Error Correction Term Research Articles

FINANCIAL DEEPENING AND ECONOMIC GROWTH: EVIDENCE FROM BANGLADESH

The present study investigated the causal impact of financial deepening on economic growth in Bangladesh for the period of 1990 to 2022 applying cointegration analysis. The ratio of broad money to GDP, private sector credit to GDP and stock market capitalization to GDP used as proxies for financial deepening indicators in this study. Using Johansen co-integration test, the result of the study explored a positive and statistically significant relationship in the long run among the broad money to GDP, private sector credit to GDP, stock market capitalization to GDP and economic growth. Moreover, the error correction term supported the long-run association, and the variables adjust to their long-run equilibrium. The findings suggested that policymakers should promote policies that increase the money supply and market capitalization and ensure the private sector credit is channeled to the more productive sector which would help to support and boost economic growth in Bangladesh.

Energy Poverty and Environmental Quality Nexus: Empirical Evidence from Selected South Asian Countries

South Asian countries are included in the economies of developing Asia. The region of South Asia is predominantly affected by energy poverty issues due to a heavy reliance on conventional energy and unpredictable access to energy services. It has about a quarter of the world's population and is home to three of the world's ten most populated countries: India, Pakistan, and Bangladesh. This study investigates environmental sustainability dynamics in South Asian countries from 2000 to 2021, utilizing the Cross-sectional Autoregressive Distributed Lag (CS-ARDL) and Dumitrescu-Hurlin (D-H) causality methods. The research offers insights into the long-term trends and causal relationships that shape environmental outcomes in South Asian nations. Based on empirical findings, in the long-term, it is revealed that increases in energy poverty, economic growth, income inequality, and capital formation raise greenhouse gas (GHG) emissions, while renewable energy and labor reduce GHG emissions. On the other hand, the error correction term shows the speed of adjustment toward equilibrium at 0.75%. Furthermore, the D-H panel causality reveals a directional link between variables. These findings highlight the urgent need for South Asian countries to implement policies to address energy poverty, promote renewable energy adoption, and reduce income inequality to mitigate GHG emissions and achieve long-term environmental sustainability effectively.

Factors Influencing Inflation: Insights from the Nepalese Economy

Inflation is a persistent issue in developing nations such as Nepal, resulting in serious economic and social consequences. This article examines the macroeconomic determinants of inflation in Nepal, considering the variables as government expenditure, exchange rate remittances, real GDP, and the consumer price index of India. Using the time series data from 1975 to 2023. It employs the Engel-Granger two-step cointegration test to examine the short- and long-term causal connections between Nepal's consumer price index (inflation) and all of these variables. The augmented Dickey-Fuller unit root test confirms that the variables are stationary at first difference, suggesting they possess an integrated order of I. The Engel-Granger test established that there is co-integration among the variables. Additionally, the error correction term (ECT) was found to be statistically significant, with a negative coefficient. The causal association between the selected dependent and explanatory variables in Nepal is both significant and persistent. The empirical findings suggest that India's inflation highly affects inflation in Nepal. Furthermore, the enduring effects of broad money supply and government expenditure are also substantial factors. The results indicate an inverse relationship between inflation and real GDP in Nepal, whereas remittances have no significant impact on consumer prices in the nation. So, it is vital to control inflation to be able to deal with poverty and economic growth. Policies are needed to keep the inflation target range around the optimum inflation rate to accelerate the pace of economic growth and ensure that the adverse effect inflation has on economic growth is minimized.

Microfinance, Financial Inclusion and Economic Welfare in Africa: A Panel Investigation

This study explores the relationship between microfinance, financial inclusion, and economic welfare in a sample of 23 African countries for the period of 2004 to 2023 using annual time series data. We measured microfinance with the number of Branches of Microfinance banks, Microfinance Borrowers, Microfinance outstanding deposits, Microfinance outstanding loans; financial inclusion number of registered mobile money accounts per 1,000 adults; the number of mobile money agent outlets par 1,000 adults; and digital card ownership; governance and institutional quality with Rule of law, regulatory quality, and government effectiveness; and economic welfare with household consumption; while we controlled for the inflation rate, interest rate and exchange rate. These variables were estimated using Panel Least Squares, Fully Modified OLS (FMOLS), Dynamic OLS (DOLS), and Panel Autoregressive Distributed Lag (ARDL) estimation techniques. The result of the cointegration revealed that cointegration exists between the variables of the model. Findings from the aforesaid estimation techniques show that there is the existence of long-run relationships between microfinance, financial inclusion, and economic welfare since the coefficients of the microfinance and financial inclusion variables are statistically significant. The coefficients of the error correction terms which measure the effects of the short-run dynamics of the model suggest that the speeds of adjustment from the long run to the short run in the models would be 76%, 61%, 83%, 67%, 68%, 34%, and 80% respectively for all the specified models. Following the findings of the study, conclusions were drawn and the study suggests that microfinance institutions should adapt to the digitization of their products and services for wider coverage on one hand; the government should provide digital financial amenities to create a fertile ground for micro-financial institutions to rely on to maximize the welfare of the economy.

Non-linear effects of three core mineral resources, energy uncertainty, and inclusive digitalization on economic growth: A comparative analysis of US and China

This study examines the asymmetric effects of mineral resources (oil, coal, and gas), digitalization, and energy uncertainty on economic growth in China and the USA. Using quarterly data from 2000 to 2022, we employ the nonlinear autoregressive distributed lag (NARDL) model to analyze these relationships. The study begins by conducting unit root tests, cointegration analysis, and asymmetry tests to establish robust connections between the variables. The long- and short-run results confirm the presence of asymmetry, as positive and negative shocks in oil rents, digitalization, and energy uncertainty affect economic growth differently. Notably, positive shocks in oil rents and digitalization favour economic growth, indicating that increases in oil rents and digital inclusion contribute to economic development. Conversely, positive shocks in energy uncertainty tend to reduce economic growth. Interestingly, the findings for China and the USA show similar asymmetric patterns; coal and natural gas rents positively influence economic growth, while the control variables suggest that capital and labour increase contribute to both countries' development. The error correction terms, 0.731 (73.1%) for China and 0.625 (62.5%) for the USA, indicate the annual rate at which asymmetric discrepancies are corrected. All diagnostic tests confirm the suitability of the NARDL model for this study. Finally, the study reveals significant bi-directional causality among all pairs of variables.

THE IMPACT OF FINANCIAL DEVELOPMENT ON CARBON EMISSIONS: AN ASEAN PERSPECTIVE

The global discourse surrounding the climate crisis has intensified in recent years, leading to various international agendas of global and regional bodies. Notably, ASEAN, characterised by its rapid development, has emerged as a significant contributor to CO2 emissions. Therefore, this study seeks to explore the relationship between financial development and CO2 emissions using the data of nine ASEAN countries from 2000 to 2020. Recognizing the multidimensional nature of financial development, the analysis divides financial development to two distinct indices, FM and FI. This study uses panel data ARDL with the PMG estimation used after testing all the outcomes. The analysis found non-significant effects of financial development on carbon emissions using various estimation techniques. However, separating into FI and FM yields insightful results. While the effect in the short run is unclear, FI increases the carbon emission in the long run by 1.17 percent of each one percent increase, proving that financial institutions in the current state promote an unsustainable effect on the environment. This effect occurs because they drive demand towards energy consumption while also expanding more environmentally harmful sectors. The error correction term signifies that the adverse effect of financial institutions takes approximately six years. These findings underscore the importance of integrating sustainability into development of the financial sector and advancing its maturity by enhancing access to financial institutions and markets to reduce the adverse effect of the climate crisis.

Renewable Energy Consumption, Climate Change, and Economic Growth: A Case of Selected Countries

This research examines the nexus between renewable energy consumption, climate change, and economic growth across 88 countries, categorized by income levels (high, upper-middle, lower-middle, low, and Arab countries) from 1990-2020. Using the Panel Autoregressive Distributed Lag (PARDL) model, the study captures both short- and long-term relationships among the variables. Key findings reveal that economic growth is linked to rising temperatures, while the impact on precipitation varies across income groups. Non-renewable energy consumption has mixed effects: it mitigates climate change in developed countries but exacerbates pollution in developing nations. Conversely, renewable energy lowers average temperatures in lower-income countries, but in high-income countries, it shows positive correlations with climate change indicators. The significant error correction terms across all panels indicate a quick adjustment toward long-run equilibrium. The study underscores the need for tailored climate and energy strategies, advocating for increased renewable energy infrastructure in developing countries and improved energy efficiency in developed nations. For Arab countries, which face specific climate risks, enhanced regional cooperation on mitigation measures is recommended. This research emphasizes that addressing climate change requires strategies that consider the distinct economic and environmental contexts of different country groups.

Macroeconomic Determinants of the Gap between Domestic and International Gold Prices in Vietnam

This research investigates the factors influencing the disparity between domestic gold prices (SJC gold and 9999 gold) and global gold prices in Vietnam from January 2011 to December 2023. Using the Autoregressive Distributed Lag (ARDL) model, we identify key macroeconomic determinants impacting this price spread, including interest rates, oil prices, and consumer demand. Our findings reveal that higher interest rates are associated with larger price spreads, suggesting that monetary policy plays a significant role in the domestic gold market. Oil prices exhibit a negative relationship with the price spread for 9999 gold, indicating that rising oil prices tend to align domestic gold prices more closely with global trends. Consumer demand notably affects the SJC_Global price spread but not the 9999_Global spread, reflecting the different market dynamics of finished goods versus raw materials. Additionally, the error correction terms in both models indicate a robust mechanism for long-term equilibrium, demonstrating the Vietnamese gold market’s resilience. These insights highlight the need for policymakers to reconsider existing regulations, such as Decree 24, to ensure a stable and efficient gold market. The study concludes that while the Vietnamese gold market exhibits sustainable practices, regulatory revisions are necessary to support both market growth and community development. Future research should consider additional macroeconomic variables and the impact of regulatory changes over time to further understand the dynamics of gold price disparities in Vietnam.

Impact of External Debt and Energy Consumption on Environmental Quality in Somalia

This study investigates the interconnections between external debt, energy consumption, industrialization, and environmental quality in Somalia over the period 1990 to 2019, utilizing the ARDL bounds testing approach. Notably, a positive correlation is found between energy consumption and CO2 emissions, emphasizing the imperative for sustainable practices. In the long run, external debt is observed to have an insignificant impact on environmental quality, suggesting a strategic opportunity for policymakers to channel external funds towards environmentally sustainable projects. Short-term strategies underscore the positive link between decreased industrialization and improved environmental quality, while a cautious approach to external debt is crucial due to its short-term negative impact. The significance of the error correction term underscores the need for adaptive policies. Overall, the study advocates for comprehensive policies integrating sustainable practices and directing external financing towards eco-friendly projects, alongside a capacity building and technology transfer partnerships for environmentally conscious development in Somalia.

Cash Incentive on Remittance Inflow and its Impact on Economic Growth in Bangladesh

Remittances are crucial for driving economic growth in developing countries like Bangladesh, as they effectively influencenearly all macroeconomic indicators within the financial ecosystem. This study examines the impact of remittance inflow on economic growth in Bangladesh considering the cash incentive policy of the government. The ARDL Bound testing approach is employed for the analysis using a monthly dataset covering the period from January 2015 to April 2023. The evidence from the results provides a substantial and favorable influence of remittances on the economic growth of Bangladesh, both in the short term and the long term. According to the expected error correction term, it is projected that the economy will undergo a correction of its imbalances at an annual rate of 58%. Consequently, a strategic blend of short-term policy adjustments and long-term initiatives has the potential to enhance the influence of remittances in fostering sustainable economic growth and elevating the the quality of life for both expatriates and the nation as a whole.

Fuel Subsidy and Education Sector Financing in Nigeria: A Short-run Adjustment to Equilibrium Approach

This study examined the impact of fuel subsidy on education sector financing in Nigeria from 1990 through 2023. Annual data were obtained from the Nigeria Petroleum Corporation and World Development Indicators, (WDI) on variables such as fuel subsidy, government expenditure on education sector, Oil Revenue, pump price of Premium Motor Spirit and secondary school enrolment in Nigeria. A bound cointegration test and ECM were employed. Granger test for causality was also used to ascertain the direction of causation in the series. The estimated error correction term, ECT (-1) is significant. There is no causal relationship from fuel subsidy to education sector financing. However, education sector financing granger causes fuel subsidy. Premium Motor Spirit and education sector financing were found to granger-cause each other. The study recommends that government should ensure that fuel subsidy is not allowed to deprive education of its fair share of government spending, given that current spending on the sector has been established to have implication for the sectors growth in the future years.

Relationship Between Financial Deepening Indicators and Stock Market Performance in Kenya

The purpose of this study was to find out the relationship between financial deepening indicators and the stock market performance in Kenya. The selected financial deepening indicators were; financial savings, private sector credit, broad money supply and intermediation ratio on the stock market performance. Johansen cointegration test was done indicating that the variables co-move towards a long-run equilibrium, a multivariate vector error correction model was run and the estimates obtained. The error correction term was also computed. Empirical results showed that all variables are adequately explained by their own lags and the lags of the other variables, the coefficients are also significant. The error correction model indicated that an increase in private sector credit by one unit in the previous quarter causes the stock market performance to increase by 48% in the current quarter. Variance decomposition tests and impulse response functions indicated how other variables respond to shocks in the other variables and the forecast errors for each of the predicted quarters. The implication of this study is that the policy makers who are; the Government, the Central bank of Kenya and the Capital Markets Authority ought to make policy decisions while considering the effect of the full market. This study concluded that private sector credit is the financial indicator variable that affects the stock market performance the most with a bidirectional relationship.

PENGARUH KURS, CADANGAN DEVISA DAN PRODUKSI TERHADAP EKSPOR KARET ALAM DI INDONESIA

This study aims to determine the influence of exchange rates, foreign exchange reserves, and production on natural rubber exports in Indonesia. The data used is secondary data in the form of a time series from 1971-2021 obtained from the World Bank and FAO (Food and Agriculture Organization). Previous findings have examined exchange rates, foreign exchange reserves, production, and general exports using different commodities. At the same time, this study specializes in exchange rates, foreign exchange reserves, and production associated with natural rubber exports in Indonesia. Data analysis uses the Vector Error Correction Model (VECM) approach, with all variables being stationary at the same level, i.e., differentiated in the first derivative. All variables must be co-integrated and have a negative ECT (Error Correction Term) value to make the model valid and usable. The results show that the exchange rate variable has a positive and insignificant effect in the short term. In contrast, in the long term, the exchange rate variable positively and significantly impacts natural rubber exports in Indonesia. The foreign exchange reserve variable positively and substantially affects natural rubber exports in Indonesia in the short term. In the long term, the foreign exchange reserve variable positively affects not significantly. Furthermore, production variables in the short term are insignificant, and in the long term, production variables have a positive but insignificant impact on natural rubber exports in Indonesia

Analisis Pengaruh PDRB, Angkatan Kerja dan Jumlah Penduduk Terhadap Kemiskinan Provinsi Sumatera Utara Tahun 2001-2020

Poverty is a condition that has not and has never been resolved on this earth. People who are still in poverty are still found in many countries, even in developed countries the phenomenon of poverty is a serious problem. The purpose of this study was to analyze the effect of Gross Regional Domestic Product (GRDPHB), Labor, Population on Poverty in North Sumatra Province. The analysis used in this study is a time series data analysis model, with secondary data for 2001-2020 obtained from the Central Bureau of Statistics (BPS) of North Sumatra.The results obtained from this study are; In the short term, the variables of GRDPHB (LNX1), Labor Force (LNX2), and Total Population do not have a significant effect on Poverty in North Sumatra Province. However, the Error Correction Term (ECT) is significant in the short run, which indicates an adjustment towards the long-run equilibrium after a shock; In the long run, the GRDP variable (LNXI) has a negative and significant effect on Poverty in North Sumatra Province. Meanwhile, the variables of Labor Force (LNYX) and Total Population are not significant. The Error Correction Model (ECM) used in this study can explain about 87% of the variation in the Poverty variable in North Sumatra Province.

Impact of Urbanization, Development Level, and Openness on Institutions in Bangladesh: An ARDL Investigation Using Two Measures of Institutional Quality

Future development policies require a better understanding of the various factors that affect the quality of institutions in Bangladesh. In this paper, we estimate empirical ARDL models to investigate the roles of urbanization, openness, and the level of development as determinants of institutional quality. We use two measures of institutional quality, both derived from the World Bank’s Worldwide Governance Indicators (WGIs). The first proxy, INQ, is a composite index developed from the six WGIs using Principal Component Analysis (PCA). The second indicator, AvgINQ, is the average of the six WGIs. For each indicator of institutional quality, three models were estimated, resulting in six models in total. The impact of urbanization on institutional quality is consistent in terms of sign and significance across all six models, a claim that cannot be made for the other variables in the model. The error correction term reflects dampening convergence to equilibrium for the first proxy for institutional quality but regular convergence when the second proxy is used. In terms of ARDL diagnostics, models with AvgINQ as the dependent variable perform better. The Johansen cointegration test confirms the existence of a long-term relationship among the variables in all the models. Pairwise Granger causality tests are also conducted. The findings emphasize the importance of managing urbanization pressure for better institutional quality.

Exploring the Impact of Remittance and Economic Growth on Inflation

This study investigates the influence of remittance income and economic growth on the inflation rate in South Asian Association for Regional Corporation (SAARC) countries. Remittance inflows have a double effect on the economy’s inflation rate: firstly, it increases consumer spending capacity, driving up demand for goods and services, which can lead to higher prices; secondly the influx of foreign currency can cause local currency appreciation, raising import costs and contributing to inflation. While previous studies have focused primarily on how inflation hinders economic growth, this study seeks to understand how economic growth causes inflation from the other side. Economic growth boosts consumer and business spending, increasing demand for goods and services, which can increase prices. Furthermore, higher demand for resources and labor can raise production costs, further contributing to inflation. The correlation between remittance income and inflation has been extensively documented, but the impact of economic growth on inflation remains to be determined. The study is based on descriptive and exploratory research design and driven by a positivist research philosophy. The present study is based on secondary data collected from World Bank reports and the countries’ economic surveys. This study uses an unbalanced panel dataset of 272 data points from eight member countries of SAARC. Basic econometric techniques such as covariance analysis, panel unit root testing, panel autoregressive distributed lag model, and scaled coefficient analysis are employed. The remittance income is only statistically significant at the 10 percent significance level. A one percent increase in remittance income leads to a 0.284 percent increase in inflation over the long run. The growth rate of gross domestic product plays a crucial role in setting inflation. One percent rise in gross domestic product growth leads to a 0.3405 percent increase in inflation in the long term. The error correction term exhibits a negative and statistically significant relationship. The coefficient size suggested that around 65.14 percent of the disequilibrium was rectified in each cycle. The current year’s lagged gross domestic product growth negatively and statistically significantly impacts economic growth. One percent rise in gross domestic product growth led to 0.3308 percent fall in inflation in the short term across SAARC countries. The results indicate that remittance income has a minimal long-term effect on inflation in SAARC nations, whereas gross domestic product growth substantially impacts inflation. Policymakers should prioritize promoting sustainable economic growth to mitigate inflationary pressures effectively.

Reevaluating the linkage between trade openness and economic growth in Nigeria

This study reevaluated the linkage between trade openness and economic growth in Nigeria with data for the period of 1981 to 2022. The study employed Descriptive Statistics, Unit Root Test, Cointegration analysis, Regression Analysis (ARDL), Error Correction Model as the methods of analysis. The findings from the study showed that trade openness and external reserve impact positively and significantly on economic growth while exchange rate was found to be negative and significant. Also, findings from the error correction model showed that trade openness has a positive and insignificant impact on economic growth, external balance also has a positive significant impact on economic growth. Exchange rate on the other hand displays a negative insignificant impact on economic growth. The error correction term indicated that about 79 percent deviation in the previous year is corrected in the current year. The study therefore concluded that trade openness is a fundamental for economic growth in Nigeria and that external reserve crucial to funding of critical import necessary for domestic production. Furthermore, exchange rate of the naira showed that the economy will benefit more if the appropriate rate is prevalent in the market as this will make export to be attractive. A long run relationship was found among the variables used in the study. Based on the findings from the study we recommended that the government should engage more in international trade especially for key production inputs to boost domestic production. The government should also ensure that they maintain a healthy external reserve and ensure it is channel into the import of critical inputs. The true value of the exchange rate of the naira in relation to major currencies of the world should be targeted in order to make our exports attractive.

PENGARUH KONSUMSI, HARGA ECERAN DAN GROSS DOMESTIC PRODUCT (GDP) PER KAPITA TERHADAP IMPOR GULA PASIR DI INDONESIA

This research aims to determine the influence of consumption, retail prices and GDP per capita on sugar imports in Indonesia. The data used in this research is secondary data in the form of a time series for 1990-2022 obtained from the world bank and BPS (Central Statistics Agency). The data analysis method uses the Error Correction Model (ECM) approach, where the conditions for using this model are that all variables must be stationary first differences, have at least one cointegration equation and have a negative ECT (Error Correction Term) value so that the model is valid and can be used. The results show that in the short term consumption is not significant on sugar imports in Indonesia, while in the long term consumption has a negative and significant effect on sugar imports in Indonesia. The retail price variable has no effect on sugar imports in Indonesia in the short term, and in the long term retail prices have a positive and significant effect on sugar imports in Indonesia. The GDP Per Capita variable, both in the short and long term, has no effect on sugar imports in Indonesia.

An ARDL Method for Evaluating Bangladesh’s Economic Growth Concerning Female Secondary Education

The purpose of this study is to investigate the association between Bangladesh’s economic growth and female secondary education. For this reason, the effects of female secondary education, female labour force participation rate, and female fertility rate on Bangladesh’s Real GDP growth rate are investigated over the years 1995–2021, using a quantitative approach. A long-term relationship between the variables is demonstrated by the Auto Regressive Distributive Lag (ARDL) Cointegration Model, wherein the fertility rate is negatively significant and the female participation rate in the labour force and secondary education are positively significant on the real GDP growth rate. The study uses the Error Correction Model (ECM) to record the speed of adjustment. There is short-run adjustment throughout the entire system, as indicated by the statistically significant and theoretically correct sign of the error correction term coefficient. A more thorough examination is necessary as the Causality test reveals an unanticipated unidirectional association between female secondary education and economic growth.

Real-time safety distance detection and warning for elevator inspection based on adaptive monocular depth estimation

During elevator inspection, workers are prone to collisions with hazards in narrow elevator machine rooms. Because of the numerous elevator machine rooms with diverse scenes in cities, it is difficult to effectively monitor the distance between workers and hazards. We propose a real-time safety distance detection and warning system consisting of four parts: object detection, depth estimation, safety distance detection, and safety warning. By introducing two adaptive error correction terms, the proposed adaptive monocular depth estimation algorithm effectively reduces the distortion of object pixel size with changes in depth and shooting angle. Then the calculation formula has been improved to accurately measure the distance between objects. The system has been successfully applied to safety supervision at the elevator inspection site in Nanchang City, Jiangxi Province, China. The results, with an average relative error of 3.34% and 84 frames detected per second, show the system exhibits excellent accuracy and real-time performance.