Economic Growth Shocks Research Articles

Foreign Direct Investment Response to Economic Growth Shocks: Evidence from a VAR Estimation on a Panel Dataset

This paper examines the relationship between inward foreign direct investment (IFDI) and economic growth in OECD and ASEAN, China and Hong Kong (East Asia) over the past 35 years (1985-2019). Our estimates using vector autoregression on a panel dataset show that the mutually causal relationship between IFDI inflows and economic growth exists in both the advanced and emerging countries. However, the relationship appears to be stronger in the OECD economies than in the East Asian economies, and IFDI is more responsive to economic growth in the OECD countries. The results from impulse response functions also indicate that a shock in economic growth leads to a change in the IFDI inflows into OECD countries while there is no strong evidence in ASEAN, China and Hong Kong.

ANALISIS DAMPAK SHOCK PERTUMBUHAN EKONOMI MITRA DAGANG UTAMA TERHADAP PERTUMBUHAN EKONOMI DAN KETERBUKAAN PERDAGANGAN INDONESIA

This study aims to analyze the response of Indonesia's economic growth and Indonesia's trade openness with each trading partner to economic growth shocks in Indonesia's main trading partners. This study uses a quantitative approach with the VAR / VECM method by analyzing the impulse response between variables, using time-series data. The sample used in this study amounted to 378 annual data from 1981-2022 sourced from the World Bank and IMF. The results obtained from the response test show that there is a positive response from Indonesia's economic growth to shocks to US economic growth, and a negative response from Indonesia's trade openness with the United States. There is a positive response from Indonesia's economic growth to China's economic growth shocks, and a negative response from Indonesia's trade openness with China. There is a positive response of Indonesia's economic growth and trade openness with Japan to Japan's economic growth shocks. There is a negative response from Indonesia's economic growth and trade openness with Malaysia to shocks in Indonesia's economic growth with Malaysia.

Environmental quality and health expenditures efficiency in Türkiye: the role of natural resources.

The environmental pollution caused by climate change and global warming pose significant risks to health. This raises the question how environmental disturbances can affect health expenditures. Based on this, this study examines the asymmetric effect of environmental quality on health expenditures in Türkiye using the non-linear ARDL (NARDL) model for the 1975–2019 period. In addition to environmental quality, natural resources, economic growth, and trade openness variables are also included in the health expenditure model. The findings support the existence of an asymmetric cointegration relationship between the series. The findings also indicate that positive environmental pollution shocks affect health expenditures positively in the long run, while negative environmental pollution shocks do not have a statistically significant effect on health expenditures. Positive and negative natural resource shocks affect health expenditures negatively in the long run. Despite the effect of positive economic growth shocks on health expenditures is positive but statistically insignificant, the effect of negative economic growth shocks is positive and significant. Besides, positive trade openness shocks have a negative effect on health expenditures and negative trade openness shocks have a positive effect. The findings prove that the steps to be taken to protect the environment in the current period will increase the effectiveness of health expenditures in the future. This situation has a guiding feature for policy-makers in terms of policy decisions.

Globalization and renewable energy use: how are they contributing to upsurge the CO2 emissions? A global perspective.

The present study major aim was to examine the impact of globalization, economic growth, population growth, renewable energy usage and nuclear energy on CO2 emissions globally by taking the annual data varies from 1985 to 2020. Stationarity among study variables were tested via unit root testing, while nonlinear autoregressive distributed lag (NARDL) technique was used to demonstrate the linkages among variables with the estimation of long-run and short-run. Study results reveal that both in the short run and long run, negative globalization and economic growth shocks positively and negatively influence CO2 emissions, respectively. Besides, higher population growth is found to positively influence CO2 emissions while renewable energy consumption cannot influence the CO2 emission figures. Lastly, positive and negative shocks to alternative nuclear energy consumption are evidenced to negatively influence CO2 emissions both in the short run and long run. Hence, in line with these findings, several new policies and strategies are recommended for reducing carbon emissions globally.

Economic shocks predict increases in child wasting prevalence

In low and middle income countries macroeconomic volatility is common, and severe negative economic shocks can substantially increase poverty and food insecurity. Less well understood are the implications of these contractions for child acute malnutrition (wasting), a major risk factor for under-5 mortality. This study explores the nutritional impacts of economic growth shocks over 1990–2018 by linking wasting outcomes collected for 1.256 million children from 52 countries to lagged annual changes in economic growth. Estimates suggest that a 10% annual decline in national income increases moderate/severe wasting prevalence by 14.4–17.8%. An exploration of possible mechanisms suggests negative economic shocks may increase risks of inadequate dietary diversity among children. Applying these results to the latest economic growth estimates for 2020 suggests that COVID-19 could put an additional 9.4 million preschoolers at risk of wasting, net of the effects of preventative policy actions.

Renewable energy consumption, globalization, and economic growth shocks: Evidence from G7 countries

This paper examines the asymmetric responses of renewable energy (RE) technology to globalization and economic growth shocks across the G7 countries using the Nonlinear Cointegrating Auto-Regressive Distributed Lag (NARDL) model. Our results indicate asymmetries across these countries and that positive shocks on globalization increase RE in Canada, Germany, the United Kingdom (UK), and the United States (US) while negative shocks decrease RE. However, both positive and negative globalization shocks promote RE consumption in Italy and Japan but decrease it in France. In contrast, both income shocks increase RE in France whilst positive income shocks increase RE in Canada, Germany, and Italy while negative shocks decrease RE. Positive income shock facilitates RE in the UK and the US while negative income shocks are detrimental to RE in Japan. Further analysis using panel cointegration, Fully Modified Ordinary Least Squares, and Panel Dynamic Ordinary Least Squares suggests that RE deployment in the G7 countries is mainly driven by positive shocks on income, globalization, and capital. We discuss the implications of the findings.

In sickness and in debt: The COVID-19 impact on sovereign credit risk

The COVID-19 pandemic provides a unique setting in which to evaluate the importance of a country’s fiscal capacity in explaining the relation between economic growth shocks and sovereign default risk. For a sample of 30 developed countries, we find a positive and significant sensitivity of sovereign default risk to the intensity of the virus’s spread for fiscally constrained governments. Supporting the fiscal channel, we confirm the results for Eurozone countries and U.S. states, for which monetary policy can be held constant. Our analysis suggests that financial markets penalize sovereigns with low fiscal space, impairing their resilience to external shocks.

In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

The COVID-19 pandemic provides a unique setting in which to evaluate the importance of a country's fiscal capacity in explaining the relation between economic growth shocks and sovereign default risk. For a sample of 30 developed countries, we find a positive and significant sensitivity of sovereign default risk to the intensity of the virus' spread for fiscally constrained governments. Supporting the fiscal channel, we confirm the results for Eurozone countries and U.S. states, for which monetary policy can be held constant. Our analysis suggests that financial markets penalize sovereigns with low fiscal space, thereby impairing their resilience to external shocks.

Does trade openness affect economic growth in India? Evidence from threshold cointegration with asymmetric adjustment

This paper investigates the long-run equilibrium relationship between economic growth and trade openness in India during the period 1960–2018 using the asymmetric error-correction model with threshold cointegration. To evaluate the robustness impact of trade openness on economic growth under different regimes, we divide the full sample period into two sub-periods, i.e., pre-trade reforms period 1960–1990, and post-trade reforms period 1991–2018. The study indeed confirms the evidence of asymmetric cointegration between economic growth and trade openness in India during the period under evaluation and over the different sub-periods. The estimated asymmetric error-correction model exhibits a different speed of adjustment in trade openness in response to positive and negative economic growth shocks in the short-run. More specifically, during the pre-reforms period, deviations from the long-run equilibrium due to a relative increase in economic growth have a lower speed of adjustment in comparison to deviations caused by a corresponding decrease in economic growth in India.

Is Economic growth sensitive to oil consumption shocks in Turkey?

ABSTRACTThis paper examines both the equilibrium relationship and the causality relationship between oil consumption and economic growth in a sample period spanning 1965–2013 in Turkey. For this purpose, an autoregressive distributed lag bounds testing approach was applied in order to determine the long-run relationship between variables, and an asymmetric causality test was used in an effort to classify the impact of shocks on the variables into positive and negative. The results of the bounds test and asymmetric causality test show that there is a long-run relationship between variables and that there is a unidirectional Granger causality running from negative economic growth shocks to negative oil consumption shocks, from positive economic growth shocks to negative oil consumption shocks, and from positive oil consumption shocks to positive economic growth shocks.

Civil Conflicts, Economic Shocks and Night-time Lights

AbstractThis study focuses on the effect of economic growth shocks on the risk of civil conflict outbreak in Africa. The data set covers African first-order administrative units and the time period 1992–2010. Since sub-national GDP is not available for Africa, night-time light data from satellites is used to predict economic growth. Economic growth is then instrumented with rainfall and temperature variables in order to identify the causal effect of economic growth on conflict risk. Furthermore, a spatial autoregressive panel model is estimated to examine the role of spill-over effects. Estimation results suggest strong spill-over effects, but provide no evidence for a significant effect of economic growth on civil conflict.

Stochastic Skewness and Index Option Returns

In literature, many researchers focus on information contained in stochastic volatility dynamics, such as CBOE VIX index and its risk premium. However, there are relatively fewer studies on stochastic skewness dynamics. Simple linear regression indicates that stochastic volatility and stochastic skewness have different information about economic fundamentals: regressing CBOE VIX index on CBOE Skewness index, ranging from 1990 to 2013, yields R2 only 2%. Motivated by such striking yet simple empirical result and advances in reduced-form option pricing literature, we build one discrete-time equilibrium option pricing model with non-normal innovation. In our framework, market return skewness is driven by a stochastic process independent of volatility. Thus volatility and skewness dynamics possess different information about stochastic investment opportunity. Specifically, we use Variance Gamma distribution to generate economic growth shocks. Variance gamma innovation is able to be decomposed into two shocks, one of them is strictly positive, and the other is strictly negative. Our skewness risk factor controls the frequency and magnitude of these two shocks, therefore, controls the switching behavior of economic condition, e.g. from good to bad state. We show in our model that stochastic skewness risk should be priced, provided that investors have recursive utility function. Empirically, using Fama-Macbeth two pass regression and a panel of S&P 500 index option returns, we find that stochastic skewness has positive, statistically significant risk premium, and its sign does not change across our sample period. Moreover, our results show that skewness risk has superior explanation power for index option returns, compared with performance of volatility risk and Merton-type of jump risk. The shock of skewness risk premium is able to predict short-term market excess returns, the R2 is as high as 7%.

Cross-Sectional Asset Pricing Puzzles: A Long-Run Perspective

This paper proposes an intertemporal asset pricing model within a long-run risk economy featuring a formal cross section of firms characterized by mean-reverting expected dividend growth. We find considerable empirical support for the cross-sectional implications of the model, as cash flow- and return-based measures of long-run risk exposure are both positively related to returns and offer a partial explanation of the size, value, and momentum anomalies. Interestingly, the model implies a negative relation between exposures to systematic and firm-specific risks in the cross section. Higher cash-flow duration firms exhibit higher exposure to economic growth shocks while they are less sensitive to firm-specific news. Such firms command higher risk premiums but exhibit lower analyst forecast dispersion, idiosyncratic volatility, and distress risk. We find theoretical and empirical support of a long-run risk explanation of these anomalies.