Error Correction Model Granger Causality Research Articles

Capital Flow Management Within Macroeconomics Stability Framework in Indonesia (2008 – 2022)

Indonesia is an EMDEs (Emerging Market and Developing Economies) country, and adopting an open economy causes foreign capital flow, especially FDI (Foreign Direct Investment) and PI (Portfolio Investment) can be free flows, and its movements are unpredictable. The movement of capital flows will affect the money supply transmitted to monetary and macroeconomic variables. This study aims to determine the response and contribution of macroeconomic variables to FDI and PI, as well as examining the causality between macroeconomic variables, FDI and PI. This research used the Vector Error Correction Model Granger Causality. The results show that exchange rate and inflation shocks significantly impact FDI and PI. While the results of Granger causality, changes in macroeconomic variables cause changes in FDI and PI. This research recommends that stakeholders continue implementing policy mix and monetary policy to improve exchange rates and inflation stability. In addition, the management of capital flows is still considered because the potential risks posed to the economy are quite large

A nexus between sustainability, energy utilisation and economic growth at aggregate and disaggregate level: a case of India

PurposeThe growth of the Indian economy is accompanied by the rising trend of energy utilisation and its devastating effect on the environment. It is vital to understand the nexus between energy utilisation, climate and environment degradation and growth to devise a constructive policy framework for achieving the goal of sustainable growth. This study aims to analyse the long- and short-run association and direction of association between energy utilisation, carbon emission and growth of the Indian economy in the presence of structural break.Design/methodology/approachThe study probes the association and direction of association between variables at both aggregate (total energy utilisation, total carbon emission and gross domestic product [GDP]) and disaggregates level (coal utilisation and coal emission, oil utilisation and oil emission, natural gas utilisation and natural gas emission along with GDP) over the time period of 50 years, i.e. 1971–2020. Autoregressive distributed lag model is used to examine the association between the variables and presence of structural break is confirmed with the help of Zivot–Andrews unit root test. To check the direction of association, vector error correction model Granger causality is performed.FindingsAggregate carbon emissions are affected positively by aggregate energy consumption and GDP in both short and long run. Bidirectional causality exists between total emissions and GDP, whereas a unidirectional causality runs from energy consumption towards carbon emission and GDP in the long run. At disaggregate level, consumption of coal energy impacts positively, whereas GDP influences coal emission negatively in the long run only. Furthermore, consumption of oil and GDP influences oil emissions positively in the long run. Lastly, natural gas is the energy source that has the fewest emissions in both short and long run.Originality/valueThere is a rapidly growing body of research on the connections and cause-and-effect relationships between energy use, economic growth and carbon emissions, but it has not conclusively proved how important the presence of structural breaks or changes within the economy is in shaping the outcomes of the aforementioned variables, especially when focusing on the Indian economy. By including the impact of structural break on the association between energy use, carbon emission and growth, where energy use and carbon emission are evaluated at both aggregate and disaggregate level, the current study aims to fill this gap in Indian literature.

The Russian Federation's renewable energy development determinants: evidence from empirical research

PurposeThe Russian Federation is one of the world’s largest exporters of fossil-based energy sources such as oil, natural gas and coal. Approximately 90% of the energy production in the Russian Federation consists of oil, natural gas and coal. Renewable energy (RE) in the Russian Federation mainly comprises hydroelectric energy. The purpose of this paper is to identify the factors that influenced the growth of RE resources in the Russian Federation between 1990 and 2020.Design/methodology/approachThe unit root tests augmented Dickey and Fuller and Phillips and Perron, as well as Johansen cointegration and Granger causality approaches, were used. This study was conducted using vector error correction models for the years 1990–2020.FindingsThe cointegration method's findings demonstrate that while a rise in non-RE sources has a negative impact on RE development, an increase in income, energy consumption, trade openness and CO2 emissions has a favorable impact on RE expansion. The vector error correction model Granger causality test also shows a unidirectional relationship between RE and non-RE sources, gross domestic product, energy consumption and CO2 emissions. Trade openness, on the other hand, has no causal association with RE.Practical implicationsThe Russian Federation must consider the practical implications of RE sources. However, there is a greater need for the Russian Federation to frame sound energy policies for RE development.Originality/valueThis paper aims to fill a gap in the literature on Russian RE development. Furthermore, the results of the methodological analysis can be used to guide policymakers in the field of RE development. This paper is also more policy-relevant and is quite useful in the context of sustainable energy development.

Do anthropogenic and natural factors elevate the haze pollution in the South Asian countries? Evidence from long-term cointegration and VECM causality estimation.

Anthropogenic and natural factors lead to substantial environmental degradation. This shift is aligned with the country's overall development, resulting in high demand for energy resources and a dramatic shift in human activities that contribute to haze pollution. Some of the countries in the South Asian region are ranked between one and twenty on the list of countries with the highest levels of PM2.5 pollution. The member countries have taken many steps to tackle global warming, but concern about haze pollution was found limited. Moreover, very little research was conducted on haze pollution, which led us to conduct this research in this region. This study used the panel data from 1998 to 2018 and a set of econometric models like long-term cointegrating relationship, fully modified ordinary least squares, and vector error-correction model Granger causality tests to examine the major drivers like anthropogenic and natural factors that might elevate haze pollution. Furthermore, our empirical results depict that (1) there is a long-term cointegrating relation between haze and the factors studied. (2) Energy consumption, urbanisation, and economic growth are the primary drivers of environmental degradation. (3) Rainfall has the most substantial influence on reducing haze pollution. The study concluded that (a) if the countries continue to develop at the same pace, all factors studied will continue to drive haze pollution to rise. (b) A decrease in PM2.5 pollution requires improvements in regional rainfall through vegetation, reducing reliance on fossil fuel-based energy sources, and increasing environmental education. (c) Slowing down the drive for urbanisation would not be cost-effective in reducing haze pollution in the region in the short run. Thus, reducing haze by adjusting the factors studied would not be easy in the short run and require the careful adoption of long-term policies.

The impact of R&D investment on grain crops production in China: Analysing the role of agricultural credit and CO2 emissions

AbstractA better understanding of the dynamics involved in grain production is critical for food security and poverty reduction. To this end, several factors influence grain production, including capital (i.e. R&D investment and agricultural credit), agriculture environment (i.e. CO2 emissions), and technical progress (i.e. fertilizers and agricultural machinery). This paper analyses the combined effects of these factors on China's grain crops output from 1990 to 2017 by using the autoregressive distributed lag (ARDL) approach. The ARDL‐bounds testing approach provided the long‐run connection amid the variables. The findings include: (i) agricultural R&D spending has an encouraging and meaningful influence on grain crops yield in the long‐run and short‐run; (ii) agricultural credit significantly and positively stimulates grain crops output; (iii) CO2 emissions negatively impact grains' output in the short‐ and long‐run; (iv) area under grain crops and fertilizers used also endure a positive spur on grain crops production in the long‐run and short‐run; and (v) short‐run nexus among the variables is navigated for robustness rationale via the vector error correction model Granger causality practice. Hence, the strategy specialists should also acquaint finances through prescribed organizations on comfortable provisions and minimal interests. In addition, the Chinese Governments and agricultural extension organizations should support the easy acquisition of high‐tech cultivating machinery to harvest crops swiftly and explore substantial markets for further business.

The Nexus Between Economic Growth, Financial Development, Financial Inclusion and Financial Innovation in Africa

This research explores the connection between economic growth, financial development, financial inclusion and financial innovation in Africa by employing the panel structural vector autoregression using annual data from 2004 to 2018. The vector error correction model Granger causality test was applied to examine directional causality with financial inclusion, financial innovation and economic growth used as dependent variables, and error correction term (ECT) coefficients are negatively significant at one percent for the long-term causality. It shows that the causal association between financial inclusion and financial innovation is explained by the African economy feedback hypothesis. The short-run causality shows a causal connection between economic growth and financial inclusion as well as financial innovation. It means that additional development in any one of these variables (i.e., economic growth, financial innovation and financial inclusion) will have a vital impact on connected variables, which can be noticed in the short run. This is why policymakers and government should consider each of the facets of financial inclusion and financial innovation as they do not merely affect each other; they also affect economic activities, hence fiscal policy is capable of steering more financial inclusions, financial innovation and financial development.

Role of renewable energy and globalization on ecological footprint in the USA: implications for environmental sustainability.

The role of renewable energy and globalization on ecological footprint is investigated in the USA by controlling for the effects of financial development and real output using quarterly data from 1985:Q1 to 2014:Q4. We apply the minimum Lagrange multiplier unit root test, multiple structural break cointegration test, and autoregressive distributed lag (ARDL) estimation approach. The empirical evidence suggests that, in the long run, renewable energy and real output exert negative pressure on ecological footprint while financial development and globalization exert positive pressure on ecological footprint. The short-run results indicate that renewable energy, financial development, real output, and globalization are positively linked to ecological footprint. The vector error correction model Granger causality results, in the long run, divulge that ecological footprint, consumption of renewable energy, real output, and globalization Granger-cause financial development while ecological footprint, renewable energy, financial development, and globalization Granger-cause real output. The results also show that, in the short run, renewable energy and globalization cause ecological footprint and real output causes renewable energy, while renewable energy causes globalization. The finding also reveals that the causality between real output and globalization, as well as globalization and financial development, is bidirectional. Therefore, our findings provide insights for policymakers to consider consumption ofrenewable energyas a surest way to mitigate carbon dioxide emissions.

Electricity consumption, urbanization, and economic growth in Nigeria: New insights from combined cointegration amidst structural breaks

The study explores the link between electricity consumption, urbanization, and economic growth in Nigeria from 1971 to 2014. The bounds test and the Bayer and Hanck (Journal of Time Series Analysis, 2013, 34(1), 83–95) cointegration tests affirm cointegrating relationship. Electricity consumption increases economic growth in both time periods, while the impact of urbanization appears to inhibit growth. The fully modified OLS, dynamic OLS, and the canonical cointegrating regression confirm the robustness of the findings. The vector error correction model Granger causality test supports the neutrality hypothesis in the short run and the feedback hypothesis among the variables in the long run. Therefore, policies to ensure efficient electricity supply, curb rapid urbanization, and promote sustainable economic growth were suggested.

Causal Relationship between Industrial Action and Economic Growth in Nigeria

The paper examines the direction of causality between industrial action and economic growth in Nigeria over the period 1986-2018 using endogenous growth model. This was with the view to determining whether or not man- day-lost to industrial crisis in the country through high numbers of industrial action Granger caused economic growth in Nigeria. Annual time series data such as man-day-lost, Gross Domestic Product, Consumer Price Index, Labour Force Participation and Gross Capital Formation were source from Central Bank of Nigeria Statistical Bulletin, National Bureau of Statistics Annual Reports and World Bank Development Indicators. Data were analysed using co-integration and Vector Error Correction Model Granger causality techniques. Results reveal that there exists long-run relationship between industrial action and economic growth in Nigeria. The causality test revealed unidirectional causality running from economic growth to industrial action, while it finds no empirical support for the reverse causation. This implies that whenever economy is growing, citizen may agitate for higher wage increment and thereby leads to higher industrial action in the country. The study concluded that, there exist long-run causal relationship between industrial action and economic growth in Nigeria.

Natural gas consumption and economic growth nexus: an investigation for France

PurposeThe purpose of this study is to investigate the relationship between natural gas consumption and economic growth of France.Design/methodology/approachTo analyze the relationship, an extended Cobb–Douglas production function is used. The auto-regressive distributive lag bounds testing approach is applied to test the existence of the long-run relationship between the series. The vector error correction model Granger causality approach is implemented to detect the direction of causal relation between the variables.FindingsThe results show that variables are cointegrated for the long-run relationship. They also indicate that natural gas consumption, exports, capital and labor are the contributing factors to economic growth in France. The causality analysis indicates that feedback hypothesis is validated between gas consumption and economic growth. The bidirectional causality is also found between exports and economic growth, gas consumption and exports and capital and gas consumption.Research limitations/implicationsThe feedback hypothesis between gas consumption and economic growth implies that adoption of energy conservation policies should be discouraged; rather, gas consumption and economic growth policies should be jointly implemented.Originality/valueThis study is an original work for France and shows the results of the relationship between natural gas consumption and economic growth. In line with the results of this study, new direction for policy makers is opened up to formulate a comprehensive energy policy to sustain long-term economic growth in France.

Examining the efficiency of IT applications and bank performance

Purpose Banking institutions have vigorously pursued the integration of information and communication technology in modern banking services. Unfortunately, empirical support demonstrating the usefulness of this undertaking has largely been scanty. The purpose of this paper is to investigate causal links between the efficiency of information technology (IT) applications and bank performance using data envelopment analysis. Design/methodology/approach The study adopts the DEA approach to evaluate the bank level cost and IT efficiency. The Vector Error Correction Model Granger causality tests with the forecast error variance decomposition and impulse response functions were subsequently used to examine the causal relationship between the variables. Findings From the findings, the bank achieved an average level of 99.1 per cent cost efficiency for the sampled period. Also the periods where the bank obtained optimal cost efficiency were in 2005, 2006 and 2014. This culminated into inefficiency scores ranging from 0 to 2.9 per cent, with 2016 financial year as the period of worst cost performance. In addition, the study found that there are both short-run and long-run relationships between IT efficiency and cost performance. Practical implications Management should note that any improvement to IT applications may contribute significantly to overall IT performance but for the short period, specifically the first period, by the medium to long-run period, most improvement to overall IT performance emanates from cost performance of the bank. Originality/value Some studies have examined the effect of IT on banks in USA and Europe. However, such studies are rare in the African context. This study will contribute to extant literature by add a new dimension of IT and bank efficiency.

Biofuel energy consumption‐economic growth relationship: an empirical investigation of Brazil

AbstractThis study investigates the influence of biofuel energy consumption on Brazil's economic growth during the period 1980–2012 by employing the Autoregressive Distributed Lag (ARDL) approach and the vector error correction model (VECM) Granger causality. The results revealed two structural breaks during the early 1980s due to the Latin American debt crisis as well as the early 2000s due to the worries related to the increasing global spreads. Moreover, it was found that economic growth, biofuel energy consumption, capital, urbanization, and globalization are co‐integrated. Additionally, it was found that biofuel energy consumption, capital, urbanization, and globalization increase Brazil's economic growth in the short run and in the long run. However, the two structural breaks have a significant negative influence on economic growth. The vector error correction model Granger causality revealed a feedback causal relationship between all the variables (with the exception of capital). However, a unidirectional causality was concluded from capital to economic growth, biofuel energy consumption, urbanization, and globalization. From the results of this study, a number of policy implications were provided. © 2016 Society of Chemical Industry and John Wiley & Sons, Ltd

Investigating the environmental Kuznets curve hypothesis in seven regions: The role of renewable energy

The aim of this research is to investigate how renewable energy consumption effects pollution and whether the relationship between income and pollution formulates the inverted U-shaped relationship which signals the existence of the environmental Kuznets curve (EKC). To realize the aims of this study, non-stationary panel data techniques were utilized to examine the seven selected regions. According to Pedroni and Fisher type cointegration tests, the variables were cointegrated. Moreover, the dynamic ordinary least square (DOLS) and the vector error correction model Granger causality revealed that renewable energy consumption has a significant negative effect on pollution in Central and Eastern Europe, Western Europe, East Asia and the Pacific, South Asia, and the Americas. However, the tests revealed that renewable energy consumption has no significant effect on pollution in the Middle East and North Africa and Sub-Saharan Africa. In addition, the results in general indicated that the existence of the EKC hypothesis is determined by the significance of the renewable energy consumption. Therefore, the EKC hypothesis was only found in the regions where their renewable energy has a significant correlation with pollution in both the short run and the long run. Furthermore, a number of policy recommendations were provided for the investigated regions.

Macroeconomic determinants of stock market capitalization in an emerging market: fresh evidence from cointegration with unknown structural breaks

This article explores the macroeconomic determinants of stock market development in an emerging market (Pakistan) over the period of 1974–2010. We have applied Zivot–Andrews unit root test for integrating properties of the variables and the autoregressive distributed lag bounds testing for cointegration. The direction of causality between the variables is investigated by applying the vector error-correction model Granger causality approach. Our results revealed that variables are cointegrated for long run relationship. Economic growth, inflation, financial development and investment increase stock market development, but trade openness decreases it. The causality analysis confirms that stock market development is a Granger cause of economic growth, inflation, financial development, investment and trade openness. This article indicates the importance of trade openness while formulating a comprehensive financial policy.

Revisiting the Relationship Between Natural Gas Consumption and Economic Growth in Turkey

The objective of this study is to re-analyze the relationship between natural gas consumption (NGC) and economic growth (GR) for Turkey in a multivariate framework by including capital and labor as additional variables because several papers suggest that a bivariate model can suffer from omitted-variables bias. As compared to the findings of Isik (2010), who previously investigated the short- and long-run relationships between GR and NGC using a bivariate model, we find that the magnitude of the coefficient estimate of NGC become substantially smaller in the long-run and the sign of short-run estimate of NGC shift to negative after accounting for capital and labor as well. In addition to that covered by Isik (2010), we investigate the direction of causality between GR and NGC using the vector error correction model Granger causality approach, and reveal the evidence of feedback hypothesis for Turkey.

Re‐Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization inBangladesh

AbstractThis paper revisits the relationship between financial development and economic growth inBangladesh by incorporating trade openness in production function using quarter frequency data over the period of 1976‐2012. We applied combined Bayer–Hanck cointegration approach to examine cointegration among the series. Our empirical evidence suggests that development of financial sector facilitates economic growth but capitalization impedes it. In addition, trade openness stimulates economic growth. Labour is also positively linked to economic growth. The vector error correction model Granger causality results divulge that financial development causes real per capita gross domestic product (GDP) growth, and resultantly, real per capitaGDPgrowth causes financial development in a Granger sense. The results also show that trade and labour Granger cause economic growth. The findings of the paper provide insights for policymakers to use financial development and trade openness as a tool for sustained economic growth in the long run. The paper also suggests policymakers to utilise capitalization in a way that is beneficial for economic growth ofBangladesh.

Exports, financial development and economic growth in Pakistan

Purpose– This paper aims to explore the relationship between exports, financial development and economic growth in case of Pakistan.Design/methodology/approach– The autoregressive distributed lag bounds testing approach to cointegration and error correction model are applied to test the long-run and short-run relationships, respectively. The direction of causality between the variables is investigated by the vector error correction model Granger causality test and robustness of causality analysis is tested by applying innovative accounting approach.Findings– The analysis confirms cointegration for the long-run relation between exports, economic growth and financial development in case of Pakistan. The results indicate that economic growth and financial development spur exports growth in Pakistan. The causality analysis reveals feedback hypothesis that exists between financial development and economic growth, financial development and exports, and, exports and economic growth.Originality/value– This study provides new insights for policy makers to sustain exports growth by stimulating economic growth and developing financial sector in Pakistan.