Dynamic Panel Estimation Research Articles

Health and the Wage Rate: Cause, Effect, Both, or Neither? New Evidence on an Old Question

We investigate two-way causality between health and the hourly wage by employing insights from the human capital and compensating wage differential models, a panel formed from the National Longitudinal Survey of Youth 1997, and dynamic panel estimation methods in this investigation. We uncover a causal relationship between two of five measures of health and the wage in which a reduction in health leads to an increase in the wage rate in a panel of U.S. young adults who had completed their formal schooling by 2006 and were continuously employed from that year through 2011. There is no evidence of a causal relationship running from the wage rate to health in this panel. The former result highlights the multidimensional nature of health. It is consistent with an extension of the compensating wage differential model in which a large amount of effort in one period is required to obtain promotions and the wage increases that accompany them in subsequent periods. That effort may cause reductions in health and result in a negative effect of health in the previous period on the current period wage. The finding also is consistent with a model in which investments in career advancement compete with investments in health for time- the ultimate scarce resource. The lack of a causal effect of the wage on health may suggest that forces that go in opposite directions in the human capital and compensating wage differential models offset each other.

Income inequality and education revisited: persistence, endogeneity and heterogeneity

ABSTRACT This article presents new results on the relationship between income inequality and education expansion – that is, increasing average years of schooling and reducing inequality of schooling. When dynamic panel estimation techniques are used to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between inequality of schooling and income inequality, especially in emerging and developing economies and among older-age cohorts. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. While this positive relationship is small and not always statistically significant, we find a statistically significant negative relationship with years of schooling of younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy simulations suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.

Australian Government Fiscal stimulus programs and gambling activity levels; an analysis of high-ethnic and low-ethnic communities

The appropriateness of fiscal stimulus programs has come into question in light of the Global financial crisis. Indeed the austerity movement has called into question the economic benefits of large public spending programs. There is, however, a genuine dearth of research considering the impact of fiscal stimulus activities employed during the global financial crisis on spending behaviours, particularly when considering Australian stimulus programs. Much of the extant literature focuses on key matters such as quantitative easing and credit easing. The extant literature relating to fiscal stimulus research is typified by the utilisation qualitative methods to analyse the impact of the stimulus on economic activity. Most studies concern themselves with a handful of pertinent macroeconomic factors in an effort to surmise whether any possess any explanatory power, employing qualitative frameworks for analysis. The current study considers the impact of a discretionary stimulus program is affording a once off payment to Australian citizens on spending behaviour specifically the study shall consider the impact of government stimulus activities on gambling behaviours. Employing dynamic panel estimation methods, specifically the system GMM estimator, the study finds that fiscal stimulus significantly increased gambling activity in Australia, pertinently noting differential impacts within high ethnic and low ethnic communities.

What Drives Financial Innovations in Kenya’s Commercial Banks? An Empirical Study on Firm and Macro-Level Drivers of Branchless Banking

ABSTRACTThis paper examines the firm- and macro-level drivers of financial innovations in Kenya’s commercial banks. We focus on branchless banking innovations, namely: mobile banking, agency banking, internet banking and automated teller machines. These financial innovations represent a departure from traditional branch based banking. We conduct an empirical analysis of the four financial innovations using Koyck distributed lag models, estimated using dynamic panel estimation with System Generalized Method of Moments. We use 10-year panel data from 42 out of 43 commercial banks in Kenya covering the years 2004–2013. We provide empirical evidence that at the firm level, branchless banking is driven by firm size, transaction cost, agency costs, technological developments at the firm level and firm constraints. In addition, at the macro level, regulation, technological developments at the macro level, incompleteness in financial markets and globalization are important drivers of branchless banking.

Religious Oppression: Government Regulations and Social Hostilities

Religious intolerance has become a common feature of many countries in recent times. Studies have revealed a worldwide increase in government regulations and social hostilities against religious beliefs and practices. The stifling impact of both government and society on the market for religion, warrants closer scrutiny. This study examines the relationship between government regulations and social hostilities towards religious beliefs and practices, for the period of 2001-2011 for a sample of 45 European countries. The Generalized Method of Moments dynamic panel estimation technique is employed to analyze the micro panel dataset of 45 European countries, to establish the possible relationships that may exist between these variables. The theoretical framework for this study is based on the Religious Economies Theory and the Supply Side Theory of Religion. The results of this study show evidence of the positive relationship between government regulations and social hostility. Interestingly, the study also revealed that the impact of social hostility on the level of government restrictions is smaller in magnitude compared to the reverse impact of government restrictions on social hostilities, indicating the dangerous role played by governments in inciting social hostilities, when they regulate or restrict religious beliefs and practices.

Effects of Financial Soundness and Openness on Financial Development

Using panel data estimation, we evaluate the effects of financial soundness indicators, financial openness and bank liquidity on financial development across 40 countries. According to our dynamic panel estimates, the following variables are found to significantly affect financial development: capital to asset ratio, nonperforming loans and direct foreign investment. Our result indicated that the change in capitalization ratio was the main driver of financial development. Moreover, nonperforming loan shock has a negative and significant influence on financial development. This study emphasizes the important role of financial soundness and financial openness in maintaining financial stability and development of banking system.

US Metropolitan Area Resilience: Insights from dynamic spatial panel estimation

In this paper, we show that the economic crisis commencing in 2007 had different impacts across US Metropolitan Statistical Areas, and seek to understand why differences occurred. The hypothesis of interest is that differences in industrial structure are a cause of variations in response to the crisis. Our approach uses a state-of-the art dynamic spatial panel model to obtain counterfactual predictions of Metropolitan Statistical Area employment levels from 2008 to 2014. The counterfactual employment series are compared with actual employment paths in order to obtain Metropolitan Statistical Area-specific measures of crisis impact, which then are analysed with a view to testing the hypothesis that resilience to the crisis was dependent on Metropolitan Statistical Area industrial structure.

A European empirical study of the relationship between firms’ intellectual capital, financial performance and market value

PurposeThe purpose of this paper is to analyze the relationship between firms’ intellectual capital (IC), financial performance (FP) and market value (MV) as well as the relationship between ownership concentrations on IC performance.Design/methodology/approachA large sample of non-financial listed firms belonging to 14 countries in Western Europe, for the period between 2004 and 2015, was investigated using the GMM system (1998) dynamic estimator and the effect of lagged explanatory variables on firm’s FP and MV.FindingsThe results reveal that IC is an important resource for firms’ value creation. Human capital is found to be a key factor of firms’ wealth. Results show that capital employed efficiency positively impacts on firms’ FP in the short run. The impact of IC components on firms’ MV may not be immediate. The structural capital positively affects firms’ FP in the long run. Also, the results reveal that ownership concentration and owners’ management involvement constrain firms’ IC performance.Originality/valueThe current study contributes to IC research by exploring a large sample of firms across countries in Western Europe using econometric modeling. Considering that the effect of IC on firms’ FP needs time to be realized, thus to be measured, the effect of lagged explanatory variables on performance was tested, using dynamic panel estimators, specifically the GMM system (1998) dynamic estimator.

Panel Data Analysis of the Impact of Larger State Size/Land Area on Voter Turnout in US Presidential Elections: 2000, 2004, 2008, and 2012

This study has two objectives, both of which seek to provide insights into factors that influenced the voter participation rate in general elections in the US in recent years. The principal objective of this study is to proffer and then empirically investigate the following hypothesis: the voter participation rate of registered voters is reduced by greater state size (in squares miles) because, other things held the same, greater state size increases the transactions costs of voting for many of those persons who prefer to cast a ballot in person rather than by mail. A focus on this variable is unique in the literature. The secondary general objective of this study is to identify other factors that influenced the voter participation rate in recent years. The study adopts a state-level panel dataset and reports both Cross-section Random-effects estimations and dynamic panel estimations (Panel GMM estimates) for the first four US Presidential elections years of the 21st century, i.e., 2000, 2004, 2008, and 2012. After allowing for a variety of variables in the model, it is found that a 10,000 square mile greater size for a state in turn implies 0.148%-0.156% lower voter turnout, whereas a 100,000 square mile greater state size implies a 1.48%-1.56% lower voter turnout. Furthermore, the study finds that the voter participation rate of registered voters was an increasing function of six other factors: the unemployment rate, the percent of the population that earned a high school diploma or more, election competitiveness, median family income, and the percentage of the population that was either Afro-American/black or Hispanic/Latin.

Income Inequality and Economic Growth Revisited. A Note

AbstractThe relationship between income inequality and economic growth is estimated using dynamic panel estimation on a sample covering 112 emerging countries for the period 1980–2014. The results show that income inequality has a positive influence on economic growth for richer countries, in line with the classic theory, and a negative effect for poorer countries, as argued by the political economy approach. Copyright © 2017 John Wiley & Sons, Ltd.

Oil rents and fiscal balance in oil dependent economies: do fiscal rules matter?

In this paper, we utilize a panel of oil dependent economies from 2000 to 2015 and attempt to empirically examine the relationship between crude oil rents and fiscal balance, while controlling for other covariates. Our strategy is to highlight the importance of fiscal rules by using an instrumental variable approach based on Dynamic Panel estimators [the General Method of Moment (GMM)]. This is used in comparison with estimations from pooled OLS, LSDV fixed effects, and the IV/2SLS techniques (using each country’s share of world output as instrument). Our pre-estimation diagnostics showed that the GMM approach might not be applicable to the small sample, and we suspected that the IV/2SLS method might also be weak in testing our hypothesis for the oil dependent economies; therefore we maintained the LSDV Fixed effects estimations. Our estimation results shows that in countries with fiscal rules, there is insignificant reaction of fiscal balance to changes in oil rents shocks, and the impact is weak. We find also that welfare spending, which was captured by the real GDP per capita, affects fiscal balance, and so does the budgetary variable, i.e. debt-to-GDP ratio, and the ability of the government to curb corruption and mismanagement of funds, which is politically motivated.

Financial inclusion and economic growth in OIC countries

This paper examines the relationship between financial inclusion and economic growth in Organization of Islamic Cooperation (OIC) countries. In order to draw multilateral results, we have set up the panel data for 55 OIC countries and estimated not only the dynamic panel estimation, but also the panel VAR, IRFs, and panel Granger causality tests. Based on the results of dynamic panel estimations, we find that financial inclusion has a positive effect on economic growth. The IFRs results derived from the panel VAR analysis suggest that financial inclusion has positive effects on the economic growth and financial inclusion and economic growth have mutual causalities with each other based on the panel Granger causality tests. Therefore, it seems reasonable to conclude that financial inclusion has positive effect on the economic growth in OIC countries.

Macroeconomic imbalances and the eurozone crisis: the impact of credit expansion on asset prices*

The economic crisis of the eurozone emerged after the subprime mortgage crisis of the US; and since then the fiscal profligacy of some member countries, primarily Greece at the outset, was seen as the root of the crisis. However, alternative approaches pointed to the current-account imbalances within the eurozone, and the flaws in the architecture of the eurozone system. In this study, based on the argument that these flaws and resulting trade imbalances had been responsible for a credit-fueled asset-price speculation among deficit countries, we aim to establish empirically the close association of asset-price growth with credit creation. As imbalances continued, asset prices grew dependent on credit expansion, and once it was disrupted, the collapse came. For our purpose, we examine the impacts of credit expansion on asset prices and use dynamic panel estimations for eleven countries in the eurozone over the period 1990–2011. We find that the credit expansion and asset prices are closely associated in countries with chronic trade deficits whereas no significant correlation is observed for countries with trade surpluses.

Intellectual Capital and Firms’ Financial Performance: A European Empirical Study‬‬‬‬

The current study seeks to analyse the impact of the intellectual capital (IC) on the financial performance measured by Return on Assets in the European context for the period 2004-2015. This study uses data of non-financial listed firms of 8 European countries for the period between 2004 and 2015. Considering that financial crisis had different impact on European countries, we divided the eight countries in two groups: (1) group 1 – Greece, Portugal, Spain and Italy; and (2) group 2 – Germany, France, Finland and United Kingdom (UK). The estimation method used is the GMM system (1998) estimator, as a dynamic panel estimator, which allows to do longitudinal studies and to analyse the effect of lagged explanatory variables on firms’ financial performance. The results indicate that IC efficiency in the current period has a positive impact on financial performance. The three components of VAICTM Model - capital employed efficiency, human capital efficiency and structural capital efficiency in the current period have a positive impact on financial performance, with the exception for structural capital efficiency which for the first group of countries has a negative impact on financial performance. Finally, results suggest that the financial crisis negatively affects financial performance on both groups of countries. The current study contributes to the current literature, analysing the impact of IC on firms’ financial performance in two groups of European countries which suffered the consequences of the 2008 crisis differently.

The financial determinants of corporate cash holdings in an oil rich country: Evidence from Kingdom of Saudi Arabia

This paper investigates the determinants of the cash holdings for a sample of Saudi firms over the period 2006–2014, using static and dynamic panel models. Our results show that leverage, firm size, capital expenditure, net working capital and cash flow volatility are important in determining cash holdings. When we divide our sample into two sub-samples: petrochemical and non-petrochemical firms, our results show a significant difference between the determinants of cash holdings of the two groups of firms. We also investigate the characteristics of high liquid firms (conservative firms). The results indicate that conservative firms are less leveraged, have large size, have low investment expenditures and have low cash flow fluctuation. Furthermore, dynamic panel estimation indicates that Saudi firms adjust their liquidity holdings quickly towards an endogenous target cash ratio.

DOES INFLATION TARGETING MATTER FOR FOREIGN PORTFOLIO INVESTMENT: EVIDENCE FROM PROPENSITY SCORE MATCHING

(ProQuest: ... denotes formulae omitted.)1.INTRODUCTIONSince the early 1990s, IT regime has been adopted by several central banks as a new monetary policy strategy. Over the years, this monetary policy strategy has become very popular, and many arguments have been forwarded for this trend. Economists and policymakers highlighted the need for central banks to show more discretion and liberty in handling their instruments, along with improving their credibility. They also emphasize that IT does not preclude central banks from having multiple goals for monetary policy. An IT regime can accommodate a goal of output stabilization by having wide inflation target bands, long inflation target horizons, and explicit exemptions for supply shocks (Rudebush and Walsh, 2001a, 2001b; Ersel and Ozatay, 2008). Thus, IT could be suitable for emerging market countries (EMCs) as it helps them to not focus exclusively on inflation goals over the short-term, which could lead to a highly unstable real economy.A growing body of literature has brought attention to IT regime performance. Although much of the existing literature on the record of IT has focused on whether inflation and its volatility have been reduced (Meyer, 2001; Neumann and VonHagen, 2002; Lin and Ye, 2007, 2009; De Mendonca and Souza, 2012), and whether other objectives, in particular the volatility of output have been compromised (Mishkin and Posen, 1997; Ball and Sheridan, 2003; Mishkin, 2004; Walsh, 2009; Brito and Bystedt, 2010), a new strand of empirical literature has recently attempted to appraise the effect of IT on other variables. Epstein (2007) suggested shedding light on the relationship between IT and FDI. Indeed, such linkages seem understudied so far. A study like the one of Tapsoba (2012) is an exception. For instance, the latter author finds that IT contributes to attract and enhance foreign direct investment (FDI) inflows into developing countries.Another body of empirical literature seems to discredit the previous findings regarding the positive effects of IT on economic performances. For instance, Brito and Bystedt (2010) conclude that there is no clear-cut evidence that IT improves economic performance in developing countries when making use of a dynamic panel estimator. Likewise, Ball and Sheridan (2003) find that on average, there is no evidence that IT improves performance and that better performance results from something other than IT regime when applying standard differences in differences approach.By and large, many methods were used to find out the effect of the adoption of IT on several key economic variables. Lin and Ye (2007, 2009), De Mendonca and Souza (2012) use a variety of propensity score matching (PSM, hereafter) methodology to reveal the effect of the adoption of IT regime on inflation and its volatility. They find out that the average treatment effects of IT on inflation and its volatility are statistically insignificant in industrial countries and statistically significant in developing countries. Brito and Bystedt (2010) apply a dynamic panel estimator on a sample of 46 developing countries; they show that the control of common time effects causes a lower significant effect of IT on inflation and its volatility. Ball and Sheridan (2003) use standard differences in differences approach and they argue that when there is a control for regression to the mean, IT does not have a significant effect on the performance of the country, and the economic outcome does not change.Against this background, this paper aims at making a contribution to the ongoing debate by investigating whether IT implementation in EMCs boosted FPI inflows and contained FPI volatility or not. To this purpose, this paper uses the best-fitted methodology, namely the PSM methodology. Its main advantage is that it deals with the self-selection problem as compared to other methods. The sample used contains 38 emerging countries, where 13 countries have adopted IT regime and 25 have not adopted IT regime over the period 1986-2010. …

Firm-specific, and institutional determinants of corporate investments in Nigeria

We examined the effect of institutional quality and firm-specific factors on corporate investment in Nigeria using fifty-four (54) quoted non-financial firms within the period of 2002–2012. We applied dynamic panel estimator proposed by Arellano–Bond (1991). The results showed that regulatory quality, corruption, political stability and control of corruption have insignificant effect in determining corporate investments in Nigeria. Our results also confirmed that firms’ firm-specific factors influenced corporate investment in Nigeria. While firms’ cash flow displayed positive and significant effect on investment other factors had negative effects on investment.Our results showed that investment is constrained to internally generated fund, despite the existence of capital market. In addition, the spillover effect of tightening monetary policy during the period of study had increased the cost of borrowing thereby having a negative effect on investment in the real sector. We recommended that when the monetary authorities are focusing on inflation targeting, they should also not lose sight of its impact on corporate investment and other productivity growth of firms; which is the source of long term sustainable growth and development of economies.

Relationship between Institutional Factors and FDI Flows in Developing Countries: New Evidence from Dynamic Panel Estimation

In this paper, we revisit the relation between institutional factors and foreign direct investment (FDI) inflows in developing countries by employing a dynamic panel methodology, which enables us to deal with the persistency of FDI flows and endogeneity issues. We also contribute to the literature by using various measures of institutions to identify which aspects of institutional quality affect FDI in the developing world. Our empirical findings based on 113 developing countries over the period 2002–2012 show evidence that some institutional factors matter more than others in attracting more FDI flows. We also found that the financial crisis in 2008 and 2009 had a negative impact on FDI flows.

Dynamic heterogeneous panel data analysis of tourism demand for Singapore

ABSTRACTThe objective of this study is to investigate tourism demand for Singapore using heterogeneous dynamic panel estimation methods. A binary variable representing the operation of Integrated Resorts (IRs), as well as income and real exchange rate, are included as determinants of tourism demand growth. Using seasonally adjusted and actual/raw quarterly data of 16 origin countries, our study shows that the pooled mran group (PMG) estimator is able to provide consistent and efficient estimates of long-run relationships between tourism demand and the determinants. The PMG results show that the long-run income (price) elasticity is positively (negatively) significant, with an elasticities range between 0.915 and 3.05 (−0.275 and −0.34). In addition, the study reveals that the IRs contribute to tourism demand growth, especially in attracting tourists from Asia. In the long term, tourism demand by the Asian markets is less income-sensitive than that of the non-Asian counterparts.

Finance–growth nexus in a changing political region: How important was the Arab Spring?

In the context of the Arab Spring, which started in 2011 and overcame the Middle East and North Africa (MENA) countries, this paper examines the growth effects of financial development, controlling for distinct macroeconomic environments, governance levels, and authoritarian regimes across MENA by using the Arellano–Bond dynamic panel estimation for 2005–2014. The results identify mitigating factors in MENA’s finance–growth relationships. Moreover, they show that the impact of finance on growth was positive pre-Arab Spring, but lost some of its significance post the Arab Spring, as some macroeconomic indicators improved, while others worsened. However, governance variables show significant improvement post-Arab Spring. These findings suggest that the financial development–growth nexus is contingent on socio-political reforms that shift the paradigm of institutional quality. Finally, this paper also discusses certain policies that may improve the efficiency of financial institutions and the government in generating inclusive economic growth.