in the other sense, as the study depends on the geographical distribution of sales to classify the nationality of firms.Design/methodology/approachThe study sample includes all listed Jordanian firms in Amman Stock Exchange from 2005 to 2013 for both industrial and services sectors. Using panel data techniques, fixed effects regression with modified Driscoll-Kraay standard error as a remedy for heteroscedasticity problem is employed.FindingsThe results show that there is a significant negative impact of debt financing on the firm’s performance, where the sector and the sales nationality play an important role. Moreover, the results indicate that there is a significant positive impact of debt financing on the firm’s systematic risk. Taking the sector and sales nationality into consideration, the authors find that the debt financing has no significant impact on the systematic risk of services firms and domestic firms. Additionally, the findings indicate that services firms and international firms are, on average, more riskier than industrial firms and domestic firms, respectively.Originality/valueThe paper provides a visibility on the comparison between international and local firms in Jordan in terms of the impact of debt financing on the financial performance and systematic risk in one research.

Firm Characteristics and Bank Internationalization in an Emerging Economy

Following the developed economies, banks in the emerging economies also take strategic moves to internationalize in order to expand target market and boost profitability. This research examines how firm-level characteristics of banks effect their international activities in emerging economies, using the case of Bangladesh - a fast-growing emerging market. This paper utilizes regression with Driscoll-Kraay standard errors and FGLS on the data of 35 banks for the period from 2005 to 2014. The effect has been examined first for all banks, and then grouping the banks by state-owned banks (SOBs) and private commercial banks (PCBs). Findings suggest that bank size, domestic market coverage, and experience from international operations, by and large, induce banks to expand international activities while banks tend to adopt the strategy to reduce international exposure as they grow older. The paper finds substitution effects between domestic branch and foreign presence, and a minimal influence of profitability on internationalization. However, results for private commercial banks and state-owned banks differ substantially. The paper stresses the need for specific regulations to facilitate both internationalization and de-internationalization of banks in the emerging economies. Especially, de-internationalization is critical for banks losing money from internationalization. The paper contributes to the literature by: using new measures of internationalization moves, being the first examination on Bangladesh, and providing new insights for bank regulation in the emerging economies.

Accrual Reversals and Company Performance: Analysis of Emerging Market

This is a pioneering study on total accrual reversals, i.e. long-term reversals and their role in company performance in an emerging market. This study observes the impact of total accrual reversals on company performance more exclusively. The sample consists of 100 non-financial companies listed on the Pakistan Stock Exchange (PSE). The purpose is to examine the role of long-term reversals in the performance of companies by observing the impact of total accrual reversals for the current period as well as the previous period on the earnings as it is used as a proxy for company performance. The Pooled OLS Robust method with Driscoll-Kraay standard errors is used. The result indicates that total accrual reversals of the previous and current period affect the earnings of companies positively. This result rejects the perception that accrual reversal does not predict the earnings in the long-term perspective. The study concludes that the role of reversals of total accruals in the performance of companies is positive, which is beneficial for growing companies in an emerging market. Hence, companies should increase the total accrual reversals to enhance their performance and attract foreign investors. Keywords: Accrual Reversals, Earnings, Emerging market, Pakistan Stock ExchangeJEL Classification: M40, M41

Political Regime and Agricultural Policy: Evidence from 31 Developing Countries

ABSTRACTThis paper examines the relationship between political regimes and agriculture in developing countries. It studies respective government’s revenue transfers to agricultural tradable commodity sectors in 31 developing countries in Africa, Asia, and Latin America. Fixed-effect and Driscoll–Kraay standard error models are employed to analyse the data, and marginal effect is used to explain the effect of political regime on the government’s agricultural policy. It finds that the more democratic the countries are, the more likely the governments are to reduce taxes on agricultural sectors. It also finds that high and volatile inflation and industrial subsidies are likely to lead to resource extraction from agriculture. It implies that while authoritarian governments are likely to discriminate against rural farmers by increasing the tax rate, their elected counterparts are likely to reduce agricultural taxes.

Do (successful) stock exchanges support or hinder institutions in transition economies?

AbstractA stock exchange and the presence of functioning equity markets are part and parcel of an advanced market-based financial system. Previous research has also established that equity markets function more efficiently in the presence of supporting institutions such as property rights and rule of law. But how do these two aspects of the institutional environment interact? That is, does the performance of a stock exchange support the development of property rights, or can it actually hinder it? Examining monthly data for 21 transition economies over a shifting monthly window from 1989 to 2012, and using a fixed-effects specification with Driscoll–Kraay standard errors, I find support for the existence of an inverted U-shaped relationship between property rights and stock market performance. While a well-functioning stock market may help reinforce property rights through demonstration effects, a stock market that has become “too successful” may entrench interests and lead to property rights-eroding poli...

Empirical analysis of competing factors influencing exploration investment in international oil and gas industry: evidence from OPEC countries

This study examines the influence of competing economic, uncertainty, and geological factors in driving the exploration investment of organization of petroleum exporting countries (OPEC) countries. We specify and estimate a fixed-effects model with Driscoll–Kraay standard errors on data for 1980–2011. Our findings show a significant positive influence of oil prices, production, reserves replacement, and the geological potential of petroleum basins. The results also reveal a significant negative influence of resource depletion on exploration expenditure. In terms of impact, the estimated results show a significant elastic response of exploration investment to changes in oil prices and production, suggesting the dominating influence of economic factors on exploration investment behavior. From policy perspectives, the estimated results suggest the desirability of OPEC's market development policies to favour high oil prices to ensure fair returns on exploration investments and justify incremental investments. Similarly, production control policies have the potential to impede exploration investment.

Heteroskedasticity, temporal and spatial correlation matter

As economic time series or cross sectional data are typically affected by serial correlation and/or heteroskedasticity of unknown form, panel data typically contains some form of heteroskedasticity, serial correlation and/or spatial correlation. Therefore, robust inference in the presence of heteroskedasticity and spatial dependence is an important problem in spatial data analysis. In this paper we study the standard errors based on the HAC of cross-section averages that follows Vogelsang’s (2012) fixed-b asymptotic theory, i.e. we continue with Driscoll and Kraay approach (1998). The Monte Carlo simulations are used to investigate the finite sample properties of commonly used estimators both not accounting and accounting for heteroskedasticity and spatiotemporal dependence (OLS, GLS) in comparison to brand new estimator based on Vogelsang’s (2012) fixed-b asymptotic theory in the presence of cross-sectional heteroskedasticity and serial and spatial correlation in panel data with fixed effects. Our Monte Carlo experiment shows that the OLS exhibits an important downward bias in all of the cases and almost always has the worst performance when compared to the other estimators. The GLS corrected for HACSC performs well if time dimension is greater than cross-sectional dimension. The best performance can be attributed to the Vogelsang’s estimator with fixed-b version of Driscoll-Kraay standard errors.

The Effect of Fiscal Decentralization on Under-five Mortality in Iran: A Panel Data Analysis

Fiscal Decentralization (FD) in many cases is encouraged as a strong means of improving the efficiency and equity in the provision of public goods, such as healthcare services. This issue has urged the researchers to experimentally examine the relationship between fiscal decentralization indicators and health outcomes. In this study we examine the effect of Fiscal Decentralization in Medical Universities (FDMU) and Fiscal Decentralization in Provincial Revenues (FDPR) on Under-Five Mortality Rate (U5M) in provinces of Iran over the period between 2007 and 2010. We employed panel data methods in this article. The results of the Pesaran CD test demonstrated that most of the variables used in the analysis were cross-sectionally dependent. The Hausman test results suggested that fixed-effects were more appropriate to estimate our model. We estimated the fixed-effect model by using Driscoll-Kraay standard errors as a remedy for cross-sectional dependency. According to the findings of this research, fiscal decentralization in the health sector had a negative impact on U5M. On the other hand, fiscal decentralization in provincial revenues had a positive impact on U5M. In addition, U5M had a negative association with the density of physicians, hospital beds, and provincial GDP per capita, but a positive relationship with Gini coefficient and unemployment. The findings of our study indicated that fiscal decentralization should be emphasized in the health sector. The results suggest the need for caution in the implementation of fiscal decentralization in provincial revenues.