Error Correction Model Approach Research Articles

Nigerian stock market performance and economic growth: An error correction model (ECM) Approach

Nigerian stock market performance and economic growth: An error correction model (ECM) Approach

Financial liberalisation, financial development and economic growth in cameroon: a tri-variate vector error correction modelling approach

The aim of this study is to analyse the relationship between financial liberalization, financial development and economic growth in Cameroon. Use is made of a tri- variate VAR model on Cameroon data for the period 1973- 2017. The results obtained show that financial liberalisation and financial development positively affect economic growth. Though financial development does not individually cause economic growth, when considered with financial liberalisation, they jointly cause economic growth.Financial liberalisation and economic growth are individually and jointly found to granger cause financial development. Financial development causes financial liberalisation while economic growth causes financial liberalisation only when jointly considered with financial development. The impulse response functions reveal that economic growth positively responds to both financial development and financial liberalisation though the effect of financial development soon fates out to become negative.Financial development is found to positively react to innovations in financial liberalisation and negatively to economic growth.As concerns financial liberalisation, it negatively responds to financial development and positively to economic growth. Also,variance decomposition reveals that variations in economic growth are mostly explained by its past values, followed by financial liberalisation and finally financial development. Financial development on its part is also mostly explained by its past values followed by financial liberalisation and finally economic growth. Based on all these, the policy recommendation we make is that the on-going financial liberalisation process in the country should be enhanced in view of permitting the financial sector to efficiently play its role in the growth process of the country.

EFFECT ANALYSIS OF EXPORTS, IMPORTS, AND MANUFACTURING ON INDONESIA'S GDP FROM 1990 TO 2019

This study's primary purpose is to determine and assess the impact of exports, imports, and manufacturing in Indonesia from 1990 to 2019. The secondary data utilized by the researcher in this study spans the years 1990 to 2019. Imports and exports of commodities and services in the 1990s, when there was no import-export ease, compared to 1998, when Indonesia had import-export ease. The issue was that a monetary crisis caused Indonesia's economic structure to become somewhat disorganized, as the rupiah exchange rate and inflation rose, and enterprises with foreign debts were compelled to repay them in multiples of their original sums. In this study, researchers conducted tests using the eviwes 10 application and the ECM (Error Correction Model) approach, with data on the growth rate of exports, imports, and economic growth obtained from the World Bank from 1990 to 2019. The data acquired in the form of numbers that are analyzed and display the status of being stationary. Exports are stationary with a probability of 0.0000, where the value is less than 5%, imports are stationary with a probability of 0.0011, where the value is less than 5%, and manufacturing is stationary with a probability of 0.0021, where the value is < 5%, and GDP or economic growth is 0.0147, which is less than 5%.

Can the integration between Islamic social finance and Islamic commercial finance tackle poverty in Indonesia?

Purpose – This study aims to examine the effects of Islamic social finance, Islamic commercial finance, and the integration of Islamic social finance and Islamic commercial finance on poverty in Indonesia.Methodology – Data in the form of time series from 2002 to 2021 were evaluated using the Error Correction Model (ECM) approach. This method describes both long and short-term effects of Islamic social finance, Islamic commercial finance, and integration of Islamic social finance and Islamic commercial finance on poverty.Findings – The results show that Islamic social finance, Islamic commercial finance, and the integration between the two Islamic finance sectors have a significant negative effect on poverty rates in the long term. In the short term, the integration between Islamic social finance and Islamic commercial finance has a significant negative effect on the poverty rate, while Islamic social finance and Islamic commercial finance have a negative but not significant effect on the poverty rate.Implication – This study recommends policymakers make rules regarding the implementation of collaborative efforts on institutions in the two Islamic finance sectors in the future.Originality – Most of the studies that have been conducted have only focused on one sector of Islamic finance. In fact, the integration between Islamic social finance and Islamic commercial finance in Indonesia makes these two sectors of Islamic finance have the potential to reduce poverty higher than without integration.

Dynamic Model of The Impact of Macro Indicators and Islamic Monetary Policy Instruments on The Dual Banking System

Indonesia is the largest Muslim country with a unique monetary system that in its development tries to juxtapose two monetary systems that have different philosophies and still need to be deepened on the extent of their impact and effectiveness on the economy. The study explores the impact of macro indicators and monetary policy instruments on economic output in Indonesia. Using the time series analysis method with the Vector Error Correction Model (VECM) approach, the model shows the results that the Macro Capital Market or Stock Market indicators have a positive impact on the economy both in the short and long term. At the same time, inflation responds positively to short-term behavior but becomes economic constraints in long-term action. Meanwhile, in the Monetary policy instruments’ scope, the M1 variable consistently has positive implications both in the short and long term. In contrast, the M2 and SBIS variables give negative responses in the short time but become a driving force for the economy in the long term. Meanwhile, there is no positive correlation between Sharia, Monetary Operations with Economic Output. The research suggests focusing on innovating sharia monetary policy instruments by continuing to carry out monetary policy reforms in order to stimulate better economic conditions.

The Relationship Between Agricultural Value Added, Investment and Consumption: Vector Error Correction Model Approach

The purpose of this study was to determine the impact of the relationship between agriculture on investment and consumption in Indonesia. This study uses data from a period of 36 years, from 1985 to 2020 by vector modeling to understand causal relationships between variables. This research is based on secondary data from the world bank. We use the variables of value-added agriculture, consumption, and investment in Indonesia. We find that macroeconomic variables such as agricultural value-added, consumption to GDP, and non-financial investment have a mutually influencing relationship. Changes that occur in one variable will affect other variables. With the decline in the value-added of agriculture, the level of consumption of the total GDP in Indonesia will increase. This happens because in Indonesia the decline in agricultural value-added can make consumption increase due to imports of agricultural products which increase along with it. However, an increase in consumption will also increase the value-added of agriculture, an increase in investment in the non-financial sector will increase the value-added of agriculture, and an increase in investment will increase consumption.

Modeling Tea Export Earnings by Category in Sri Lanka: Vector Error Correction Model (VECM) Approach

Modeling Tea Export Earnings by Category in Sri Lanka: Vector Error Correction Model (VECM) Approach

THE AGRICULTURAL SECTOR AND NIGERIA’S ECONOMIC GROWTH: A VECTOR ERROR CORRECTION MODEL APPROACH

The study examined the impact of agriculture on Nigeria’s economic growth, using the vector error correction model approach. Secondary data were obtained from the Central Bank of Nigeria, FAOSTAT and National Bureau of Statistics between 1981 and 2019. Descriptive statistics, Augmented Dickey Fuller test for unit roots, Johansen test for co-integration test and vector error correction model were used. Pre-estimation test showed that variables were I(1); foreign direct investment to the agricultural sector had the highest coefficient of variation (2.50), with the least mean (N18,797.33) and gross domestic product had the least coefficient of variation (0.54). Both trace and maximum statistics of Johansen’s co-integration test showed that the variables had long-run relationship. Of the four optimal lag selection criteria used, the FPE, HQIC and SBIC recommended one lag. The chi-square statistics (1674.845, p<0.01) for the overall co-integrating equations confirmed long-run relationship. Findings also showed that the z-statistics (-15.19) of lnagdp was statistically significant (p<0.01) implying it would increase economic growth in the long-run. Similarly, the z statistic (-4.33) of lnnoe was statistically significant (p < 0.01) and would increase economic growth in the long-run. Also, the z-statistic (-5.89) of lnfdia was statistically significant (p<0.01), and would increase economic growth in the long-run. However, the z-statistics (5.56) of lnnoi (3.3) was positive and statistically significant (p<0.01) implying that it would reduce economic growth in the long-run. The error correction term (-0.2361) suggested that the long run equilibrium would be normalized back if there was any shock to the economic system; and that the speed of adjustment would be 23.61% annually towards equilibrium if the system is distorted. The study concluded that agriculture would be relevant to Nigeria’s economy in the long run. Consequently, efforts to attract foreign direct investment to the agricultural sector, increase growth in agricultural GDP and non-oil export and cut in non-oil import, should be sustained by the federal government.

DETERMINANTS OF NIGERIA GOVERNMENT AGRICULTURAL EXPENDITURE (1999-2020): EVIDENCE FROM VECTOR ERROR CORRECTION MODEL APPROACH

The study focused on the determinants of government agricultural expenditure in the long and short run from 1999-2020 using Vector Error Correction Model approach. Annual time series data on agricultural GDP, agricultural expenditure, inflation rate, exchange rate, interest rest, private investment, public investment and foreign direct investment collected from the records of Central Bank of Nigeria and National Bureau of Statistics database were analyzed using inferential statistics (ADF, Johansen co-integration and VECM). The results showed that all the variables co-integrate and were stationary at first difference. In the long run, inflation (1.118415) and private investment (0.004239) were the significant and important variables that determine agricultural expenditure. The coefficient of multiple determination (R2) was 0.925, indicating that 92.5% variation in agricultural expenditure was explained by the variables. The Error correction Term is statistically significant and negative (-0.0278) in the short run indicating a slow speed of adjustment of variables towards equilibrium. In the short run, inflation, private investment and public investment were the important variables that influenced government expenditure. The study concludes that inflation, private and public expenditures influenced government agricultural expenditure significantly and therefore recommend friendly policies to curtail inflation, conducive environment to catalyze private investment and stimulation of public investment to boost agricultural growth.

Analisis Determinan Tingkat Pertumbuhan Total Aset Perbankan Syariah di Indonesia

Total assets of sharia banking in Indonesia ranked the 9th largest Islamic banking assets in the world with a total asset value of USD 37.7 billion and contributed 6.1% market share in the 3rd quarter of 2020. Despite that, the growth of Islamic banking assets experienced a slowdown from 2016 to 2020. Accordingly, it is important to identify critical factors for the growth of Islamic banking assets to accelerate the growth of the industry. This study examines the determinants of the growth of sharia banking assets which are represented by internal variables of TPF, FDR, and CAR, and external variables of GDP, Inflation, and BI Rate using the Error Correction Model (ECM) approach with secondary data samples from all BUS and UUS in Indonesia. The results showed that in the long term and short term, TPF and FDR variables have a positive and significant effect on the total assets of sharia banking, while the CAR and Inflation variables have a positive and insignificant effect, and the GDP and BI Rate variables have a negative and insignificant effect.

Invading the dynamics of economic growth and CO2 emission: panel data error correction model (ECM) approach.

This paper examined the impact of green finance and financial technology on economic growth by utilizing statistics between 1990 to 2000 gathered from 50 US states and regions. A two-step generalized GMM was used to analyze the link between green finance, financial technology, and continued economic growth using panel regression analysis. We found that the US green finance sector had grown significantly and such growth was accompanied by an increase in the usage of non-combustible energy and an advancement in the green finance economic forum. This research concludes that green financing has a beneficial impact on all three components of continued financial development. There is a favorable influence of financial technology on green finance in environmental and economic dimensions, although the link between green banking and investment performance is only somewhat affected by technology. When total emissions increased, non-oil energy usage did not grow and initiatives for renewable energy initiatives were lacking. As a result, there was a decline in the growth of green finance. Green funding and total emissions had a significant impact on the US non-combustible energy usage as did explicit policy changes. The recommendation is also canvassed to strengthen the adoption of green financing policies, increase the use of non-combustible energy, and build an alternative energy economy. It also offers three policy recommendations for policymakers, namely, to improve the integration of banking technology with green finance, develop a corporate environmental approach to manage and control state authorities in increasing green finance productivity, and generate medium- and long-term favorable steps to support green finance in the financial market.

On the contribution of information and communication technology (ICT) sector to economic growth in Nigeria: Vector error correction modelling approach

The Information and Communication Technology (ICT) has been the major front- runner in addressing the needs and industries of low- income communities in countries likes Nigeria. However, it was in the last fifteen years that the awareness for the importance of the ICT’s role in widening the economic break through was identified. Thus, this study examined the impact of ICT sector on economic growth in Nigeria using vector error correction model for the period 1981-2020. The data for the study were collected from National Bureau of statistic. The ADF test, Johansen Co-Integration Test and Vector Error correction model was used to test the stationarity, long run relationship and short run relationship between GDP and ICT sector. The results from the data analysis indicates that all the variables were not stationary; however, become stationary after first difference. The Johansen co-integration test result showed the existence of long run relationship between the GDP and ICT sector. The study also found that LNMPSRM has positive and significant effect on GDP, also LNTIS has negative and significant effect on GDP. The ECT coefficient of 0.251 indicates that a deviation from the long run equilibrium level of the contribution of ICT sector in one year is corrected by 25.1 percent over the following year. The Granger Causality result indicates a bi-directional relationship between LNMPSRM and LNGDP; and independent relationship between LNPUB, LNTIS, LNBRD and LNGDP. In order to ensure sustainable economic growth, the study recommends that Nigeria as a country should increase her investments in ICT sector as this will enable all the sub-sectors to contribute positively toward GDP of the Country.

Determinant Analysis of Company Debt Policy with Vector Error Correction Model Approach

Purpose- This study uses a VECM model that aims to see the short-run and long-term effects of managerial ownership, sales growth, free cash flow, and asset structure against debt policy. Vector Error Correction Model (VECM) is a model that can be used for time series data that is not stationary but has a cointegration relationship where in the model included stationary exogenous variables as additional regressors.
 Research Method- The sample used in this research is quantitative data with a purposive sampling technique. Based on the criteria, the number of samples collected is 32 samples in the period 2013-2021.The data analysis techniques in this study use Vector Error Correlation Model (VECM) analysis, several stages that researchers must go through before determining the right model, namely data stationarity test, optimal lag length test, co-integration test, VAR model stability test, granger causality analysis, VAR/VECM empirical model, Impulse Response Function analysis and Variance Decomposition analysis.
 Findings- The results of the analysis show that in the short term only sales growth and asset structure have a significant influence on debt policy. Meanwhile, in the long-term free cash flow, asset structure and sales growth have a significant influence on debt policy, while managerial ownership has an insignificant effect on debt policy.
 Implication- For the company should reduce the proportion of funding from debt in the implementation of its operations so as to reduce financial distress, because funding from corporate debt causes financial distress and agency costs greater than tax savings from debt interest expense, as a result of which the company is very vulnerable to economic turmoil. For creditors who provide sources of debt funding, pay more attention to aspects of the company's asset structure to be used as collateral for debt, because the company usually uses loan funds for high-risk projects. For investors should take deeper considerations to invest in companies that have large free cash flow because companies that have large free cash flow tend to show good cash flow for the future.

Islamic banking and economic growth: fresh insights from Nigeria using autoregressive distributed lags (ARDL) approach

PurposeThe paper examines the relationship between Islamic banking and the growth of the economy in Nigeria in both the short run and long run.Design/methodology/approachThe study employs quarterly secondary time series data for Islamic banking as well as major macroeconomic variables to study the contribution of Islamic banking to the economy of Nigeria. It employs autoregressive distributed lags (ARDL) and error correction model (ECM) approaches from 2013 quarter 1 up to 2020 quarter 2.FindingsThe results show that Islamic banking has a positive contribution to Nigeria's economy in both short run and long run, but this contribution is insignificant.Practical implicationsPolicymakers should endeavor to redesign the country's financial architecture and come up with policies that can support the growth of Islamic finance sector. This will significantly strengthen Nigeria's position as one of the leading Islamic finance hubs in Africa.Originality/valueThis is the first study to examine the contribution of Islamic banking to the Nigerian economy according to the best knowledge of the authors.

The Effect of Inflation, Interest Rates, Exchange Rates, and Real GDP on Financial Deepening in Indonesia: Evidence from Error Correction Model Approach

Financial deepening is a benchmark for seeing the role of financial services in the economy, as measured by the ratio between the money supply (M2) and Gross Domestic Product (GDP). This study aims to determine and analyze the effect of inflation, interest rates, exchange rates, and real GDP on financial deepening in Indonesia in the long and short term. The type of research used is quantitative. Sources of data used in this study are secondary data sources obtained from Bank Indonesia (BI) and the Central Bureau of Statistics (BPS). Data analysis using the Error Correction Model (ECM) method. The results show that in the long run, inflation is negatively and insignificantly effect to financial deepening, interest rates are negatively and significantly effect to financial deepening, while the exchange rates and real GDP have a positive and significant effect to financial deepening in Indonesia. Meanwhile, in the short term, inflation is negatively and insignificantly effect to financial deepening, interest rates are negatively and insignificantly effect to financial deepening, exchange rates are positively and insignificantly effect to financial deepening, while real GDP has a positive and significant effect to financial deepening in Indonesia.

ANALISIS DETERMINAN PERTUMBUHAN EKONOMI DI INDONESIA

This study aims to determine the effect of the independent variables, namely poverty, LFPR, and unemployment, on economic growth in Indonesia. The data used is secondary data in the form of time-series data from 1991 to 2020. This study uses the Error Correction Model (ECM) approach. The analysis results show that the LFPR and unemployment variables in the short and long term have no significant effect on economic growth. At the same time, the variable of poverty in the short term and long term has a significant influence on economic growth

Market Efficiency in Agricultural commodities: Vector error correction model (VECM) Approach

The study was conducted in Elobied Crops Market to investigate the efficiency market hypothesis (EMH) for sesame, groundnut, and Arabic gum crops. The study used Augmented-Dickey Fuller (ADF) method, Johansen multivariate approach, and Vector error correction model (VECM), and co-integration method. Data was obtained from the Elobied Crops Market database for annual prices and quantities of trading commodities from 1990 to 2017.The study concluded that there is a weak form of EMH for sesame and groundnut and a semi-strong of EMH for Arabic gum.

Global financial crisis and variability in the stock price index in India: A vector error correction model approach

Global financial crisis and variability in the stock price index in India: A vector error correction model approach

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

IMPULSE RESPONSE FUNCTION ANALYSIS OF UNEMPLOYMENT RATE, INFLATION, POVERTY AND ECONOMIC GROWTH IN INDONESIA

The purpose of this study is to analyze how the shock or impulse response function of the variables of the unemployment rate, inflation and poverty rate on economic growth within the research period from 1998-2020. The method used is the Impulse Response Function (IRF) through the Vector Error Correction Model (VECM) approach. The results prove that the response given by the unemployment rate (UN) to economic growth due to shocks show a positive response up to the 8th period. The most influential variable on economic growth (PE) is the unemployment rate (UN). Therefore, it is suggestted for the government to provide adequate jobs (as needed) so as to reduce the relatively high unemployment rate and will have an impact on increasing poverty rates in Indonesia.