Dynamic Panel Threshold Regression Research Articles

Effect of domestic material production on environmental sustainability in EU countries under changing financial development: a dynamic panel threshold regression approach

Effect of domestic material production on environmental sustainability in EU countries under changing financial development: a dynamic panel threshold regression approach

Rethinking energy poverty alleviation through financial inclusion: Do institutional quality and climate change risk matter?

The main aim of this paper is to determine the impact of financial inclusion on energy poverty alleviation. It also interrogates whether institutional quality and climate change risk significantly influence the financial inclusion-energy poverty alleviation link using balanced panel data from 34 Sub-Saharan African countries from 2004 to 2021. Evidence from Discroll-Kraay Fixed Effects and Two-Step Instrumental Variable Generalized Method of Moments (2SIV-GMM) depicts heterogeneous energy poverty-alleviating impact of financial inclusion, demonstrating that financial inclusion is more instrumental in lower-income than lower-middle-income countries. Also, the results indicate a significant positive moderating role of institutional quality and a detrimental effect of climate change risk on financial inclusion-energy poverty alleviation nexus. Nevertheless, Dynamic Panel Threshold Regression results reveal threshold effects of financial inclusion, institutional quality, and climate change risk on energy poverty alleviation. The paper professes that financial regulations in allocating green resources would aid in alleviating energy poverty in Sub-Saharan Africa.

Nexus between natural resource endowments and economic growth in selected African countries

Africa began implementing the Sustainable Development Goals (SDGs) in 2015 emphasizing on sustainable management and effective use of natural capital to spur economic growth (Goals 12, 14, and 15). This study using World Bank data sets from 46 African countries selected for the years 2000 to 2022, examined the nexus between natural resource endowments and economic growth in Africa. We used the system generalized method of moments (sys-GMM) and dynamic panel threshold regression (DPTR) to analyze the data. The findings of the two-step sys-GMM estimation using 'xtabond2' revealed that when the institutional quality variable is added and excluded from the model, natural resource dependence negatively impacts economic growth, but the impact is greater when the institution is excluded. In the estimation of the interaction variable of natural resource dependence and institutional variable included in the model, natural resource dependence positively impacts economic growth. The results of the DPTR using "xthenreg" showed that when the threshold value of natural resource dependence is ≤ 1.73% of gross domestic product, natural resource dependence has a positive impact on economic growth and a negative impact when the threshold value is above 1.73%. Similarly, when the institutional quality threshold is ≤ 0.277, natural resources dependence impacts economic growth negatively; above the threshold (0.277), the impact is positive. In conclusion, natural resource endowment is a curse with no or low-quality institutions and a blessing with high-quality institutions. Thus, building strong institutions and proper utilization of natural resources helps to minimize the adverse impact of resource endowments on economic growth.

An empirical investigation of capital flight and economic growth nexus in Africa

ABSTRACT This paper investigates the impact of capital flight on economic growth in Africa using 54 African countries from 2000 to 2021. The study employed the GMM and the dynamic panel threshold regression estimation techniques. GMM results revealed that capital flight negatively and significantly affects economic growth in Africa. The study also revealed that external debt repayment and outward foreign direct investment, proxies of capital flight, have a negative and significant effect on economic growth in Africa, except foreign portfolio investment outflow, which positively and insignificantly influences economic growth. Again, the dynamic panel threshold estimation results also revealed that capital flight negatively affects economic growth at all levels of capital flight in Africa. The study also revealed that all the proxies of capital flight, external debt repayments, foreign portfolio investment outflows, and outward foreign direct investment negatively and significantly affect economic growth above a certain threshold. However, external debt repayment has an insignificant negative effect on economic growth below the threshold in Africa. Based on the findings, African countries should implement stringent policies to curb capital flight and regulate external debt repayments and outward foreign direct investment to enhance economic growth.

Enterprise risk management, corporate governance and insurers risk-taking behaviour in South Africa: evidence from a linear and threshold analysis

PurposeThis study examines the linear and non-linear effects of enterprise risk management (ERM) and corporate governance (CG) on insurers’ risk-taking behaviour.Design/methodology/approachThe study employed panel data of 63 insurers from South Africa over the period 2015 and 2019. The study used the generalised method of moments (GMM) to determine the direct relationship, while the dynamic panel threshold technique was utilised to discover whether there is non-linearity in the relationship and the threshold level at which ERM and CG stimulate insurance risk-taking.FindingsThe result from the GMM elicits a positive relationship between ERM and risk-taking, implying that insurers with a robust ERM system are more likely to pursue higher risks. The empirical evidence also suggests that board size and board independence improve insurers’ risk-taking. Contrarily, gender diversity shows an inverse relationship with risk-taking. The dynamic panel threshold regression confirms non-linearities between ERM, CG and risk-taking. The empirical evidence indicates a U-shaped relationship between ERM and risk-taking, implying that a robust ERM system increases insurers’ risk-taking and vice-versa. Further, board size and independence reveal an inverted U-shaped relationship, suggesting that larger boards and a higher proportion of independent directors exhibit lower risk-taking. However, gender diversity presents a negative relationship, demonstrating a strong impact at higher threshold levels. This tells that the presence of females on the board reduces insurers’ risk-taking preferences.Practical implicationsDue to the risk-bearing nature of the insurance business, it is required that they ensure a robust ERM system for prudent risk-taking decisions. This demands strict adherence to ERM principles and allocating sufficient resources for effective implementation. Also, there is a need for strong CG structures that pay more attention to diversity when selecting board members due to their influence in ensuring improved risk-taking choices.Originality/valueThis study contributes to the existing literature by providing insights into the under-researched role of ERM and CG in insurers’ risk-taking behaviour. The study further extends the literature by providing evidence on the non-linearity and threshold levels at which ERM and CG influence insurers’ risk-taking choices. The findings are unique and contribute to the growing body of literature documenting the need for strong ERM and CG systems in insurance companies.

Renewable energy and ecological footprint nexus: Evidence from dynamic panel threshold technique

The escalating phenomenon of environmental degradation is an urgent global concern, imperiling ecosystems and hindering the prospects for sustainable development on a planetary scale. Therefore, this study aims to explore the intricate interplay between renewable energy (RE) and ecological footprint (EF), considering the conditional impact of fiscal capacity (FIC), human development (HDI), institutional quality (IQI), and population density (PDN). Drawing on panel data encompassing 74 developing countries from 2000 to 2022, the study employs a dynamic panel threshold regression method, both with and without an instrumental variable approach. The findings unveil a non-linear nexus between RE and EF, revealing significant threshold values for FIC (1.870), HDI (0.736), and IQI (0.311), above which RE showcases its efficacy in mitigating EF. Conversely, when these predictors dip below the thresholds of FIC (1.391), HDI (0.655), and IQI (0.2545), the impact of RE on FE becomes insignificant. Moreover, the study introduces PDN as an additional threshold variable in the analysis, pinpointing that the effectiveness of RE in reducing EF hinges on PDN being below a threshold value of 263.144; however, above a threshold value of 276.98, the influence of PDN on the RE-FE nexus diminishes. The findings underscore the complexity of policy landscapes in developing countries. They suggest that while promoting renewable energy is pivotal for environmental sustainability, it is equally imperative to bolster existing environmentally friendly fiscal capacity, advance human capital, enhance institutional quality, and craft effective population distribution policies.

The Operational Risk Disclosure Threshold Effect in the Earnings Management–Sustainability Firm Performance Nexus in Saudi Arabia: A Dynamic Panel Threshold Regression Model

Although the relationship between earnings management and firm performance has been well explored in the literature, sustainable performance has not yet been examined. Furthermore, the literature has not addressed the issue of nonlinearity between earnings management and firm performance. Therefore, this paper aims to examine the potential nonlinear relationship between earnings management and sustainable firm performance in Saudi Arabia using a sample of 70 listed firms over the 2015–2022 period. Specifically, it investigates the operational risk disclosure threshold effect in the earning management–sustainable firm performance nexus. To do so, the dynamic panel threshold regression model (DPTR) is performed. The result proves that there is a threshold effect of operational risk disclosure in the relationship between earning management and sustainable firm performance. Specifically, the threshold values of operational risk disclosure for the three models are estimated at 6 between the low- and the high-operational-risk-disclosure regimes. In the lower regime, firm performance decreases when earning management increases; however, in the higher regime, firm performance increases when earning management increases. These outcomes support the predictions of agency and positive accounting theories.

Navigating the climate challenges in Africa: Exploring the synergy and threshold effects of renewable energy and foreign direct investment on climate risk

Renewable energy is widely acknowledged as an essential response to climate change, which poses a severe threat to humanity and natural ecosystems. Drawing from the greenhouse theory of climate change and the pollution haven hypothesis, this study contributes to the literature by addressing three critical issues. First, we examine the effect of renewable energy on climate risk. Second, we explore the intervening role of foreign direct investment (FDI) on the renewable energy-climate risk nexus. Third, we determine the minimum threshold required for renewable energy to minimise climate risk. The analysis was based on 47 African countries and estimated using the generalised method of moments (GMM) and dynamic panel threshold regression techniques. The GMM technique is essential due to its ability to address endogeneity issues in the model. Also, the dynamic panel threshold technique is employed because it is built on the principles of GMM and provides an estimate of the threshold level and nonlinearities in the model. The empirical evidence presents a significant negative relationship, suggesting that renewable energy minimises the surge in climate risk in Africa. Second, the findings reveal that the weakening effect of renewable energy on climate risk is contingent on FDI. Third, the dynamic panel threshold results demonstrate that the minimum threshold required for renewable energy to reduce climate risk is 56%. Beyond this level, renewable energy presents a significant negative impact, implying that high renewable energy consumption lessens climate risk. Policy recommendations for boosting renewable energy consumption to alleviate climate risk have been provided.

Have Precious Metals Lost Their Protective Powers During COVID-19 and the Russia-Ukraine War?

We reassess the inflation-hedging potentials of precious metals during the COVID-19 and Russia-Ukraine war periods and document findings for some advanced and emerging markets. We adopt the dynamic panel threshold regression model and account for the policy rates of the economies in the analyses. We find that while gold retained its protective powers, the reverse was the case for silver during the pandemic and the war in Ukraine. We offer a suggestion for investors and recommend that related studies take account of the monetary policy environment of the markets.

Tác động môi trường của tăng trưởng kinh tế: Tiếp cận bằng mô hình ngưỡng bảng động

The paper uses the environmental Kuznets curve (EKC) theory to study the environmental impact of economic growth in 17 Asian countries in the period 1996-2019 and at the same time search for the income threshold which causes a change in direction of impact. A dynamic panel threshold regression model is used. The findings show that economic growth has an inverted U-shaped nonlinear effect on environmental degradation. Accordingly, economic growth increases the impact on degradation when GDP per capita is low, but when it exceeds the threshold point (12487 USD thousand/person/year), economic growth helps to improve environmental quality. When comparing the difference in impact between the group of developed and developing countries, our results again confirm these findings. This result provided evidence that the EKC hypothesis exists in Asian countries. In addition, energy consumption, foreign direct investment, trade openness, and institutional quality significantly impact CO2 emissions. Some policy implications are suggested to reduce environmental degradation and promote sustainable economic development in Asia based on the research results

Testing the environmental Kuznets curve hypothesis in the transport sector for OECD countries: a dynamic panel threshold approach.

This study tests the environmental Kuznets curve (EKC) hypothesis in the transport sector for 28 OECD countries from 1990 to 2019. As a novelty, the relationship between gross domestic product (GDP) and carbon dioxide (CO2) emissions from the transport sector is investigated with the estimation of the dynamic panel threshold regression based on the generalized method of moments (GMM) estimator by Seo and Shin (Seo and Shin, J Econom 2:169-186, 2016). This approach enables us to test EKC and capture possible nonlinearities between variables. Along with the analysis of the EKC hypothesis, our study also investigates the effects of road petroleum products consumption, renewable energy consumption, and trade openness on transport CO2 emissions. The threshold regression results, where GDP per capita is employed as the transition variable, support the nonlinear relationship between CO2 emissions from the transportation sector and GDP by rejecting the null hypothesis of no threshold effect. This finding indicates the existence of two different regimes, i.e., the lower and upper regimes, based on the optimum value of the GDP per capita. Economic growth damages the environment in the lower regime, whereas it improves environmental quality in the upper regime. Therefore, the results indicate the presence of an inverted U-shaped relationship and support the EKC hypothesis in the OECD transportation sector. As a result, it is concluded that achieving sustainable economic growth is critical for investing in environmentally friendly technologies required to achieve the goal of reducing transportation-related CO2.

FINANCIAL DEVELOPMENT, ENERGY CONSUMPTION AND ENVIRONMENTAL QUALITY IN DEVELOPING COUNTRIES

This study aims to analyze the impact of financial development on greenhouse gas emissions in the case of developing countries, considering the spillover effects due to energy consumption. For this purpose, static and dynamic panel threshold regression models were used. The evidence obtained from the 2003-2019 period data shows that financial development has a significant threshold effect on emissions. How this effect works depends on the distinction between financial institutions and financial markets. In contrast to financial market development, in countries where the financial institution development index is above 0.356, the forces that increase emissions have been observed to weaken.

The threshold effect of institutional quality on sovereign debt and economic stability

This study examines the threshold effect of institutional quality on the sovereign debt-macroeconomic stability nexus using panel data from 133 countries covering the period from 2002 to 2020. We measure macroeconomic stability using principal component analysis of budget deficit, annual inflation rate, official exchange rate, real interest rate, and unemployment rate. The dynamic GMM result shows that institutional quality has a positive effect on macroeconomic stability, while government debt has a negative effect. However, the interaction between institutional quality and government debt changes the direction of the effect of debt on macroeconomic stability. Moreover, in dynamic panel threshold regression, we document the evidence of the threshold effect of institutional quality on sovereign debt-macroeconomic stability nexus and suggest that before (after) the threshold level of institutional quality, there is a negative (positive) impact of debt on macroeconomic stability. Our result suggest that better institutions can use debt more efficiently and productively to enhance economic performance. The findings of this study have significant implications for policymakers in formulating policies to promote macroeconomic stability.

Does financial development really spur industrialization in sub‐Saharan African countries?

AbstractIndustrialization constitutes one of the strategies of structural transformation in many sub‐Saharan African (SSA) countries. In this paper, we re‐examine the effect of financial development on the industrialization of 35 SSA countries over the period 1996–2018. Contrary to previous work, we formulate the hypothesis that there exists a threshold of financial development beyond which financial development positively influences industrialization. Using the dynamic panel threshold regression model, and system generalized methods of moment models, we find two main results. First, financial development has a negative and significant impact on the development of industrialization. Secondly, the findings show the existence of a nonlinear relationship between financial development and industrialization development. Thus, we find that financial development has a negative effect on industrialization below the threshold while the effect is significantly positive on industrialization in countries whose financial development is above the threshold. The results are stable to the different robustness tests used. These findings highlight the need for SSA countries to develop better financial institutions if they hope to boost the manufacturing sector.

Global value chain participation and CO2 emissions: Does economic growth matter? New evidence from dynamic panel threshold regression

This study investigates the impact of Global Value Chains (GVCs) participation on CO2 emissions in 61 economies using OECD data from 2000 to 2018. It focuses on the multiple regime effects of segregated participation in GVCs on CO2 emissions and employs a threshold model to estimate this impact. The findings indicate that GVCs participation in developing economies leads to higher CO2 emissions, while it has negative impact on higher-growing economies. Moreover, the study reveals that the direction of participation in GVCs matters, as forward participation has varying effects on CO2 emissions. Specifically, backward participation reduces CO2 emissions in both developing and developed economies. These results suggest that policymakers and industry leaders need to adopt a more nuanced approach to managing the environmental impacts of GVCs. They can do this by promoting domestic industries that investing in environmentally friendly technologies and processes for lower and higher-growth economies.

Does macroeconomic misery index matter in the micro firm-level earnings Management – performance nexus? Evidence from dynamic Panel threshold regression

Does macroeconomic misery index matter in the micro firm-level earnings Management – performance nexus? Evidence from dynamic Panel threshold regression

Digitalization and the environment: The role of information and communication technology and environmental taxes in European countries

AbstractThis study examines the impacts of digitalization through information and communication technology (ICT) and environmental taxes on greenhouse gas (GHG) emissions in 23 European Union (EU) countries between 2000 and 2017. Using the Pooled Mean Group estimator, the empirical results provide evidence that ICT development and environmental taxes improve environmental sustainability while research and development investments and income per capita deteriorate environmental sustainability. Furthermore, the results based on the Dynamic Panel Threshold Regression model show that the relationship between ICT and GHG emissions is dependent on the level of environmental taxes. During the period of low environmental taxes, the effect of ICT on GHG emissions is positive and insignificant but once environmental taxes cross the threshold value, the effect of ICT becomes negatively related to greenhouse gas emissions. This suggests that the period of low environmental taxes does not support the environmental friendliness of ICT development in the European region. The policy implication of these findings is that ICT, environmental taxes, and renewable energy can be possibly stirred up to achieve long‐term environmental sustainability in the EU region.

Analyzing financial and economic development thresholds for carbon emission reduction: a dynamic panel regime-switching study across income levels

PurposeThis research investigates the threshold effects of the interplay between finance, development and carbon emissions across 97 countries, including 50 low-income and 47 high-income countries, during the period from 1991 to 2019.Design/methodology/approachEmploying various econometric modeling techniques such as dynamic linear regression, dynamic panel threshold regression and in/out of sample splitting, this study analyzes the data obtained from the World Bank's world development indicators.FindingsThe results indicate that low-income countries require a minimum financial development threshold of 0.354 to effectively reduce carbon emissions. Conversely, high-income countries require a higher financial development threshold of 0.662 to mitigate finance-induced carbon emissions. These findings validate the presence of a finance-led Environmental Kuznet Curve (EKC). Furthermore, the study highlights those high-income countries exhibit greater environmental concern compared to their low-income counterparts. Additionally, a minimum GDP per capita of US$ 10,067 is necessary to facilitate economic development and subsequently reduce carbon emissions. Once GDP per capita surpasses this threshold, a rise in economic development by a certain percentage could lead to a 0.96% reduction in carbon emissions across all income levels.Originality/valueThis study provides a novel contribution by estimating practical financial and economic thresholds essential for reducing carbon emissions within countries at varying levels of development.

Is cleaner more efficient? Exploring nonlinear impacts of renewable energy deployment on regional total factor energy efficiency

Improving the deployment and penetration of renewable energy is considered to be the fundamental way to solve environmental problems, but whether higher penetration of renewable energy means higher energy efficiency remains to be empirically tested. To reveal the relationship between cleanliness and efficiency in the energy sector, this paper first uses the three-stage data envelopment analysis (DEA)method to measure the total factor energy efficiency (TFEE) of 30 provinces in China, and then applies static and dynamic panel threshold regression (PTR)models to estimate the nonlinear effect of renewable energy share on TFEE. The results show that renewable energy is usually beneficial for improving TFEE, but there are prominent heterogeneity and nonlinear characteristics in net electricity exporting and net electricity importing provinces. Renewable energy in low rather than high regimes can significantly improve energy efficiency, indicating that provinces with lower levels of economic development and energy consumption receive higher marginal energy efficiency and are more likely to achieve sustainable development goals. More renewable energy quotas should be given to economically developed and high energy consuming provinces, and comprehensive energy efficiency guarantees and improvement measures must be provided to achieve optimal emission mitigation.

Financial Inclusion and Sustainable Growth in North African Firms: A Dynamic-Panel-Threshold Approach

This paper investigates the impact of financial inclusion on sustainable firm growth in Northern African countries (Egypt, Morocco, and Tunisia) during the period of 2007–2020. To this end, this study employs a dynamic panel threshold regression (DPTR) model. This model is a panel-data model that can capture different behaviors of data, depending on a threshold variable. The main results showed the existence of a threshold effect. This means that when financial inclusion is low (high), sustainable firm growth is limited (significant) due to the absence (presence) of appropriate financing, information, and financial tools. However, the levels of financial inclusion in North African countries are insufficient and require improvement. Therefore, it is essential for policymakers and managers to continue to promote the quality of financial inclusion by improving access to financial services and the regulatory environment to facilitate firms’ access to financing and support their sustainability.