Granger Causality Estimation Research Articles

The moderating role of energy consumption in the relationship between trade openness and environmental degradation: evidence from Pakistan and China

Every country wants to accomplish the sustainable development goal. For this reason, each country protects the environment, expressing widespread concern over environmental degradation. Furthermore, trade is the most essential component of economic growth, and energy is the primary source of production and environmental degradation. Therefore, the study aims to investigate the moderating effect of energy consumption on the link between trade openness and environmental degradation in the case of China and Pakistan. It will utilise data from 1990 to 2020 and employ ARDL and Granger causality estimation techniques. This study revealed that energy consumption and GDP growth are constructive. At the same time, inflow, FDI, and trade openness have negative consequences on CO2 emission in China, while all the variables have positive effects on CO2 emission in the case of Pakistan. This study confirms the existence of the Environmental Kuznets Curve and the moderation effect of energy consumption in both countries. This study also found that there exists a one-way causality running from CO2 to energy consumption and trade openness to CO2 in the case of China. This study suggested focusing on screening and identifying environmentally friendly enterprises.

An Empirical Analysis of the Nexus Between Inflation, Exchange Rate, Unemployment and Economic Growth in Ethiopia: A Granger Casualty Approach

High unemployment, volatile exchange rates and hyperinflation contest the steady economy of Ethiopia. The aim of this study is to examine the relationship between inflation, unemployment, exchange rate and economic growth in the steady transition economy of Ethiopia. For this purpose, descriptive and econometric analyses with VAR and Granger causality estimations have been employed by using the annual time series data from 1980 to 2022. The descriptive results show that after 2010, in Ethiopia, stagnant economic growth, extreme volatile exchange rates and hyperinflation were observed. The VAR estimate is consistent with the results of the Granger causality test. It showed that in the long run, economic growth and currency depreciation are directly associated, but unemployment has a negative impact on inflation and economic growth. Economic growth and unemployment have an enlightened impact on the exchange rate devaluation, but they are not ultimately impacted by the rate of inflation. The study implied that between 1980 and 2022, in Ethiopia, there were high rates of unemployment, slow economic growth coupled with hyperinflation and a high exchange rate. The study suggested that boosting industry and agricultural productivity through the adoption of innovation, replacing foreign commodities with domestic commodities and expanding the supply of domestic commodities in international markets can resolve the inspected Ethiopian macroeconomic problems.

Beyond the numbers: unveiling the environmental impacts of international tourism and the role of renewable energy transition

ABSTRACT In pursuit of Saudi Arabia's Vision 2030 objectives for a sustainable and low-carbon future, this study examines the intricate dynamics between carbon emissions and key variables crucial to the nation's decarbonisation strategy. Grounded in the Triple Bottom Line (TBL) Theory, the chosen variables – sustainable tourism, renewable energy demand, and natural resource management – take centre stage. Applying Markov switching regime regression to data spanning 1990–2022, our findings reveal a positive association between international tourism and carbon emissions, aligning with the Tourism-induced Environmental Impact theory. Incorporating the Environmental Kuznets Curve (EKC), our results illustrate a U-shaped relationship. Renewable energy consumption (REC) exhibits a negative impact, supporting EKC's premise that economic development and cleaner energy adoption mitigate environmental degradation. Identified as influential factors affecting carbon emissions, Economic growth and natural resource capital find theoretical backing. The second power of economic expansion positively influences carbon emissions, while the square of natural resources has a negative impact, aligning with resource scarcity theories. Granger causality estimates validate Tourism-led Growth, Resource Capital, and Emissions-led Growth hypotheses. Integrating insights from the Community-Based Tourism (CBT) and stakeholder theory, this study provides actionable insights for policymakers steering Saudi Arabia toward a sustainable, low-carbon future.

Assessing Forest Conservation Strategies for Biodiversity Restoration and Sustainable Development: A Comparative Analysis of Global Income Groups

The escalating rate of deforestation presents significant challenges to the global economy, including the loss of habitats for endangered species and a decline in biocapacity reserves. This situation also raises concerns about overcrowding and excessive production, which can undermine conservation efforts. Addressing this issue, Sustainable Development Goal 15 of the United Nations emphasizes managing forest resources, preventing habitat loss, combatting desertification, and expanding biodiversity reserves. Its contributions have played a pivotal role in wildlife conservation, mitigating rural-urban migration and preserving land resources. Given the relevance of this problem, this study examines the consequences of ongoing tropical deforestation on the loss of endangered species habitats while controlling for biocapacity reserves, urbanization, economic growth, and industrialization across a large sample of 159 nations, further categorized into low-, middle-, and high-income countries. The findings from cross-sectional and quantile regression analyses reveal that higher deforestation rates, increased rural-urban migration, and greater industrialization threaten endangered species habitats. Conversely, increased biocapacity reserves and economic growth contribute to wildlife restoration. Granger causality estimations highlight unidirectional relationships between deforestation and biodiversity loss (as well as biocapacity reserves), while deforestation and industrialization exhibit bidirectional causality. The results further indicate that sustained economic growth leads to deforestation, biocapacity reserves, and urbanization, while urbanization contributes to deforestation. This underscores the role of deforestation as the primary driver of habitat loss for endangered species and the depletion of biocapacity, thereby fostering mass production. Urbanization and economic growth are shown to be causally linked to deforestation across countries. The study underscores the urgent need to safeguard forest reserves against large-scale land conversion for infrastructure development, industrialization, and settlement of overpopulated urban areas, as these factors contribute to habitat degradation and biodiversity loss. Conserving, restoring, and promoting sustainable utilization of ecosystems are essential measures to address natural uncertainties and advance Sustainable development goals.

Panel Granger Causality Between Financial Development and Economic Growth

This paper uses panel Granger causality estimations with the approaches developed by Nair-Reichert and Weinhold (2001), and Bangake and Eggoh (2011) to analyse the causality relations between all the nine IMF financial development indices, and the real GDP growth considering a sample of 46 countries spread by all continents over the interval 1990-2017. The results revealed the dynamic character of these causality relations. Overall, no significant differences were found when comparing the results obtained for the financial institutions indices with those regarding the financial markets indices. The results confirm the existence of bidirectional causality, although not with the same statistical robustness for all the IMF indices addressing relevant aspects of financial development: access, depth, and efficiency of the financial institutions and markets.

Mitigating the impact of a pandemic: a time-varying-parameter structural VAR (TVP-SVAR) and time-varying granger causality estimations

PurposeThe study investigates the effectiveness of government policies to mitigate the impact of a pandemic. The study adopts the small open economy of Nigeria for the following reasons. First, Nigeria is the largest economy in SSA. Second, Nigeria was also significantly impacted by the COVID-19 pandemic.Design/methodology/approachThe study employed the time-varying structural autoregressive (TVSVAR) model to control for the potential asymmetry in fiscal variables and to control for the shift in the structural shift, following a macroeconomic shock. As a form of robustness, the study also implements the time-varying Granger causality to formally assess the temporal instability of the variable of interest.FindingsThe results show that an oil price shock is an important source of macroeconomic instability in Nigeria. Importantly, the results indicate that the effects of fiscal policy are strongly time varying. Specifically, the results show that fiscal policy helps to stabilize the economy, (i.e. they help to reduce inflation and spur output growth) following macroeconomic shock. Further, the Granger test shows that fiscal policy helped to spur growth in Nigeria. The research and policy implications are discussed.Originality/valueThe study accounts for the time-varying effects of fiscal policy.

Attaining environmental sustainability amidst the interacting forces of natural resource rent and foreign direct investment: Is Norway any different?

AbstractThis is a study of Norway's sustainable environment development amidst the interactions of natural resources, external investment (FDI) and economic development. Much has been done with respect to the study of Norway's economic performance in relation to the link between the natural resources and FDI with little emphasis on the environmental performance of the resource‐based economy. Also, Norway is classified as among the top countries in Europe with a greater percentage of adopting renewable energy, and no study has done a critical review of the impact of natural resources and FDI which are part of drivers of carbon emission that can counter the positive impact of renewable energy towards the Norway's sustainable environment. On this basis, this study adopts a time series data of Norway, 1970 to 2018 to study its environmental performance. Approaches such as structural break analysis, Autoregressive Distributed Lag (ARDL)‐bound testing and Granger causality estimations are utilised in this study for in‐depth analysis of the subject. Findings from ARDL confirmed a positive association between fuels and carbon emission, other indicators (economic growth and natural resources) are improving the quality of the country's environment. FDI even though shows positive sign remains insignificant in impacting the environmental performance in the short run reverted to a significant negative relationship with carbon emissions. This confirms the pollution halo hypothesis and rejects the pollution haven hypothesis (PHH) for Norway, and this trend can be sustained with the constant implementation of environmental rules in the country. Granger test confirms, a one‐way transition from fossil fuels to carbon emission, from carbon emission to growth, and from economic growth to fossil fuels. Also, a two‐way transmission is found between fossil fuels and FDI. These findings from Granger causality are consistent with the findings from ARDL, hence, two ways interactions between FDI and fossil fuel energy source consumption from Granger causality and the two variables (fossil fuels and FDI) are seen impacting on Norway's environmental performance. Findings from the estimates suggest that natural resources and FDI are mitigating pollution, hence, Norway's policy is expected to be resources and FDI driven in sustainable environment development.

CAUSAL NEXUS BETWEEN CURRENCY EXPOSURE AND STOCK RETURNS OF NON-FINANCIAL MNCS UNDER TWO FINANCIAL CRISES IN MALAYSIA

Malaysia practises high level economic openness which makes it an interesting avenue to study currency exposure. Based on this, this paper comparatively examines the relationship between currency exposure and stock returns among non-financial multinationals corporations in Malaysia by utilising the OLS and Granger causality tests. These tests were run using data from 207 non-financial Malaysian under two financial crises namely the Asian financial crisis (AFC) and global financial crisis (GFC) in 1997 and 2008, respectively. The distinct foundations of these crises are believed to induce varying levels of currency exposure and different nexus between currency exposure and stock returns of the selected multinationals. The firm-level OLS estimation found that higher number of firms’ stock returns were affected by currency exposure compared to the composition of significantly affected firm in Granger causality estimation (regardless of the causal directions). Still, the significant relationship and bilateral causality under both estimations were comparatively higher during the AFC. With this, the findings answer the elemental questions of the paper that dictate different market foundations during AFC and GFC, as well as providing evidences on the potential varying significant levels when bilateral causality is considered (Granger causality) compared to unidirectional relationship (OLS). The detailed analyses may guide future researcher to conduct the study of currency exposure by approaching different direction of causal relationship between currency exposure and stock re and market conditions.

Forecasting European stock volatility: The role of the UK

This study investigates the lead–lag relationships of volatility among European stock markets. Using weakly realized variance measures, we examine volatility spillover dynamics between the UK and other major stock markets in Europe, thereby identifying a long-run leading role for the UK market portfolio. Lagged UK volatility can significantly predict volatilities in non-UK countries, whereas lagged non-UK volatility has a limited association with UK volatility. Moreover, pairwise Granger causality estimations, predictive regression specifications, and out-of-sample validations reveal that volatility shocks in the UK are gradually reflected in market fluctuations across Europe with varying market-specific delays. Our findings support the limited attention explanation for the volatility predictability of the lagged UK equity index.

Access to sustainable healthcare infrastructure: a review of industrial emissions, coal fires, and particulate matter.

Environmental health is critical for the economy's social welfare and environmental sustainability. Using time series data from 1975 to 2020, the research examines the short- and long-run relationship between environmental pollutants and healthcare costs in the context of Pakistan. The study's results reveal that short-term and long-term efforts towards cleaner development in terms of carbon emissions, coal combustion, nitrous oxide (N2O) emissions, and industrial value-added have resulted in significant reductions in healthcare expenses due to improved management of industrial emissions. However, in the long run, particulate matter (PM2.5) has a detrimental effect on a country's sustainable healthcare agenda, leading to increased healthcare costs. Furthermore, the increased use of coal-fired power plants that release polycyclic aromatic hydrocarbons (PAH) and revenue generated by contaminated production lead to higher out-of-pocket healthcare costs, increasing a country's risk of morbidity and mortality. The study's Granger causality estimations demonstrate that carbon emissions are responsible for emissions-driven healthcare expenses in a nation. Additionally, economic growth leads to increased carbon emissions and industrial toxins, which are also emission-led. Through variance decomposition analysis (VDA), the study finds that carbon emissions have the highest variance shock of 32.702% on healthcare expenditures in the next ten years. This is followed by polluted income and continued economic growth, which have a variance shock of 13.243% and 8.858%, respectively, over the same period. The findings indicate that the maximum healthcare benefits may be acquired by mitigating environmental pollutants via stringent environmental regulations, reducing industrial toxins through solid waste management techniques, and minimizing coal combustion reliance through renewable fuels. Environmental research is still required to provide more sustainable solutions to the sustainability of the global healthcare agenda.

Analysis of the impact of natural resources and globalization on environmental quality and economic growth: The study of SANE nations

The outcome of resources and globalization on growth and the quality of the environment among SANE (South Africa, Algeria and Nigeria) nations from 1990 to 2020 was investigated in this study. Economic growth and environmental degradation are the dependent variables, whereas the independent variables are natural resources, population, foreign direct invest- ment, trade openness, globalization, domestic credit to private sector by banks and investment. The study utilizes FMOLS and Granger Causality estimation procedure. Findings from the environmental degradation outcome suggest that per capita gross domestic product, gross fixed capital formation and globalization have positive significant impact on the regressand while trade openness has adverse significant impact on environmental degradation. The result from the economic growth model indicates that natural resources and total population posi- tively and significantly influence per capita gross domestic product. The Granger causality outcome predicts a uni-directional relationship that runs from environmental degradation to globalization, and a one-way causality from globalization to per capita gross domestic prod- uct. Also, a uni-directional causal relationship was observed from natural resources to glob- alization. Based on the outcome, the study recommends that investment in clean technologies should be given high precedence, and since these greener technologies are capital intensive, there is a need for the provision of adequate finance to the private sector to procure these technologies as these would help to alleviate the challenge of degradation of the environment, and increase the value of the environment in the SANE nations.

Navigating the global mineral market: A study of resource wealth and the energy transition

The study examines the relationship between mineral resource prices, renewable energy consumption, scientific advancement, mineral resource trading, production, and resource extraction demand in the top 10 resource-abundant economies from 1995 to 2020. The study uses two well-known theoretical models, the “Global Value Chain Theory” and the “Energy Transition Theory.” Short-term, the findings suggest that resource pricing has a negative effect on its demand, whereas long term, it has a favourable effect. The research also reveals that using renewable energy sources increases the need for mineral resources. The findings imply that renewable energy technology raises demand for mineral resources in the short term and decreases mineral resource demand in the long run. In the long term and under the fixed effect model across nations, mining demand raises as industry value increases and trade openness increases. Trading of mineral resources has a multiplier effect on mining demand. Granger causality estimates verify the cyclical nature of the link between the demand for, the price of, and the trade of natural resources. The results show that the energy business benefits from establishing laws and regulations related to the energy transition, which may increase funding for renewable energy R&D.

The Nexus between Economic Growth, Energy Consumption, Agricultural Output, and CO2 in Africa: Evidence from Frequency Domain Estimates

This study examined the nexus between economic growth, energy consumption, and the environment with the moderating role of agricultural value addition and forest in Africa based on data sourced from 1980 to 2019. We employed both the time domain and frequency domain panel Granger causality estimation techniques to compare results across the different horizons. Extant literature suggests the inability of time domain estimation techniques to account for causality at different frequencies. The study also accounts for the nexus among our variables both at the single-country and multi-country levels. The results at the single-country level are at best mixed. The results of the panel Granger causality at the frequencies domain suggest that a bi-directional relationship exists between energy consumption and economic growth, and that energy consumption Granger causes carbon emissions in Africa. The results align with the feedback hypothesis on the one hand but contradict the conservation hypothesis on the other hand. The study has some policy implications.

Response of Pakistan's economic growth to macroeconomic variables: an asymmetric analysis.

This study examines the impact of several important macroeconomic variables such as quality of education, infrastructure development, foreign direct investment inflow, and green energy transitions on economic growth. We analyzed annual time series data sample for estimation of the above macroeconomic indicators during 1990 to 2020. We use nonlinear auto-regressive distributive lag model (NARDL) approach to detect the short-term and long-term effects of undermentioned macroeconomic variables on economic growth of Pakistan. The results primarily reveal that the quality education, foreign direct investment inflow, and infrastructure development are playing a significant positive role in the economic growth of Pakistan. Similarly, in short term the foreign direct investment inflow, infrastructure, and green energy transition coefficients are significantly positive related to sustainable development goals. However, the education found as unsubstantial as contributive as other variables. Moreover, the Granger causality and structural break estimations are employed to estimate the causal association between the selected parameters and unexpected change over the economy. The estimated outcomes find the unidirectional causality from education and green energy transition towards economic growth, where education is found within relation to infrastructure. Additionally, bidirectional causal relationship is found between FDI and infrastructure towards economic growth which shows that the increase in foreign investment has the potential to boost the economic growth. Finally, all the estimated indexes are considered as important sources towards the economic growth.

A Prediction Model for Substation Investment Benefit Based on Granger Causality

<p>The construction of a lean operation and inspection integrated management system for substations is an important part of the development and maintenance of the power system. Forecasting the investment benefits of substation project development is an important issue in feasibility analysis. Therefore, we need to use a highly accurate method to make a prediction of the investment benefit of this project. Granger causation is a causal relationship based on "prediction", and inferring about its causality is a key task in time series analysis. In this paper, we propose a new estimation method, Granger causality estimation based on supervised learning. This method uses an eigenvalue representation of the distance between conditional distributions conditioned on past values. And for different time series, the method can give different feature vectors. Applying it to the prediction of the investment efficiency of the substation can achieve a good prediction effect. Therefore, we used granger causality to build a predictive model of the return on investment in substations.</p> <p> </p>

OIL PRODUCTION - GDP NEXUS: EMPIRICAL INSIGHTS FROM THE NIGERIAN ECONOMY

Several studies abound that concentrated on oil production and the environment, oil exploration and socio-economic conditions, contributions of crude oil consumption to the growth of the Nigerian state, etc. But there are no recent studies investigating the oil production- GDP nexus. Hence, the main goal of this study is to explore the contribution of oil production to the national GDP from an oil-dependent economy nexus. Annual time series data on oil production and its growth rate represented the oil production side of the nexus while GDP and its growth rate represented the GDP side of the nexus. We applied the three different econometric techniques: unit root test, cointegration test, vector error correction and the Granger causality estimation techniques. Our results largely suggest that there exists a long-run joint and simultaneous
 (bilateral performance) between GDPg and OILPRODg , and between GDP and OILPRODg; growth rate of GDP (GDPg) has negative coefficients in relation to its contribution to the growth of oil production (OILPRODg); and negative but statistically insignificant impact of the dependence of the growth rate of current OILPRODg on GDP. Furthermore, OILPRODg Granger caused GDPg as well as GDP, and GDP does not Granger cause OILPROD. We recommend that oil production should be controlled and directed towards effective management of GDP and economic growth outcomes in Nigeria
 JEL Classification Code: O47, O55,Q32,Q43

Assessing Green Solutions for Indoor and Outdoor Environmental Quality: Sustainable Development Needs Renewable Energy Technology

The survival of humans depends on both natural and manufactured surroundings. Though most people spend their time indoors, there are constantly new challenges to address, and air pollution is one of them. This research considered both outdoor and indoor factors that affected green development agendas. Outdoor factors include fossil fuel combustion, renewable energy supplies, and carbon emissions, whereas indoor factors include industrial waste management, chemical use in production, and green technologies. Against the backdrop of the Indian economy, plagued by severe environmental problems from 1995Q1 to 2020Q4, this research evaluated green alternatives for indoor and outdoor environments. Carbon emissions rise with the use of chemicals in production, with the burning of fossil fuels, and with economic expansion, as shown by the Autoregressive Distributed Lag (ARDL) testing method employed. In contrast, emissions fall when a nation invests in renewable energy technologies and appropriately manages its industrial waste. Granger causality estimations validated the feedback link between industrial chemical usage and carbon emissions while demonstrating a unidirectional causality from chemical use to green energy demand and fossil fuel combustions. Moreover, burning fossil fuels and energy demand causes carbon emissions. Carbon emissions and fossil fuel combustion are produced due to industrial waste handling. The scale of the use of chemicals is expected to have the greatest impact on carbon emissions over the next few decades, followed by industrial waste, renewable energy supply, fossil fuel combustion, and renewable energy technologies. In order to achieve environmental sustainability via emissions reduction, this study proposed policies for a low-carbon economy, renewable energy source encouragement, and sustainable management. Close attention should be paid to clean energy and environmental sustainability by investing in research and development (R&D) to create a long-term sustainable energy strategy that is environmentally benign.

Evaluating the Economic and Environmental Repercussions of the Price Paradox in Natural Resource Commodities: Market Drivers and Potential Challenges for Sustainable Development

The natural resource commodity price paradox is a phenomenon that has been observed in the past. The price of a commodity constantly and unpredictably fluctuates. This phenomenon makes it difficult for businesses to plan for future needs and investments. This study examined the relationship between natural resource commodity prices, renewable energy demand, economic growth, high-technology exports, inbound FDI, and greenhouse gas (GHG) emissions in Pakistan, using the 1975 to 2020 time period. The robust least squares (RLS) regression results showed that natural resource commodity prices and economic growth increased GHG emissions. In contrast, there was a negative relationship between renewable energy demand (and high-tech exports) and GHG emissions in Pakistan. The results verified the resource price curse hypothesis and growth-associated emissions in a country. The Granger causality estimates showed the unidirectional relationship of renewable energy consumption with GHG emissions, natural resource pricing, and inbound FDI. Further, high-technology exports Granger caused GHG emissions and GDP per capita. The results verified the country’s growth-led green energy sources and inbound FDI, resource pricing-led inbound FDI, and GHG emissions-led resource pricing. The impulse response function suggested that resource commodity pricing and the country’s economic growth will likely increase GHG emissions in the next ten years. At the same time, green energy demand, technological advancements, and sustainable investment in cleaner production would help decrease GHG emissions over time. The variance decomposition analysis suggested that technology advancements would likely have greater variance shock on GHG emissions, followed by commodity resource pricing and green energy demand. The resource price paradox hampers economic and environmental outcomes, which need to be resolved through advancement in cleaner production technologies, adoption of green energy demand, and stabilization of resource commodity pricing that helps to move forward toward the sustainable development of the country.

Diversification and Economic Development in Emerging Economies: The Nigerian Experience

This study seeks to investigate the relationship between diversification and economic development in emerging market economies, using the Nigerian scenario. The study employed annual time series data sourced from the Central Bank of Nigeria and World Development Indicators. Economic diversification was represented by diversification index while economic development was proxy by per capita GDP. Autoregressive Distributive Lag (ARDL) and granger causality estimation techniques were used for the analysis. It was revealed that long run relationship exists among the variables in the estimated model. The granger causality results showed that no bidirectional causality was found between diversification index and per capita GDP. The bound test results showed that a long run relationship exists among the variables in the estimated equation. This signifies the relevance of these variables in promoting economic development in Nigeria. The study recommends that; the government should diversify the economy from crude oil to overcome export instability or the negative impact of terms of trade; and there should be prudent government spending and conducive and enabling environment for both the growth of other important sectors and improved domestic investment, and exports from sectors such as agriculture, manufacturing, textile as well as minerals and steel should be encouraged; monetary authorities should enhance the formulation of appropriate monetary policies that will help to control inflation and exchange rate for sustainable economic development; and exchange rate should be stabilized through the use of appropriate monetary policy tools as well as support export diversification programmes in order to diversify into the core sectors of the economy and stem the tide of the mono-product syndrome

Energy consumption, financial development, CO2 emissions, and economic growth in 23 developing economies

This study examines the nexus among energy consumption, CO2 emissions, financial development, and economic growth in 23 developing countries. The econometric approach is based on panel pairwise Granger causality and GMM estimations of panel VAR-Granger causality with fixed effects. Our study is probably one of the first to estimate joint relationships between financial (bank credit to private sector and liquid liabilities), energy (primary energy consumption and electricity generation), environmental (CO2 emissions), and economic variables (GDP and inflation rates) in less developed economies over the 2001-2019 period. The results confirm bidirectional causality between financial development and CO2, financial development and GDP, and primary energy consumption and CO2; and unidirectional from financial development to energy consumption and from electricity generation to CO2. We did not find evidence of a relationship between GDP and energy or CO2 emissions. Due to data availability, we could not complement our analysis with further testing, which would enrich the results. The research may guide policymakers in designing policies to reduce contamination, improve energy use, and promote financial development.