Endogenous Structural Breaks Research Articles

Effects of export concentration on CO2 emissions in developed countries: an empirical analysis.

This paper provides the evidence on the short- and the long-run effects of the export product concentration on the level of CO2 emissions in 19 developed (high-income) economies, spanning the period 1962-2010. To this end, the paper makes use of the nonlinear panel unit root and cointegration tests with multiple endogenous structural breaks. It also considers the mean group estimations, the autoregressive distributed lag model, and the panel quantile regression estimations. The findings illustrate that the environmental Kuznets curve (EKC) hypothesis is valid in the panel dataset of 19 developed economies. In addition, it documents that a higher level of the product concentration of exports leads to lower CO2 emissions. The results from the panel quantile regressions also indicate that the effect of the export product concentration upon the per capita CO2 emissions is relatively high at the higher quantiles.

Gold and oil prices: stable or unstable long-run relationship

This paper investigates the presence of a long-run relationship between the daily prices of oil and gold over the period 1986-2015. The presence of such a long-run relationship implies that the two markets are jointly inefficient; and that one price can be used as a predictor for the other price. We also test the presence of one or multiple structural breaks in the long-run relation. The presence of structural breaks suggests that the magnitude and the sign of the relationship between oil and gold prices may be different across different regimes. Our methodology is based on endogenous structural break tests and tests of cointegration with one or multiple breaks. Our results show that indeed this relation has changed over time and is subject to two or five regime changes. However, we do not find evidence for cointegration with or without breaks. The absence of a long-run equilibrium between oil and gold prices suggest that oil prices are biased predictor of gold prices. Hence, past information of oil prices is not relevant in forecasting gold prices.

Environmental Kuznet’s Curve for Saudi Arabia: An Endogenous Structural Breaks based Cointegration Analysis

The study attempts to analyse cointegrating relationship between carbon emissions, energy consumption, income and trade openness in case of Saudi Arabia using the time series data for the period 1971-2011. For this purpose, it uses the ARDL cointegrating technique to find out the long run relationships among the variables. The bounds test results indicate that there exist long- run relationships between the variables. The study also used threshold cointegrating test in order to test the environmental Kuznet’s curve hypothesis in the presence of regime shift. This study confirms existence of cointegrating relationship in case of single structural break, but for two structural break there is no cointegration among the variables. The Environmental Kuznet’s curve hypothesis does not hold in Saudi Arabia. The study does not find long run coefficients statistically significant except for trade openness.

The Feldstein–Horioka puzzle in the presence of structural breaks: evidence from China

ABSTRACTThis study explores the empirical validity of the Feldstein-Horioka puzzle for China in the presence of structural breaks. As such, we employ a recently proposed multiple-break cointegration test. Once the existence of the cointegration between domestic savings and investment is ensured by allowing for endogenous structural breaks, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation procedures are implemented to obtain reliable inferences. Empirical results reveal that the relationship between Chinese domestic savings and investment has undergone some major changes. More specifically, with the introduction of managed floating exchange rate regime, a substantial reduction is observed in the almost unitary saving retention coefficient of the fixed exchange rate period. Furthermore, the correlation has experienced a slight increase since 2009, which coincides with the worldwide protectionist policies adopted in the depth of the global financial crisis.

Is financial development good for carbon mitigation in India? A regime shift-based cointegration analysis

ABSTRACTThe present study investigates the long-run impact of financial development, energy consumption and economic growth on greenhouse gas emissions for India, in the presence of endogenous structural breaks, over the period 1971–2013. The autoregressive distributed lag bounds testing procedure (ARDL) and Hatemi-J threshold cointegration technique were used to test the variables for cointegration. ARDL bounds test did not confirm any cointegrating relationship between the variables. The threshold cointegration test establishes the presence of long-run impact of financial development, energy use and economic growth on greenhouse gas emissions in India. The results reveal that the long-run relationship between the variables has witnessed two regime shifts, in 1978 and 2002. The empirical evidence shows that financial sector development and energy consumption in India degrade the environment. Unlike previous studies, this paper finds no statistical evidence of a long-run relationship between economic growth and environmental deterioration. The study also challenges the existence of an environmental Kuznets curve in India.

Time series dynamics of US retail gasoline prices: Evidence from fractional integration

ABSTRACTThis study applies fractional integration techniques (parametric and semi-parametric) to examine the time series behavior of US retail gasoline prices using weekly data from January 2, 1995, to May 22, 2017. The results based on both parametric and semi-parametric methods provide conflicting evidence. Using parametric methods, the orders of integration are significantly greater than 1; however, with the semi-parametric approach, there is some evidence of mean reversion (d < 1). These conflicting results could be due to the existence of structural breaks. Indeed, endogenous structural break tests indicate breaks in 2005 and 2010. The estimation of the orders of integration within each of the subsamples reveals the absence of mean reverting behavior in retail gasoline prices.

Revisiting income and price elasticity of gasoline demand in India: new evidence from cointegration tests

This study investigates cointegration among gasoline demand, real price of gasoline and real GDP for India for the period 1971–1972 to 2012–2013. It also estimates short-run and long-run elasticity of gasoline demand with respect to its price and GDP. Johansen–Juselius and ARDL bounds test methods establish that gasoline demand, gasoline price and GDP are cointegrated. Regime shift cointegration tests with endogenous structural breaks, on the other hand, ascertain cointegration between gasoline demand and GDP. Gasoline demand is found to be highly elastic with respect to real income and real price in the long-run. However, in the short-run, price is inelastic. The study deviates from previous studies in two important aspects. First, price is found to be elastic in the long-run as opposed to being inelastic in both short term and long term as established in the previous studies. Second, income elasticity has declined in magnitude. These findings are quite intriguing and are consistent with policy changes in the Indian economy. The Toda–Yamamoto version of Granger causality tests establishes long-term unidirectional causality from real income to gasoline consumption. The study discusses possible reasons behind the empirical findings, and finally, a set of policy prescriptions are suggested to reduce the consumption of gasoline, which should have no adverse impact on economy in the long-run.

Productivity Gaps and Vertical Technology Spillovers from Foreign Direct Investment: Evidence from Vietnam

Developing countries are eager to host foreign direct investment to receive positive technology spillovers to their local firms. However, what types of foreign firms are desirable for the host country to achieve spillovers best? We address this question using firm-level panel data from Vietnam to investigate whether foreign Asian investors in downstream sectors with different productivity affects the productivity of local Vietnamese firms in upstream sectors differently. Using endogenous structural breaks, we divide Asian investors into low-, middle-, and high-productivity groups. The results suggest that the presence of the middle group has the strongest positive spillover effect. The differential spillover effects can be explained by a simple model with vertical linkages and productivity-enhancing investment by local suppliers. The theoretical mechanism is also empirically confirmed.

Disinflation in steps and the Phillips curve: Israel 1986–2015

A Phillips curve (PC) framework is utilized to study the challenging post-1985 disinflation process in Israel. The estimated PC is stable and has forecasting power. Based on endogenous structural break tests we find that actual and expected inflation are co-breaking. We argue that the step-like development of inflation is in line with shocks and monetary policy that changed inflationary expectations. The disinflation process was long, and a long-term commitment by both the Central Bank and the government was required. Credibility was achieved gradually and the transition from the last step of 10% to 2% inflation was accomplished by introducing an inflation targeting regime.

Some empirics on the convergence of carbon dioxide emissions intensity across US states

ABSTRACTThis study examines the convergence of carbon dioxide emissions intensity across the 50 US states including the District of Columbia over the period 1997–2013 using a battery of tests. The results from cross-sectional tests of β- and σ-convergence lend support for overall convergence in carbon dioxide emissions intensity. On the other hand, panel unit root tests with allowance for endogenous structural breaks reveal that relative carbon dioxide emissions intensity contains a unit root, hence the absence of stochastic convergence.

Financial Development, Investment and Economic Growth: Evidence from Nigeria

The paper evaluates the relationship among financial development, investment and economic growth in Nigeria. It also examines the role of investment in financial development and how it influences economic growth in Nigeria. The paper applies the standard Vector autoregression (VAR) framework of Johansen, the Inoue (1999) cointegration framework with endogenous structural break model and Johansen et al . (2000) cointegration test with exogenous structural breaks, respectively. After accounting for structural breaks in the series, the study establishes a long-run relationship among financial development, investment and economic growth. This indicates that failure to account for structural breaks in the series may lead to bias estimates and may mislead policy conclusion. It further reveals that investment is a critical channel that influences economic growth through financial development.

Sectoral Differences in the Choice of the Time Horizon during Estimation of the Unconditional Stock Beta

The stock beta coefficient literature extensively discusses the proper methods for the estimation of beta as well as its use in asset valuation. However, there are fewer references with respect to the appropriate time horizon that investors should utilize when evaluating the risk-return relationship of a stock. We examine the appropriate time horizon for beta estimation, differentiating our results by sector according to the Industry Classification Benchmark. We employ data from the NYSE and estimate varying lengths of beta employing data from 30 to 250 trading days. The constructed beta series is then examined for the presence of breaks using the endogenous structural break literature. Results show evidence against the use of betas that employ more than 90 trading days of data provisional to the sector under study.

Disinflation and the Phillips Curve: Israel 1986-2015

A Phillips Curve (PC) framework is utilized to study the challenging post-1985 disinflation process in Israel. The estimated PC is stable and has forecasting power. Based on endogenous structural break tests we find that actual and expected inflation are co-breaking. We argue that the step-like development of inflation is in line with shocks and monetary policy that changed inflationary expectations. The disinflation process was long, and a long-term commitment by both the Central Bank and the government was required. Credibility was achieved gradually and the transition from the last step of 10% to 2% inflation was accomplished by introducing an inflation targeting regime.

Natural gas consumption and economic growth: Panel evidence from OECD countries

This paper examines the relationship between natural gas energy consumption and economic growth in 26 Organisation for Economic Co-operation and Development (OECD) countries within a multivariate production model from 1991 to 2013. The study reveals that natural gas consumption, GDP growth, gross fixed capital formation, and trade openness are cointegrated with endogenous structural breaks. According to the panel fully modified ordinary least square (FMOLS) and the panel dynamic ordinary least square (DOLS), natural gas consumption in OECD countries positively affects GDP growth in the long-run. Furthermore, the VECM Granger causality test reveals unidirectional causality from natural gas consumption to GDP growth, which supports the growth hypothesis for the short-run. In the long-run, it is concluded that there is bidirectional causality between natural gas consumption and economic growth which confirms the feedback hypothesis.

Export product diversification and the environmental Kuznets curve: evidence from Turkey.

Countries try to stabilize the demand for energy on one hand and sustain economic growth on the other, but the worsening global warming and climate change problems have put pressure on them. This paper estimates the environmental Kuznets curve over the period 1971-2010 in Turkey both in the short and the long run. For this purpose, the unit root test with structural breaks and the cointegration analysis with multiple endogenous structural breaks are used. The effects of energy consumption and export product diversification on CO2 emissions are also controlled in the dynamic empirical models. It is observed that the environmental Kuznets curve hypothesis is valid in Turkey in both the short run and the long run. The positive effect on energy consumption on CO2 emissions is also obtained in the long run. In addition, it is found that a greater product diversification of exports yields higher CO2 emissions in the long run. Inferences and policy implications are also discussed.

Disinflation and the Phillips Curve: Israel 1986-2015

A Phillips Curve (PC) framework is utilized to study the challenging post-1985 disinflation process in Israel. The estimated PC is stable and has forecasting power. Based on endogenous structural break tests we find that actual and expected inflation are co-breaking. We argue that the step-like development of inflation is in line with shocks and monetary policy that changed inflationary expectations. The disinflation process was long, and a long-term commitment by both the Central Bank and the government was required. Credibility was achieved gradually and the transition from the last step of 10% to 2% inflation was accomplished by introducing an inflation targeting regime.

Growth in India’s Service Sector: Implications of Structural Breaks

The paper is an attempt to identify the multiple structural breaks in India’s GDP, as well as its main growth enhancing sector i.e., services and its components and subsequently calculate the growth rate in different regimes. The paper uses the Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology of estimating multiple endogenous structural breaks (both pure and partial) in India’s service sector and its components and GDP during 1950–2010. Further, the paper uses the Boyce (Oxf Bull Econ Stat 48:385–391, 1986) methodology of estimating kinked exponential model of the growth rate, and further uses the Banerjee, Lumsdaine and Stock (J Business Econ Stat 10:271–287, 1992) test and the Lumsdaine and Pappel (Rev Econ Stat 79:212–218, 1997) test to check for the stationarity in the presence of structural breaks. The data used in this paper are the components of subsectors of services GDP and GDP at factor cost (with 2004–2005 as base). It is found that there is very little difference between the estimation of pure and partial structural break dates in India’s services GDP and its subsectors and four such breaks have been identified with help of Bai-Perron (Econom 66(1), 1998, J Appl Econom 18(1), 2003) methodology. The Boyce methodology of estimation of growth rates finds that mainly in the third and fourth regimes, the growth rates are highest in the subsectoral as well as at the aggregate levels of services GDP. The Banerjee, Lumsdaine and Stock test (J Business Econ Stat 10:271–287, 1992) and the extended Lumsdaine and Pappel test (Rev Econ Stat 79:212–218, 1997) cannot negate the presence of unit root in the data, irrespective of the presence of multiple structural breaks. The paper concludes with the identification of four broad regimes of growth of India’s services GDP and in the subsectors with possible explanations thereof.

An examination of convergence hypothesis for EU-15 countries

In this paper we investigate whether EU-15 countries experience convergence in per capita GDP levels with respect to the EU-15 average over the period 1950–2015. Nonlinear and nonlinear-asymmetric unit root tests as well as structural break Lagrange Multiplier (LM) unit root tests are employed. When nonlinear and nonlinear-asymmetric unit root tests are employed, five countries exhibit long-run or deterministic convergence with the EU-15 average. However, when endogenous structural break LM unit root tests are employed, nine countries exhibit stochastic convergence. Test results indicate that real per capita income levels of 11 EU countries converge towards the EU-15 average.

The role of structural breaks, nonlinearity and asymmetric adjustments in African bilateral real exchange rates

This paper examines the validity of the purchasing power parity, PPP for six African countries of Botswana, Ghana, Kenya, Nigeria, South Africa and Tanzania using the countries' bilateral real exchange rates with their fifteen major trading partners for the period 1960–2011. It uses the Lagrangian multiplier, LM, which accommodates up to two endogenous structural breaks in addition to conventional unit root tests. The paper also uses the threshold cointegration tests to explore nonlinearity and asymmetric adjustments of the series. Results from the LM unit root tests indicate that the exchange rates of Botswana, Ghana, Kenya and Nigeria relative to their major trading partners are stationary. The results from the threshold cointegration suggest that there is a long-run relationship between the series and that the adjustments are asymmetric. Appreciation is faster than depreciation in most of the countries. This is consistent with suggestions that countries are intolerant of depreciation.

Dynamic Relationships Among CO2 Emissions, Energy Consumption, Economic Growth, and Economic Complexity in France

Environmental degradation is most often brought to the agenda by arousing the attention of scholars, and there has been an increase in the studies on this issue. This paper re-estimates the environmental Kuznets curve in France over the period of 1964–2011. To this end, the unit root test with one structural break and a cointegration analysis with multiple endogenous structural breaks are considered. The impacts of the energy consumption and the economic complexity on CO2 emissions are also included in dynamic empirical models. First, it is found that the environmental Kuznets curve hypothesis is valid in France in both the short and the long run. Second, the positive impact of energy consumption on CO2 emissions is also observed in the long run. Third, it is observed that a higher economic complexity suppresses CO2 emissions in the long run. The evidence suggests important environmental policy implications to suppress CO2 emissions in France.