Dynamic Panel Methods Research Articles

Fueling the bottom line: Decoding the effects of oil on banking performance in net oil-importing economies

Banks play a pivotal role in the financial sector, assuming critical functions such as facilitating the monetary policy transmission mechanism and acting as intermediaries between savers and borrowers. Meanwhile, oil represents a fundamental input for economic activities, and its inherent volatility serves as a significant catalyst for economic instability. Given the critical roles of banking institutions and oil in the economy, their relationship garners attention from various stakeholders. The growing body of literature has examined the nexus between oil and banking performance. However, existing research has predominantly concentrated on either oil-exporting jurisdictions or country-specific analyses. Hence, the present study endeavors to bridge this gap in the literature by investigating the intricate dynamics between oil and banking performance, specifically in net oil-importing countries. The dynamic panel method is employed. The findings indicate that oil has direct and indirect effects on the profitability of banks operating through transmission channels.

The Effect of Capital Structure On Company Value with Profitability and Dividend Policy as A Mediating Variable

The theory of capital structure with taxes is put forward by stating that the value of a company increases as the total debt increases. The use of debt in the company's capital structure, on the other hand, also incurs costs that can reduce the value of the company, so Modigliani and Miller (1963) the trade-off theory reveals that there is a so-called optimal capital structure. This study aims to test and analyze the influence of capital structure, profitability, and dividend policy on company value, both directly and indirectly. The population of this study is pharmaceutical sub-sector companies listed on the Indonesia Stock Exchange for the period 2008-2022. The sampling technique used was the purposive sampling technique and samples were obtained from 6 companies with a total of 90 years of observation. This study uses secondary data in the form of annual financial statements of pharmaceutical sub-sector companies listed on the Indonesia Stock Exchange for the 2008-2022 period. The data analysis technique in the study uses the dynamic panel method of the system generalized method of moments (GMM) with the Rstudio application. The results of the analysis provide evidence that capital structure, profitability, and dividend policy have a significant positive effect on the company's value. Capital structure has a significant positive effect on profitability and dividend policy. Capital structure affects the value of the company through profitability as a mediating variable. Capital structure affects the value of the company through dividend policy as a mediating variable. Company management is advised to always maintain an optimal capital structure for the company so that it can increase profitability and dividend distribution so as to increase the company's value. For the next researcher, it is recommended to increase the number of research samples so that the research results can be generalized widely.

The Impact of Digitization on Housing Prices: Evidence from China

Issues: The housing prices (HP) in China has been rising over the past 20 years, which is too extremely high to afford for citizens. Also, high housing prices results in various problems, such as increasing financial risks, a shift from physical economy to virtual economy, innovation obstacles, crowding out residents’ consumption, among others. Objective: This study strives to investigate the impact of digitization on HP, with an aim to explore an effective way to tackle high housing prices issue in China. Theoretical Framework: Digitization can essentially effluence the HP through various channels, such as promoting the economic efficiency, improving the infrastructure, affecting the population agglomeration, and increasing the availability for residents to work remotely, etc., whereby it plays a substantial role in curbing the housing prices. Method: With a sample of 279 cities covering the period from 2011 to 2019, a dynamic panel method, General Method of Moment model (GMM) is adopted to run the empirical analysis. Results: The empirical results confirm an inverted U-shaped relationship between the HP and digitization, which indicate that digitization (DIG) acts as an impetus to increase HP at the first stage, but when the digitization surpasses the turning point, it may exsert a powerful force to lower housing prices. Implications: Improving the digitization is among the solutions to curb high housing prices, as long as the digitization exceeds the inflection point. Originality: This study first concludes digitization can be a considerable effluence on housing prices, providing a new insight into solving high housing prices.

Do different household models affect poverty? A dynamic panel analysis in 28 European countries

ABSTRACT The increase in the number of single-parent households and divorces, the decrease in marriages and the increasing relevance of household models with more than two cohabiting adults represent a recent social trend that emerges in modern societies. In this paper, we investigate how the evolution in the incidence of different household models affects household poverty in Europe. Using a panel of 28 European countries over a 14-year period (2005 to 2018), we implement both panel fixed- and random-effects models and the system-GMM dynamic panel method by estimating short- and long-run coefficients. Our analysis points out that household’s dissolution and the share of single-parent households with children are positively correlated with the risk of poverty; extended households play a role in insuring against poverty. Moreover, we find that households’ poverty is persistent over time with a speed of adjustment equal to 0.5 and a median time lag of one year. Our results also suggest that family policies represent an effective tool against the effects of social exclusion, becoming more evident in the long run.

Does Environmental, Social and Governance Have an Impact on Stock Performance? A Panel Study of Indian Companies

The present study investigates the impact of environmental, social, and governance (ESG) on firms' profitability in the Indian setting on a sample of 23 firms. The bootstrap corrected fixed effects estimation and inference in the dynamic panel method is employed to investigate the relationship. The dynamic panel results show that the relationship between ESG score and firms' profitability is inconclusive in the short run. However, governance conditions affect firms' investment decisions and the nexus between ESG and firm financial performance in the long run. Therefore, institutional reforms are warranted to stabilise property rights and check parent-client politics for the long-run effects of sustainable environmental governance on firms' profitability.

Nexus Between Credit Risk, Liquidity Risk, Corporate Governance and Bank Performance During Times of Crisis

Bank-specific risks along with corporate governance mechanisms are an important consideration for measuring bank performance. Therefore, this study aims to explore the role of credit and liquidity risk along with bank governance for the performance of banks. The present study included a sample of 116 banks operating within Asian emerging nations, spanning the period from 2012 to 2022. It utilizes static and dynamic panel methods for testing the main hypothesis and for confirming robustness. This study finds that credit risk (Z-score, Non-performing loans), liquidity risk (Current ratio, Loan to deposit ratio) and corporate governance (Board size and CEO duality) significantly influence the performance of banks in Asian emerging economies. Banking management should maintain procedures for loan granting and timely repayment of loan instalments from consumers to control credit risk. Managers of banks should keep a close eye on their banks' liquidity conditions and implement appropriate governance systems to help them operate and earn better

Does electronic case-processing enhance court efficacy? New quantitative evidence

We empirically investigate the effect of electronic case-processing on court efficacy. We draw on monthly court-level panel data on adjudication and enforcement in Brazilian labor justice, a major pillar of the Brazilian justice system where electronic case-processing is a recent phenomenon and court inefficacy has been a pervasive concern. Using dynamic panel methods and multiple estimation approaches to address endogeneity, we show, first and foremost, that in both adjudication and enforcement a shift to electronic case-processing unequivocally increases judicial productivity and court clearance rate while reducing case disposition times. In adjudication, electronification exhibits diminishing marginal returns: additional electronification does not yield further efficacy gains once the share of electronically-processed court caseload is between 50% and 75%. We do not find similarly stark evidence of plateauing of the effect of electronification in enforcement, a key court activity domain where attaining fully electronic case-processing would thus be especially advantageous. Overall, our findings suggest that electronic case-processing provides one viable path to unclogging courts and enhancing administration of justice.

Mental health and smoking behavior

Smoking is a major public health concern with significant social and economic costs. A large literature has established that smoking behavior and mental health are correlated. This study considers the role of mental health in causing people to smoke, and examines how a specific traumatic event, a close friend's death, which negatively affects mental health, affects the tendency to smoke. The results show that good mental health reduces the probability of being a smoker. This conclusion is robust to various ways of addressing the endogeneity of mental health, including the use of both internal and external instruments, two-stage residual inclusion estimation, and dynamic panel methods. As such it underscores the power of people's mental health in shaping their smoking behavior.

Financial Inclusion and Income Inequality in Sub-Saharan Africa: Taking Socio-Cultural Particularities into Account

AbstractAccording to the United Nations 2030 Agenda for Sustainable Development, financial inclusion has a crucial role to play in achieving sustainable development goals in this case, reducing inequalities and reducing poverty. Certain cultures can be at the root of financial system imperfections and therefore influence financial inclusion and its effect on income inequality. This work analyzes the effect of financial inclusion on income inequalities in sub-Saharan African countries, taking into account cultural particularities. The data cover the period from 2002 to 2015 and are analyzed by the dynamic panel method generalized method of moments (GMM). Our overall sample is made up of 27 countries of sub-Saharan Africa grouped into 4 sub-groups: countries with predominantly Christian obedience, countries with obedience dominated by Islam, countries with French as the official language, and countries with English as official language. The first two are distinguished by the fact that Islam forbids interest-bearing savings and loans. The latter two have known different colonial systems which have forged their attitude to public life differently. Our results show that financial inclusion contributes to reducing income inequality in all the SSA countries considered, and also in the Christian-dominated and French-speaking countries. We found no effect of financial inclusion in Islamic-dominated and English-speaking countries. Similarly, we found evidence of an inverted U-shaped relationship in all the Sub-Saharan African countries considered and in Christian-dominated countries only. These results suggest on the one hand that the socio-cultural aspect has an influence on the relationship between financial inclusion and income inequality and the other hand that financial inclusion may be essential to reduce income inequality in SSA countries, but that it is important to tailor it taking into account the cultural, religious, political, institutional, and structural specificities of each country’s economy to have even more significant effects. Given this interference of socio-cultural and political factors on financial inclusion and its effect on income inequality, in addition to ensuring an effective regulatory system and a sound institutional framework, financial and public authorities should capitalize on the cultural and religious fiber to raise awareness on the use of financial products and services in order to improve financial access and its effect on wealth redistribution.

Bank stability in the Indian subcontinent region: Evolution and determinants

This study examines how bank stability has evolved and its determinants in four major countries of the Indian subcontinent - India, Nepal, Bangladesh, and Pakistan – during 2004–2018. Using the stability frameworks of the sampled countries, we build a PCA-weighted composite indicator of bank stability. Econometric estimation is performed using dynamic panel methods to capture the influence of bank-specific, industry-specific characteristics, macroeconomic disparities, and institutional quality on bank stability. Empirical evidence shows that the banking systems in India, Nepal, and Bangladesh experienced a jolt in stability levels in 2013–14, and the recovery to the previous level of stability is not instantaneous. Larger banks, in terms of total assets, appear more stable in India. However, results validate the prevalence of the “too big to fail” hypothesis in Bangladesh and Pakistan. The analysis confirms the “diversification-stability” hypothesis for Nepal. Inflation shows a deleterious influence on bank stability in the region, whereas the quality of institutions has a beneficial effect on the stability of Indian and Nepalese commercial banks. The findings are consistent across alternative panel models and bank stability aspects.

The tremendous household debt in Asia Pacific countries: is it determined by financial development

Since the early twentieth century, the tremendous increase in household debt has motivated researchers to find the determinant factors of this phenomenon. The paper uses data from Asia Pacific countries and dynamic heterogeneous panel method analysis to determine factors of household debt. The results find that financial development and financial institution access have a long-run positive relationship, stable and convergent with household debt. This implies that as the financial system developed, as evidenced by easy access to financial institutions, it provided some attractive financial instruments and financial markets became liquid. As a result, household debt increased due to easier access to financing and credit options that matched people's needs. However, in the short run, financial development and financial institution access do not strongly affect household debt of countries overall. Also, the real interest rate and housing price have a positive impact, and stock capital accumulation and household consumption harm household debt in the long run. Therefore, supervision of the volatility of household debt and financial development are important for sustainable economic growth.

Dynamic analysis of the determinants of long-term microfinance interest rates: Macro and micro factors.

A recent increase in interest rates has raised doubts about the stability of micro-finance institutions (MFI) A recent increase in interest rates has raised doubts about the stability of MFI in many countries. This has compelled governments to consider some MFI practices unethical. This paper studies the MFI interest rates by using a dynamic panel method to identify the determining factors of the viability, financial, and social execution of microfinance firms. The research shows that the long-term interest rate evolution depends on the anticipation of loan loss rates (LLR), profit, or macroeconomic factors like inflation and the short-term current interest rate. The Study used database of 897 microfinance institutions in 106 countries and six geographic regions with a representative sample size of 5,075 observations between 2008 and 2020. The external factors considered are the market structure (Competition), economics (inflation), cultural and technological political conditions, and banking regulations in effect (regulation). Financial costs, operational costs, the write-off rate, and the average size of the loan are the most important determinant factors in MFI interest rate fluctuations. The research find that other factors like gender, legal status, and regulations also contribute to the MFI interest rate variation. The research also discovered that there is a threshold effect in the relationship between women borrowers (WB) and the interest rate. Another important finding of this study is that MFIs do not anticipate inflation in the definition of the interest rate. From an institutional point of view, it is necessary to promote competition, as the study shows that well-regulated competition helps to keep interest rates at a reasonable level.

Impact of the Public Administration Reform on the Economic Development of the Western Balkans

The aim of this paper is to research the impact of a public administration reform on the economic development of the Western Balkan (WB) countries. The research covers a ten-year period (2009 – 2019), and is conducted on a sample of 19 countries (so called New EU Member States, Turkey and 6 countries from the WB). The paper attempts to quantify the effect that the public administration reform has on the two variables of economic development, namely the real GDP Growth Rate and Trade Per Capita, in the context of analysis and impact of six governance indicators created by the World Bank, within the WGI (The Worldwide Governance Indicator). In order to prove the hypotheses, we used the dynamic panel method. The results show that there is a significant positive impact of public administration reform in the WB on the GDP growth and trade.

The miracle of anti-corruption efforts and regional fiscal independence in plugging budget leakage: evidence from western and eastern Indonesia

The leakage of the Anggaran Pendapatan dan Belanja Daerah (APBD: Regional Revenue and Expenditure Budget) has been officially reported by the Corruption Eradication Commission of the Republic of Indonesia to have reached 40 per cent. The purpose of this study is to examine the effectiveness of measures to eradicate corruption and the ways that fiscal independence can stop the leakage of local governments budget in western (WI) and eastern (EI) Indonesia. This study uses the System GMM dynamic panel method and stochastic frontier analysis (SFA). The result finds that effort to eradicate corruption, such as reporting gratification can reduce budget leakage in WI and EI. The result also discovers that the public complaint has the effect of reducing budget leakage in EI, while it continues to grow in WI. Increase the status of the Audit Board (BPK's opinion) can increase budget leakage in WI and EI. Ratio of locally-generated revenue (RLGR) and ratio of transfer (RT) as fiscal independence proxies are defined as triggers for corruption in terms of budget leakage. The budget leakage is bigger in EI than WI, despite the fact that the increase in the leakage ratio the year before caused the leakage in the years that followed. Transparency efforts must continue to be encouraged for the realisation of a clean government.

Impact of policies on wind power innovation at different income levels: Regional differences in China based on dynamic panel estimation

Based on the expanded two-factor learning curve and adopting dynamic panel methods, we explored the driving effects of policies and policy interaction on wind power technology innovation (TIW) at different developmental levels using panel data for the period 2006–2017 in 29 provinces in China. To reveal regional heterogeneity, we classified the 29 Chinese provinces into two regions based on the 2017 per capita gross domestic product. The results indicated that public research and development policy plays the most significant role in driving TIW for all samples. We only confirmed the positive interaction effect of policies for middle-income provinces (Region 2). Additionally, the learning-by-doing effect for TIW in China was identified, though the magnitude of that effect was much smaller than that of the learning-by-searching effect. Finally, the regional differences in the impacts of different policy instruments provide new insights for future policy design to effectively promote TIW.

Climate change: north and south EU economies-an application of dynamic asymmetric panel data models.

The need for a cleaner environment and wealthier economies has been highly recognized by European Union (EU) policymakers of the last years, as evidenced by the creation of a plethora of laws and regulations for reducing carbon dioxide emissions while promoting the economic prosperity of EU countries. Indeed, many works have been done in this field, remarking on climate change’s impacts on economies and the need for determinant environmental policies inside the EU. This paper investigates the effect of climate change on economic growth using nonlinear dynamic panel methods for 15 countries of the EU in the period 1981–2019. Specifically, it is examined the impact of temperature, precipitation, and CO2 emissions on economic growth. So, autoregressive distributed lags (ARDL) methods were employed, overcoming cross-dependency and also considering linearity and nonlinearity. The results showed that economic growth has positive nonlinear relationship with long-run temperature, but in short-run they have a symmetric negative association. Moreover, precipitation has long-run negative and a short-run positive relationship with economic growth. However, when CO2 emissions are added, then model’s performance is decreased, and precipitation has a positive effect on economic growth, but all others, except from temperature increase, become insignificant. Finally, actions should be taken for more stable climate conditions and consistent environmental policies by EU countries.Graphical abstract

Toward Sustainable Development: Unleashing the Mechanism Among International Technology Spillover, Institutional Quality, and Green Innovation Capability.

Under the background of sustainable development, China’s economic growth engine becomes innovation-driven, and it is an important way for China to rapidly improve its green innovation capability by opening up to the outside world and utilizing the spillover effect of international technology. In this article, the system quality evaluation system is reconstructed by the method of fully arranged polygonal graphical indicators, and the provincial system quality in China is measured and added into the model as a regulating variable. The dynamic panel method and the dynamic threshold panel method are used to test the direct effects of foreign direct investment (FDI) and foreign trade on green innovation capability, the interaction effect of institutional quality, and the threshold effect. Empirical results show that the three technology spillovers have significantly promoted China’s green innovation capability. System quality will affect the determining coefficient of international technology spillovers on China’s green innovation capability. The positive promoting effects of FDI and foreign trade on China’s green innovation capability, all increase with the improvement of China’s system quality. Therefore, when utilizing FDI and foreign trade to promote green innovation in each region, each region should consider creating a good institutional environment for the emergence of international technological effects.

Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach

AbstractThe paper investigates whether the institutional arrangements that determine the conduct of monetary and prudential policies influence policymakers' actions in pursuing their designated mandates. Employing recently developed dynamic heterogeneous panel methods and using data for 25 industrialized countries from 1960 to 2018, we empirically assess whether central banks' main objective of inflation stability is compromised when assigned with both policy mandates manifested as inflation bias. Our results show that, once we appropriately control for relevant policy and institutional factors, the separation of macroprudential regulation and monetary policy does not have a significant effect on inflation outcomes.

Modelling the demand for educational tourism: do dynamic effect, university quality and competitor countries play a role?

PurposeThis study aims to develop an educational tourism demand model, particularly in respect to dynamic effects, university quality (QU) and competitor countries. Educational tourism has been identified as a new tourism sub-sector with high potential, and is thus expected to boost economic growth and sustainability.Design/methodology/approachThis study reviews the literature on the determinants of educational tourism demand. Even though the existing literature is intensively discussed, mostly focusing on the educational tourism demand from an individual consumer's perspective, this study makes an innovation in line with the aggregate demand view. The study uses data that consist of the enrolment of international students from 47 home countries who studied in Malaysia from 2008 to 2017. The study utilised the dynamic panel method of analysis.FindingsThis study affirms that income per capita, educational tourism price, price of competitor countries and quality of universities based on accredited programmes and world university ranking are the determinants of educational tourism demand in both the short and the long term. Also, a dynamic effect exists in educational tourism demand.Research limitations/implicationsThe results imply that government should take the quality of services for existing students, price decisions and QU into account to promote the country as a tertiary education hub and achieve sustainable development.Originality/valueResearch on the determinants of the demand for educational tourism is rare in terms of macro data, and this study includes the roles of QU, competitor countries and dynamic effects.

Climate Extreme and Agriculture Development: Fresh Insight From Top Agri-Economics

A range of studies have been observed, covering the title of climate change and its linkage with the agriculture sector. This would justify the claim that changing environment has its several outcomes for which the agriculture sector cannot be ignored. The purpose of this study is to investigate the impact of various climate change dynamics and modelling on the four indicators of agriculture sector. Overall, five panel economies were selected having highest level of agriculture output in the world economy. The time duration of the study was during 1990–2018 with yearly data as collected from world development indicator or WDI. The study analysis was conducted while applying four panel regression models like ordinary least square, fixed effect estimator, least square dummy variable, and finally the random effect. For better understanding, study findings are empirically explained. The results confirm that both positive and negative impact of various proxies of climate change on agriculture dimension of selected economies. More specifically, it is observed that higher climate change in the form of carbon emission from different sources are causing a downturn effect on the agriculture export while at the same time, they are causing an up-ward shift in the agriculture import of selected economies. Besides, study has reasonably disrobed various policy implications both in theoretical and practical perspective. However, some limitations are also under observation. Firstly, this study considers the limited number of explanatory variables for reflecting the changing climate trends among top five agriculture economies of the world. However, there are still range of other factors which can be observed in the future studies to examine their influence on the selected indicators of agriculture industry. Secondly, this study has applied traditional panel models where no implication is observed for the dynamic panel methods like Generalized methods of Moments or GMM. Thirdly, this study has not provided any evidence for the cross-country analysis. Fourthly, this study has limited time span along with missing examination of both short run and long as well. Future studies may address these limitations for better implication in both theoretical and practical perspective.