Error Correction Model Estimation Research Articles

NAVIGATING THE SHIFT: HOW CASHLESS PAYMENTS, INTEREST RATES, AND COVID-19 AFFECT MONEY SUPPLY

The purpose of this study was to find out how the influence of non-cash payments (debit cards, credit cards, and e-money), BI7DRR interest rates, and the impact of covid-19 on the money supply in Indonesia. The data used is monthly time series data, from September 2018 to August 2021. This study uses a quantitative approach using the Error Correction Model (ECM) method. The data analysis techniques used include: stationarity test, cointegration test, long-term and short-term ECM estimation, classical assumption test, and hypothesis testing. The results show that in the long-term debit cards and e-money have a positive and significant effect on money supply, credit cards and dummy (the impact of covid-19) have no significant effect on money supply, interest rates have a negative and significant effect on money supply. While in the short-term debit cards and dummy (the impact of covid-19) have a positive and significant effect on money supply, credit cards, e-money, and interest rates have no significant effect on money supply.

Impact of higher education on economic growth: A vector error correction analysis in malawi

This study examined the impact of higher education on economic growth in Malawi from 1995 to 2021. The study contributes to existing literature by providing more recent evidence and as well contributes to the debate on whether higher education has a positive or negative impact on economic growth in a developing country like Malawi. Empirical studies have so far yielded inconclusive results. The time series variables were tested to find out its order of integration using Dickey Fuller and the series were all non-stationary at level but became stationary after first difference. The study employed cointegration and evidence of cointegration of higher education and economic growth was established. However, Vector Error Correction Model estimates showed that there is negative long run relationship between higher education and economic growth. Thus, the government and other relevant education stakeholders should strive to increase enrollment in tertiary institutions so that it yields significant impact on economic output.

Economic growth of India: The role of production, trade, and CO2 emission based on the Granger causality

India’s economic growth is of significant interest due to its expanding Gross Domestic Product (GDP) and global market influence. This study investigates the interplay between production, trade, carbon dioxide (CO2) emissions, and economic growth in India using Granger causality analysis. Also, the data from 1994 to 2023 were analyzed to explore the relationships among these variables. The results reveal strong positive correlations among production, trade, CO2 emissions, and GDP, with production showing significant associations with export, import, and GDP. Co-integration tests confirm the presence of a long-term relationship among the variables, suggesting their interconnectedness in shaping India’s economic landscape. Regression analysis indicates that production, export, import, United States (US)-India trade, manufacturing cost of energy, and CO2 emissions significantly impact GDP. Moreover, the Vector Error Correction Model (VECM) estimation reveals both short-term and long-term dynamics, highlighting the importance of understanding equilibrium and deviations in economic variables. Overall, this study contributes to a better understanding of the complex interactions driving India’s economic growth and sustainability.

The Influence of Taxation and Economic Growth on Consumers’ Burden in Malaysia

The tax reformation and economic development in Malaysia have sparked the motivation of this study to understand the influence of such reform on consumers’ burden. An investigation into these relationships is important due to the current increase on consumers burden which had become a popular issue since the introduction of GST in 2015, and the comeback of SST in 2018 to replace the GST. This study intends to provide evidence concerning Malaysian tax reform and economic growth on consumers burden by examining the influence on price level. It employs the Autoregressive Distributed Lag Error Correction Model (ARDL-ECM) estimation to analyze quarterly data for the period 1996-2020. The findings reveal that indirect taxes have negative relationship both in the short and long run while economic growth is positively related with consumers’ burden. This outcome rules out the public accusation that the tax reform would cause the price level to increase hence worsen the consumer’s burden. Nevertheless, it is the economic growth that consumers need to take advantage of as it positively influences the demand for goods and services hence increase the price. The study shed further direction for the government in formulating taxation and economic policies so as not to compromising the burden of consumers.

Overshoot Nilai Tukar Rupiah Terhadap Us Dollar pada Masa Pandemi Covid-19

This study aims to analyze overshooting exchange rates Rupiah towards US Dollar during the COVID-19 pandemic period. The data used is monthly data from January 2019 to December 2022. Several variabels employed are exchange rate ,interest rate, inflation, Gross Domestic Product and money supply The analysis methods used include unit root test, lag test, stability test, cointegration test, Granger causality test, Vector Error Correction Model (VECM) estimation, Impulse Response Function (IRF), and Variance Decomposition. The results of the research showed that interest rate and JUB affects significant RP/USD in the long term, whereas in the short term JUB had significant, affects on the exchange value of RP/USD. The VECM estimation results show a significant cointegration relationship, and the response of the variables to the shock reveals the presence of overshooting symptoms. The contribution of these variables to the variability of the Rupiah/USD exchange rate is also identified through the Variance Decomposition test. In conclusion, overshooting in Indonesia during pandemic Covid-19 is occur, by characterizing JUB shock in short term.

Circular behavior of oil consumption and the impact of oil prices with the Fourier approach

In the changing world, oil continues to be important in energy production. Using monthly data from 1965 to 2022, the permanency of oil consumption fluctuations was investigated. Fourier-based Granger causality tests were used to examine cause-and-effect relationships between variables. Long-term relationships were estimated using Fourier-based Engle Granger cointegration tests. Unlike previous research, this study considers the long and short-term effects of countries that consume the most and least oil, as well as on a global scale, from different perspectives, examining oil price fluctuations together, and estimating these analyzes using the Fourier approach. Oil consumption fluctuations appear temporary in New Zealand and Luxembourg but permanent in all other countries. Oil consumption and prices share a causal relationship in the US, Japan, New Zealand, and Luxembourg, but no relationship elsewhere. A long-term relationship exists between oil consumption and prices in the US, India, Saudi Arabia, Russia, Japan, South Korea, Canada, Mexico, and Estonia. In other countries, no long-term relationship is found between these two variables. Error correction model estimation shows only the equation for Japan can be interpreted based on statistical significance. A one-unit deviation between oil consumption and prices can reach equilibrium in 20 months.

EGG PRICE RESPONSE TO INCREASE IN THE PRICES OF MAIZE AND SOYBEAN MEAL IN NIGERIA USING ECONOMETRIC TOOLS

Poultry egg productionn depends greatly on maize and soybean meal which affect the price of egg directly. Egg has been confirmed as one of the cheapest sources of protein. This study was aimed at estimating the relationship between egg price (EP) response to maize price (MP) and soybean meal price (SBMP) changes in Nigeria from 1990 to 2021Time series data in respect of SBMP (N/Kilogramme), MP (N /Kilogramme) and EP (N /Crate) in local currency were obtained. Augmented Dickey Fuller (ADF) test and, the Johansen cointegration technique were employed to test for the stationarity of the variables and the long-run relationship between variables, respectively. Result of the study shows the presence of one co integrating long run equilibrium relationship between the variables. The Vector Error Correction Model (VECM) estimates showed that MP and SBMP had a negative influence on egg production which consequently transform to high price of egg. Policies on reduction of MP and SBMP should be implemented so as to reduce the EP and make the produce more available to the Nigeria populace.

Effect of Remittance Inflow on Economic Growth of Nigeria

This study examined the effect of remittance inflow on economic growth of Nigeria. The study specifically analyzed the short run and long run of personal remittance inflow on annual growth rate of gross domestic product of Nigeria. The study focused on Nigeria over the period of 41 years spanning from 1981 to 2021.This study employed secondary time series data obtained from World development Index and Central Bank of Nigeria statistical bulletin. Data collated were analyzed by correlation analysis and unit root test, co-integration test, and Error correction model estimation. Result showed that on the short run remittance inflow exert insignificant negative effect on GDP growth of Nigeria (-0.337970, p > 0.05), while on the long remittance inflow exerts significant positive effect on GDP growth rate (1.973835, p < 0.05). This study established that inflow of personal remittance on the short run might be detrimental to the level of economic growth Nigeria if not channeled to productive engagement by recipients in the home country. Meanwhile on the long run, when the inflow rises consistently, the tendency to boost the level of economic growth is Nigeria is high and significant. Hence this study recommends the need for policies and programs as well as appropriate system reforms that encourage utilization of remittance for productive purposes. In addition there is need to put in place structure that will checkmate the rate of brain drain in the country, so as not to trade our quality human capital just for funds flow that might not necessarily be channeled equitably for productive activities in the short and intermediate term.

Tax Revenue and Economic Growth in Nigeria: A Bi-Directional Approach

The study examined the bi-directional effect of tax revenue and economic growth in Nigeria from 2011 to 2022 by employing total tax revenue and nominal Gross Domestic Product at current price. Data was extracted from 2011 to 2022 quarterly reports published on the website of the Central Bank of Nigeria, National Bureau of Statistics and Federal Inland Revenue Service. Unit Root test using Augmented Dickey-Fuller (ADF) test shows that at the first difference, the variables are stationary at 1%, 5%, and 10% level of significance while Engle and Granger co-integration test reveals significant evidence of a long-run relationship between the variables of the study’s models. Findings from Error Correction Model (ECM) estimation show that Total Tax Revenue has a positive and significant effect on Nominal Gross Domestic Product (t-stat 4.777; P-value 0.000) and Nominal Gross Domestic Product has a positive and significant effect on Total Tax Revenue (t-stat 5.552; P-value 0.000). The Granger Causality test revealed that there exists a positive and significant bi-directional effect between Total Tax Revenue and Nominal Gross Domestic Product in Nigeria. The study concludes that tax revenue has a positive and significant effect on economic growth and economic growth has a positive and significant effect on tax revenue. The study recommends that the government ensure continuous economic growth by providing human capital, security, employment, and foreign investment. This would increase the standard of living of citizens, increase tax payer’s income, and attract foreign investors who would pay tax on their income and properties.

Do expenditures on public health reduce preventable mortality in the long run? Evidence from the Canadian provinces

BackgroundInvestments in public health – prevention of illnesses, and promotion, surveillance, and protection of population health – may improve population health, however, effects may only be observed over a long period of time. ObjectiveTo investigate the potential long-run relationship between expenditures on public health and avoidable mortality from preventable causes. MethodsWe focused on the country spending the most on public health in the OECD, Canada. We constructed a longitudinal dataset on mortality, health care expenditures and socio-demographic information covering years 1979–2017 for the ten Canadian provinces. We estimated error correction models for panel data to disentangle short-from long-run relationships between expenditures on public health and avoidable mortality from preventable causes. We further explored some specific causes of mortality to understand potential drivers. For comparison, we also estimated the short-run relationship between curative expenditures and avoidable mortality from treatable causes. ResultsWe find evidence of a long-run relationship between expenditures on public health and preventable mortality, and no consistent short-run associations between these two variables. Findings suggest that a 1% increase in expenditures on public health could lead to 0.22% decrease in preventable mortality. Reductions in preventable mortality are greater for males (−0.29%) compared to females (−0.09%). These results are robust to different specifications. Reductions in some cancer and cardiovascular deaths are among the probable drivers of this overall decrease. By contrast, we do not find evidence of a consistent short-run relationship between curative expenditures and treatable mortality, except for males. ConclusionThis study supports the argument that expenditures on public health reap health benefits primarily in the long run, which, in this case, represents a reduction in avoidable mortality from preventable causes. Reducing public health expenditures on the premise that they have no immediate measurable benefits might thus harm population health outcomes in the long run.

The Impact of Government Expenditure on Industrial Sector Productivity in Tanzania

This study examines the impact of government expenditure on industrial sector productivity in Tanzania. The analysis was based on secondary annual time series data. Using data from 1980 to 2011, the study employs the Auto Regressive Distributed Lag (ARDL) bounds testing approach cointegration to examine the existence of long-run relationships and the error correction model (ECM) for the short-run relationships. All variables involved are integrated of order one while the error correction model estimates indicate the existence of a long-run relationship between government expenditure and the industrial sector productivity. Granger causality pair-wise test was conducted in determining the relationship among the variables. Analytical results show the existence of positive causality; therefore, government expenditure has significant impact on the industrial sector productivity. From a policy point of view, the focus should be on the government to adopt fiscal policy instruments with significant impact on industrial sector productivity.

How do energy consumption, globalization, and income inequality affect environmental quality across growth regimes?

This paper investigates the impacts of renewable and nonrenewable energy consumption, income inequality, and globalization on the ecological footprints of 49 countries for the period of 1995–2018. Panel cointegration test reveals a long-run relationship between the variables. Long-run parameter estimates derived from AMG and CCEMG, increasing income and nonrenewable energy consumption, have a significant positive impact on the ecological footprint, while countries that consume more renewable energy have seen an improvement in the quality of the environment. Conversely, neither income inequality nor globalization has a significant effect on national EFs. Evidence from the estimation of the panel threshold error correction model, where GDP growth is used as the transition variable, indicates a significant threshold effect, which supports a nonlinear relationship among the variables by identifying two distinct growth regimes: lower and upper. For the estimation sample, the positive and significant parameter estimates for economic growth in both growth regimes do not support the EKC hypothesis. The results indicate that renewable and nonrenewable energy consumption has a larger impact on the EF in the upper than lower growth regime. The threshold estimates are in line with the linear long-run estimates that do not indicate that income inequality has a significant impact on ecological footprint. However, globalization appears to negatively affect environmental quality in the lower growth regime.

The Relationship between Macroeconomic Variable in Indonesia: Study of Economic Growth, Export, Import, Labor and Inflation

The objective of this study is to assess the potential for mutual relationships and co-integration among variables such as economic growth, exports, imports, labor, and inflation in Indonesia, using secondary time series data covering the period from 1985 to 2022. The approach applied in this research involves the use of Vector Autoregression (VAR), encompassing Granger Causality and Johansen Co-Integration Test. Subsequently, Vector Error Correction Model (VECM) estimation and forecast analysis are conducted using Impulse Response Function, Variance Error Decomposition, and Forecasting. The results of the Granger Causality test indicate that there is only a unidirectional relationship between economic growth to imports, while there is no significant unidirectional relationship from other variables. The results of the Johansen Co-Integration test suggest that these variables have long-term relationships or are co-integrated. Based on the forecasting results, the research can be applied over the period from 1985 to 2037.

Pricing-to-market of Brazilian exports: a case of vehicle currency invoicing

PurposeBrazil uses the dollar as a vehicle currency to invoice its exports. This fact produces a tendency toward equalizing the prices of products in dollars in the international market and reducing the ability of firms to practice pricing-to-market (PTM). This study aims to evaluate the hypothesis by estimating error correction models in panel data, obtaining estimates of PTM for 25 manufacturing products exported by Brazil between 2010 and 2020.Design/methodology/approachThis study uses the correlated common effect estimator proposed by Pesaran (2006) and Chudik and Pesaran (2015b) to estimate the PTM coefficients.FindingsResults of this study indicate that exporters practice local-currency pricing stability for dollar prices. This study obtains that Brazilian exporters tend to stabilize their dollar price for exports, reducing heterogeneity between destination markets. The results are in agreement with the hypothesis of the prevalence of the coalescing effect of Goldberg and Tille (2008) and lower sensitivity of the markup adjustment to the specific market, as pointed out by Corsetti et al. (2018). The pricing of Brazilian exports in dollars reflects a profit maximization strategy that considers an international price system based on global demand for products.Originality/valueIn addition to analyzing the dollar role in the pricing of Brazilian exports through the triangular decomposition, this study also shows the importance of examining the cross-section dependence of errors, considering the heterogeneous cointegration in export pricing models and producing PTM estimates for short-term and long-term.

Long and Short-Run Effects of Climate Change on Boro Rice Productivity: An Empirical Evidence from Bangladesh

This study endeavors to examine the effect of climate change on Boro rice productivity in Bangladesh. Unit root, Co-integration and Vector Error Correction Model estimation technique are applied to measure the climate-crop yield interrelation on the basis of country level time series data for the period 1972-2019. Average maximum and minimum temperature, rainfall and humidity are used to attribute variables for climate change. The result of vector error correction model denotes that both in the long-run and short-run, average maximum temperature, average total rainfall and humidity negatively effect on Boro rice productivity in Bangladesh respectively. On the other hand, Average minimum temperature is positively effect on Boro rice productivity in the short-run. Fertilizer and irrigation have positive effect on Boro rice productivity in the short-run respectively. Conversely, labor has robust negative effect on Boro rice productivity in the short-run in Bangladesh agriculture. Policy maker should develop policies to mitigate temperature and introduce heat tolerant rice varieties and adaptation measure to sustain the Boro rice productivity in Bangladesh.

"Application of ARDL modelling in global structural shocks and their dynamic impact on FDI "

In general, sustainable economic growth is highly dependent on technological progress, managerial knowledge, and money supply in the economy. Globally, the COVID-19 pandemic has caused structural shocks to economic systems by increasing high economic uncertainty. For this reason, policymakers are exploring alternative measures to stimulate economic growth. And among these alternative measures we also find foreign direct investment, which represents an instrument widely used worldwide. There is a trend among foreign investors that they increasingly focus on the quality of institutions, especially on FDI policies in domestic countries. For this reason, governments of developing countries are increasingly adopting soft policies to attract FDI. Generally, the policies provide substantial taxation provisions. Thus, by stimulating foreign direct investment in global economic operations, short- and long-term growth is achieved. The beneficial effects of FDI are given by their unprecedented impact on achieving sustainability worldwide. The motivation of this study is to scale the effects of environmental quality and good governance on FDI inflows in European Union member countries for the period 2002-2021. We used the estimation of autoregressive distributed lag and error correction models to investigate the association and elasticity of explanatory variables on FDI inflows in EU member countries. Thus, as independent variables we use CO2 emissions from solid fuel consumption and the sum of exports and imports of goods and services. Environmental degradation comes from the depletion of resources by human activity, and ultimately this leads to increased costs and depletion of capital. As a result, environmental quality is crucial to the health of both people and businesses. In the recent economic booms, international trade needs serious attention to form new policies to invite more foreign investors. And as control variables we introduce Government effectiveness index and Gross capital formation. We introduce these variables because it is believed that weak institutional capacity can have a negative impact on economies. The study results suggest that government efficiency and a less regulated environmentally concerned economy drive capital transfer decisions.

Exploring the role of domestic and foreign factors in Indonesian Islamic mutual funds

Purpose — This study aims to test and analyze domestic and foreign factors' effects on Islamic mutual funds' long-term and short-term Net Asset Value in Indonesia.Method — The research is associative quantitative research. The data used is secondary data in the form of time series data for 2015-2022. Data sources were obtained from the Central Bank of Indonesia, the Financial Services Authority, and Yahoo Finance. Data analysis used time series econometrics with the Error Correction Model (ECM) approach.Result — The ECM estimation results show that in the long run, the money supply, the Jakarta Composite Index (JCI), positively affects the Net Asset Value (NAV) of Islamic mutual funds, and World oil prices hurt the NAV of Islamic mutual funds in Indonesia. In contrast, the World gold price does not affect the NAV of Islamic mutual funds. In the short term, JCI positively affects the NAV of Islamic mutual funds, and the World gold price hurts the NAV of Islamic mutual funds in Indonesia. Conversely, money supply and World oil prices do not affect the NAV of Islamic mutual funds in Indonesia.Contribution — This study makes a significant academic contribution by expanding the understanding of factors influencing the Net Asset Value (NAV) of Islamic mutual funds in Indonesia, addressing the research gap regarding the limited inclusion of variables, and suggesting the need for further exploration and comparative studies in different countries or regions.

Effect of bank credit on agricultural gross domestic product

Purpose. This study aimed to provide the central bank of Bangladesh with some empirical data on the impact of bank agricultural credit on agricultural output as a priority sector lending. 
 Methodology / approach. Econometric analysis is applied to discover the nature of the relationship between banks’ agricultural credit and agricultural gross domestic product (GDP) and to find the impact of bank agricultural credit on agricultural output in Bangladesh. Data are extracted from secondary sources, i.e., Bangladesh Bank, Bangladesh Bureau of Statistics, World Bank, and Ministry of Finance for 1991 to 2018. Time-series data are analyzed using the Augmented Dickey–Fuller (ADF) unit root test and the Johansen cointegration test and later examined with Vector Error Correction Model (VECM).
 Results. The Augmented Dickey–Fuller unit root test confirmed that the variables were non-stationary at their level data and became stationary after taking their first difference value. Since the variables are integrated at I(1), we performed the Johansen Co-integration test. Subsequently, one co-integration equation was found, and Vector Error Correction Model estimation was done afterwards. According to the results of VECM estimation, bank agricultural credit, pesticide consumption, and use of cropped areas have long-run relation with agricultural output. 
 Originality / scientific novelty. This study reveals the nature of relationship and assessment of the impact of bank credit on agricultural GDP with empirically valid techniques and tools. In this context, the data from Bangladesh remains very rare. Moreover, for those works which have been done in the context of Bangladesh, appropriate methods and techniques are not always inherent. Hence, this significant research gap is addressed in our present study. Thus, we expect that the findings of this study from Bangladesh based on empirically valid standard techniques can incrementally contribute to the existing literature.
 Practical value / implications. Findings of this research, can be used as an information basis by the central bank of Bangladesh. Based on the findings of this research, Bangladesh Bank should initiate new policies and programs regarding agricultural credit for the projected increase in agricultural GDP in Bangladesh.

Human capital and its impact on Ethiopian economic growth: ARDL approach to co-integration

Maintaining human capital at an optimal level is among the important mechanisms for ensuring steady economic growth. This study aims to examine the impact of human capital on Ethiopia’s economic growth. The study used the ARDL model applying annual data for the period 1980 to 2020. The ARDL-bound test was used to evaluate the presence of con-integration between human capital and independent variables. The study also applied the augmented Dickey-Fuller and Phillips-Perron unit root tests to check the stationarity of the variables. The test result presented that almost all variables become stationary after the first difference. Accordingly, the result from the bound test indicated the existence of a long-run relationship between the dependent variable and independent variables entered into the model. The estimated error correction model with a − 0.9528 coefficient also confirmed the existence of co-integration with a high speed of adjustment towards the long-run equilibrium. In the long-run real GDP, education expenditure, health expenditure, labor force, gross capital formation, total government expenditure, official development assistance, secondary school enrolment, consumer price index, drought, and policy change have astable long-run connection. The finding indicates an increasing ratio of health expenditure and secondary school enrollment should be designed, among others, to contain improved human capital in Ethiopia.

Effects of developmental and non-developmental expenditure on economics growth of India: An error correction model approach

In this article attempt is made to establish the relationship between the developmental and non-developmental expenditure in India and its influence over the economic growth. For this, secondary data are used for the period of 1991-2021 and sourced from various state finance reports, Ministry of Statistics and Programme Implementation, and World Bank, Indian Public Finance Statistics, and annual budget allocation. To check the long-run and short-run relationship among the variables Autoregressive Distributed Lag (ARDL) model, Bound Test and Error Correction Model techniques have been used. The ARDL estimates indicate that in the long-run development expenditure having positive impact over the economic growth, however, it is statistically insignificant. While population growth rate having negative impact over the economic growth. Further, Error Correction Model (ECM) estimates revealed that there is an existence of short-run relationship among the variables too and it is very sensitive, its adjustment rate is about 80 percent and statistically significant at 5 percent level. Therefore, it is suggested to the government to focus more on the short-run goals rather long-run issues because if the problems are address immediately at the time when it arises then it would also assist to achieve the long-run sustainable economic growth.