Evidence Of Cointegration Research Articles

Oil extraction and crude oil price behavior in the United States: a fractional integration and cointegration analysis

ABSTRACT This study reviews the relationship between the different types of oil extraction such as horizontal drilling or fracking, or directional drilling, which is a hybrid between vertical and horizontal, on the behavior of West Texas Intermediate crude oil prices. In doing so the study adds a new dimension to the literature on the relationship between oil price and extraction techniques. The analysis is based on statistical properties using the VAR model of Fractional Cointegration, reflecting evidence of cointegration between the series, and indicating a long-term equilibrium relationship. In addition, we apply the wavelet transform to analyze the structural changes in the price of West Texas Intermediate brought about by changes in drilling technology. Our results show that all three forms of extraction and West Texas Intermediate prices reach high levels of correlation, particularly around 2014. We conclude that a decrease in production based on any form of crude oil extraction leads to an increase in the price of crude oil.

Nexus between energy use, industrialization, forest area, and carbon dioxide emissions: New insights from Russia

Greenhouse gas (GHG) emissions, especially carbon dioxide (CO2) emissions, contribute significantly to global climate change, which in turn threatens the environment, development, and sustainability. The current study examines the nexus between Russia's energy consumption, industrialization, and forest cover in terms of the country's total CO2 emissions. The Autoregressive Distributed Lag (ARDL) bounds testing technique and the Dynamic Ordinary Least Squares (DOLS) methodology were used to examine time series data from 1990 to 2020. Evidence of cointegration between the variables was found using the ARDL bounds test. An increase of 1% in energy consumption and industrialization is predicted to result in an increase of 1.3% and 0.23% in CO2 emissions in Russia. In addition, it has been estimated that a 1% increase in forest area might lead to a 4.29% reduction in CO2 emissions in the long run. This article proposed policies to reduce emissions in Russia and assure environmental sustainability through the use of renewable energy sources, green industry, and sustainable forest management.

Does healthcare sector development affect inbound tourism? Evidence from ASEAN countries

Using the concepts of medical tourism and travel medicine, this research note proposes healthcare sector development has a positive impact on inbound tourism. This hypothesis is tested with the data of ASEAN countries from 2000 to 2018. Because of the presence of cross-section dependence and heterogeneity, appropriate panel cointegration test, panel coefficient estimation method and panel Granger causality test are used. The findings indicate that (1) evidence of cointegration between inbound tourism and healthcare sector development is found when inbound tourism is the dependent variable and (2) there is a Granger causality from healthcare sector development to inbound tourism. The findings suggest that there are temporal relationships from healthcare sector development to inbound tourism in both short-run and long-run. In summary, healthcare sector development has an impact on inbound tourism.

On the interdependence between biofuel, fossil fuel and agricultural food prices: Evidence from quantile tests

This study investigates the long- and short-run relationships between fossil fuel, biofuel and agricultural food commodity prices by applying the cointegration and causality analysis. This study employs a quantile approach to consider the non-linearity and asymmetry in the relationship of data. To reduce a possible noise contained in the data, this study uses weekly average data of biofuel (ethanol), fossil fuel (West Texas Intermediate [WTI] oil) and agricultural food commodity (corn) futures prices from April 18, 2005 to October 30, 2020. The main findings are summarised as follows. First, we discover no evidence of cointegration between the quantiles of WTI oil, ethanol and corn prices when all quantiles are considered, although the results of the linear cointegration test are inconclusive. Second, results of the Granger non-causality test in quantiles reveal a significant short-run bidirectional causality between the returns of WTI oil, ethanol and corn prices, for all or most quantiles of the distribution. This implies asymmetric and nonlinear causal linkage between these variables. Moreover, the results of our analysis have several policy implications, including energy price stability, decrease in energy dependence on fossil fuels, promotion of agricultural industry, environmental sustainability, energy conversion and reduction of greenhouse gas emissions.

Terrorism, Freshwater, and Environmental Pollution: Evidence of Afghanistan, Burkina Faso, Iraq, Arab Republic of Egypt, Cameroon, Mali, Mozambique, Niger, Nigeria, Somalia, Syrian Arab Republic, and Pakistan

Nowadays, the world is facing many important problems, including terrorism, drinkingwater supply problems, and environmental pollution, which have strong impacts on the sustainable development. In this paper, the cointegration between drinking water, terrorism, economic growth, energy consumption, and environmental pollution was explored in Afghanistan, Burkina Faso, Iraq, Arab Republic of Egypt, Cameroon, Mali, Mozambique, Niger, Nigeria, Somalia, Syrian Arab Republic, and Pakistan in the period of 2000–2020 by using the panel Fourier bootstrapping auto regressive distributed lag (PFBARDL) test, and then the direction of causality between the selected variables was determined. The PFBARDL test determined evidence of cointegration among the selected variables. The causality test found evidence of unidirectional causality from terrorism to drinking water and environmental pollution.

Long-run relationship between the unemployment rate and the current account balance in the United States: An empirical analysis

In recent years, political rhetoric implying international trade hinder employment has gained momentum. We argue that the dynamics between the unemployment rate and the current account balance have both economic and political relevance. The presence of cointegration between the unemployment rate and the current account balance to GDP ratio and the nature of their short-run fluctuations will help us analyze the dynamics between the two objectively to evaluate the political rhetoric. We use quarterly data from 1948: Q1 to 2020: Q1 on the unemployment rate and current account balance to GDP ratio in the United States. Traditional cointegration tests fail to detect any cointegration. However, threshold cointegration tests confirm statistical evidence of threshold cointegration between the two. The estimated threshold vector error-correction model shows statistically significant evidence of falling unemployment rate coupled with deteriorating current account balance. This finding indicates that as unemployment rates go down, the current account balance deteriorates to maintain the long-run co-movement. Arguably, as the unemployment rate decline, concurrently imports rise faster than exports causing the current account balance to deteriorate. This finding thereby refutes the political rhetoric.

Nexus between economic growth, energy use, agricultural productivity, and carbon dioxide emissions: new evidence from Nepal

Global climate change, exacerbated by greenhouse gas (GHG) emissions, notably carbon dioxide (CO2) emissions, provides huge risks to the environment, development, and sustainability. This study empirically investigated the dynamic impacts of economic growth, fossil fuel energy use, renewable energy use, and agricultural productivity on CO2 emissions in Nepal. Time series data from 1990 to 2019 were utilized by applying the autoregressive distributed lag (ARDL) bounds testing approach followed by the Dynamic Ordinary Least Squares (DOLS) method. The ARDL bounds test revealed evidence of cointegration among the variables. The DOLS findings revealed that an increase in economic growth and fossil fuel energy use by 1% for each variable would increase CO2 emissions by 0.61% and 0.67%, respectively. Conversely, a 1% increase in renewable energy use and agricultural productivity may lead to CO2 emissions reduction by 3.65% and 0.41% in the long run. The estimated results are robust to alternative estimators such as fully modified least squares (FMOLS) and canonical cointegrating regression (CCR). In addition, the pairwise Granger causality test was utilized to capture the causal linkage between the variables. This article put forward policy recommendations aimed at sustainable development by establishing strong regulatory policy instruments to reduce environmental degradation.

Rice price volatility and transmission: implications for food security in Ghana

This paper examines price volatility and transmission of rice markets in Ghana and draws implications for food security. Using monthly rice price data from 2013 to 2019, the paper uses the Autoregressive Distributed Lag (ARDL) with an Error Correction Model (ECM) to ascertain the availability and accessibility of rice, whilst the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model is considered to measure the stability of the commodity. The paper finds evidence of cointegration between the World and Ghana’s rice market. Findings confirm cointegration in Ghana’s regional markets for both imported and domestically produced rice. This ensures stable long-run relationship, allowing trade flows that guarantees rice availability. The corrections in short-run deviations of price ensure continuous accessibility of rice in the country. Estimates from the volatility model suggest high fluctuation in prices, implying that stability in the prices of rice is an issue across all regional markets. The paper recommends efforts in increasing domestic production to enhance availability and accessibility of rice. Stakeholders along the rice value chain should be encouraged to invest in competitive rice production. Government should leverage rice prices with giant import countries to reduce the cost of importation for stable price on the market.

Is there a long-run relationship between the unemployment insurance and the labor force participation rate in the USA? A nonlinear analysis

PurposeThis paper explores the evidence of a long-run co-movement between aggregate unemployment insurance spending and the labor force participation rate in the USA. The unemployment insurance (UI) program tends to expand during an economic downturn and contract during an expansion. UI may incentivize unemployment and may also facilitate better matching in the labor market. Statistical evidence of the presence of a co-movement will thus shed new light on their dynamics.Design/methodology/approachThis research applies time-series econometric approach using monthly data from 1959:1 to 2020:3 to test threshold cointegration and estimate a threshold vector error-correction (TVEC) model. The estimates from the TVEC model investigating the nature of short-run dynamics.FindingsThe Enders and Siklos (2001) test find evidence of threshold cointegration between the two indicating the presence of long-run co-movement. The estimates from the TVEC model investigating the nature of short-run dynamics find evidence that the growth in aggregate UI spending and the growth in labor force participation rate adjust simultaneously to maintain the long-run co-movement above the threshold in the short run. The author also observes the same short-run dynamics for the growth in aggregate UI spending and the growth in the labor force participation rate for females.Research limitations/implicationsThis model is bi-variate by construction and does not address causality.Practical implicationsThe author argues that the UI program positively impacts the female labor market outcomes, for example, better matching. This finding may explain the upward trend in the labor force participation rate for females in the USA.Social implicationsThe research findings may justify the transfer programs for minority and immigrants.Originality/valueThis is first research that analyzes the UI programs impact on the labor force participation using a macroeconometric approach. To the best of the author's knowledge, this is the first study in this genre.

Asymmetric Link between Unemployment, Inflation and GDP growth rate in the United Kingdom Economy: An ARDL Bounds Approach

This paper investigates the relationships between unemployment, inflation, and economic growth in the UK. Quarterly data for the period 1990: Q1 to 2020: Q4. The ARDL bounds test model, Vector Error Correction Model (VECM), and Granger causality test are applied to examine the variables' short-run and long-run causal relationship. Unemployment rate (UR), inflation rate (INFR) and GDP growth rate (GDPGR) as a proxy of economic growth have been taken to study the relationships among unemployment, inflation, and economic growth. The short-run ARDL model in the study suggests that the entire variables (GDPGR, DUR and INFR) have a short-run causal relationship with each other. It follows the economic theories of Okun’s Law and the short-run Philips curve that there is an interrelationship among economic growth, unemployment, and inflation. The ARDL bounds test and VECM findings suggest strong evidence of cointegration between the three variables, which indicates a long-run equilibrium relationship. The pairwise Granger Causality test suggests a bi-directional relationship between economic growth and unemployment and a unidirectional relationship between inflation and economic growth (INFR→GDPGR) and between inflation and unemployment (INFR→DUR). In this case, monetary and fiscal policies may no longer effectively achieve policymakers’ economic growth and development goals.

Determinants of Public Healthcare Investment: Cointegration and Causality Evidence from Pakistan

A healthy population and human capital are essential for the emerging countries to achieve faster but more sustainable development, which can only be achieved by investing exclusively in health. The need to probe cause-and-effect relationship between the factors influencing the public health expenditures is the driving force behind this investigation. This study empirically investigates the cointegration and causal relationship between healthcare expenditures (HCE), income, healthcare infrastructure (HCI), and healthcare services (HCS) in Pakistan from 1974 to 2017. Lee-Strazicich and Clemente-Montanes-Reyes structural break unit root tests are employed in addition to standard unit root testing. The Bayer-Hank, Gregory-Hansen, and Hatmei-J cointegration tests consistently show that HCE, income, HCI, and HCS are cointegrated. The short-run Granger causality inferences show unidirectional causalities from HCE to HCI and HCS, from income to HCE, whereas bidirectional causality is observed between HCI and income and between HCI and HCS. Similarly, Long- run casualty results show unidirectional causality from income to HCE, from HCE, income, and HCS to HCI, and bidirectional causality between HCS and HCE. The findings suggest that the government may play an obligatory role in healthcare financing and must pay special attention to the equitable distribution of healthcare facilities, infrastructure, and services across Pakistan.

Investigating the Interactive Role of Demand Side Factors Potentially Responsible for Energy Crisis in Pakistan

This paper attempts to investigate the dynamic relationship among Energy Consumption (E), Financial System Development (F), Industrailization (I), Agriculture Development (A) and Economic Growth (Y) in case of Pakistan for the period 1971-2018 by using cointegration approach. After confirming the level of stationarity, the presence of long run relationship among the series was tested through newly developed combined cointegration approach in addition to ARDL bound testing with structural break dummy. The short run and long run parameter coefficients were estimated by unrestricted error correction model (UECM) because all the series are found stationary at 1st difference I(1) and sufficient evidence of cointegration. Finally, the direction of causality among the considered variables was achieved through Granger causality test within the framework of VECM. The long run parameter coefficient estimates by UECM indicate that financial development, industrialization, economic growth and decrease in agricultural contribution to GDP induce electricity consumption in Pakistan. We also found that a long-run unidirectional causality is running from the economic growth to electricity consumption which favors the electricity conservation hypothesis in case of Pakistan. The causality running from the electricity consumption to agriculture output coupled with negative parameter coefficient value suggests that electric power deficit is responsible for hampering the agricultural growth in Pakistan. The study suggests that electricity conservation policy in addition to prudent rationing of electric power among the various sectors may greatly contribute to minimize the adverse effects of energy crisis in Pakistan.

Carbon neutrality target in Turkey: Measuring the impact of technological innovation and structural change

Climate change and environmental degradation have become the most complex and contentious global concerns in recent decades, despite growing worldwide accords demanding that these serious issues must be addressed urgently. Thus, we assessed the effect of technological innovation, economic growth, structural change, and nonrenewable energy use on CO2 emissions in Turkey using a yearly dataset spanning between 1980 and 2019. The current paper utilized the ARDL bounds test, dynamic ARDL, and Breitung Candelon causality tests to assess these interrelationships. The outcomes of both the ARDL bounds and Bayer and Hanck cointegration tests affirmed evidence of cointegration among the variables. Furthermore, the outcomes of the dynamic ARDL disclosed that economic growth and nonrenewable energy use contribute to the degradation of the environment, while technological innovation stimulates the quality of the environment. Using the approach suggested by Itkonen (2012), the current paper does not confirm the EKC hypothesis. Lastly, the outcomes of the Breitung Candelon causality revealed a feedback causality association between nonrenewable and CO2 emissions, while a unidirectional causality exists from technological innovation, economic growth, and structural change to CO2 emissions. Based on the above findings, we propose that the government of Turkey should restructure its energy sector to address both carbon emissions and production losses by boosting the use of eco-friendly and efficient technologies in the process of production, while also shifting to a more services-based economy.

Renewable Energy Consumption and Environmental Sustainability in Canada: Does Political Stability Make a Difference?

Energy is unquestionably necessary for economic progress; nevertheless, it also produces CO2 emissions, which are the primary cause of climate change and environmental degradation. Renewable energy, which consists of non-carbohydrate energy sources that do not or seldom emit emissions, can assist the accomplishment of both ecological sustainability and sustainable development in this respect. Against this background, this paper takes into account political risk and assesses the impact of renewable energy use on CO2 emissions in Canada from 1990 to 2018 controlling economic growth and trade globalization. The present research utilized an innovative dynamic ARDL method that overcomes the limitations of the ARDL method. The results revealed significant evidence of cointegration. In the long run, we established that a surge in economic growth, political risk, renewable energy use, and trade globalization mitigates environmental degradation. Furthermore, the outcomes of the frequency domain causality disclosed that in the long term, economic growth, political risk, renewable energy use, and trade globalization can predict CO2 emissions in Canada. Since the political stability in Canada has helped to attract foreign firms to invest. Therefore, ensuring political stability will bring in more foreign investment, forcing the Canadian government to take its climate crisis problem more seriously.

Renewable energy and current account balance nexus.

Renewable energy is in the center for providing a sustainable energy future. Renewables are the key for overcoming the energy problems. This paper investigated the dynamic and causal relationship among renewable energy production, current account balance, energy imports, renewable energy consumption, and economic growth in the 1976-2019 period for G20 countries through panel Fourier bootstrapping ARDL model. According to empirical results, the evidence of cointegration between the selected variables was determined. Results indicate that economic growth, energy imports, energy consumption, and current account balance provide the important impacts on renewable energy generations. Our results determined that there is a unidirectional causality from energy imports, renewable energy consumption, and current deficit to renewable energy production. As countries decrease their dependence on the imports of energy, this may both increase the quality of environment through production of more renewable energy and reduce current account imbalances.

Does implied volatility (or fear index) affect Islamic stock returns and conventional stock returns differently? Wavelet-based granger-causality, asymmetric quantile regression and NARDL approaches

In this paper, we make an initial attempt to compare the asymmetric reaction of Islamic and conventional stock returns to implied volatility -market fear- using Wavelet-based Granger causality, asymmetric quantile regression model (QRM), and NARDL for the sample period from 2008 to 2019. Our findings are three-fold. First, the causal relationship between implied volatility and stock returns is scale-dependent. To make the analysis more robust, we decomposed the daily data using the wavelet filter to consider the potential of different investment horizons. Second, we observe, using QRM, regardless of Islamic or conventional, stock return increases (decreases) following the negative (positive) innovation in the market fear, and the asymmetry is more pronounced at the lowest and highest return regimes. Using NARDL, we find, there is an evidence of asymmetric cointegration and long-run asymmetric relationship. Third, Islamic stock returns tend to be less exposed to the market fear than conventional stock returns across the return regimes at different investment horizons. This relatively lesser sensitivity level of Islamic stock returns can be attributed to their distinct screening features and Islamic markets being more 'decoupled' from the risks facing conventional markets. The results tend to have substantial policy implications for all the stakeholders.

The dynamic linkages among outbound tourism, economic growth, and international trade: empirical evidence from China.

The aim of this research was to examine the long- and short-run relationships among real expenditures on outbound tourism from China, economic growth and international trade for the period of 1995 to 2018, applying a newly developed cointegration test—the Bootstrap Autoregressive Distributed Lag framework. Evidence of cointegration was found when expenditures on outbound tourism served as the dependent variable, and economic growth and international trade were important factors affecting outbound tourism from China. For the short-run, a two-way Granger causality relationship was detected between economic growth and outbound tourism expenditures, and the feedback was confirmed between outbound tourism expenditures and international trade. The findings have important policy implications for the growth of the outbound tourism market. Large volumes of outbound tourists result in economic losses for China and outbound tourism reduces the growth of tourism-driven international trade.

COINTEGRATION OF EQUITY MARKETS IN THREE COUNTRY GROUPS OF OECD COUNTRIES

This paper investigates the stock market integration in North America, the Eurozone, and other OECD countries. The main questions addressed include whether the stock markets in each of the three country groups are cointegrated and whether the relationships are stable over time. The linkages are modeled using different statistical tools, including correlation, cointegration, vector-error correction, and Granger causality tests. The results show that the correlation coefficients are noticeably higher for the two country groups that are members of a trade or currency zone (NAFTA and the Eurozone) compared to the other OECD countries. Considering full samples, the results from the cointegration tests point to no cointegration for NAFTA markets, while they are mixed in the case of the other two country groups. After controlling for structural breaks by estimating the models for different sub-periods, the verdicts from the two cointegration tests were unanimous as the results unveil evidence of cointegration in each sub-periods for each of the three country groups. The results support the hypothesis that financial markets in the OECD countries are cointegrated. They also confirm the existence of structural breaks, the dynamic nature of the long-run integration of equity markets, and the argument that markets exhibit time‐varying long-run interdependence.

Dynamic impacts of economic growth, energy use, urbanization, agricultural productivity, and forested area on carbon emissions: New insights from Kazakhstan

The study aims to investigate the dynamic impacts of economic growth, energy use, urbanization, agricultural productivity, and forested area on carbon dioxide (CO2) emissions in Kazakhstan. Time series data from 1996 to 2020 were utilized by employing the Dynamic Ordinary Least Squares (DOLS) approach. The Autoregressive Distributed Lag (ARDL) bounds test revealed evidence of cointegration among the variables in the long run which has been verified by the Johansen cointegration test and Engle-Granger cointegration test. The empirical findings revealed that a 1% increase in economic growth, energy use, and urbanization cause an increase in CO2 emissions by 0.14%, 0.81%, and 1.28% in Kazakhstan. Conversely, a 1% increase in agricultural productivity and the forested area may lead to CO2 emissions reduction by 0.34% and 2.59%, respectively in the long run. The estimated results are robust to alternative estimators such as fully modified least squares (FMOLS) and canonical cointegrating regression (CCR). In addition, the pairwise Granger causality test was utilized to capture the causal linkage between the variables. This article put forward policy recommendations in the areas of low-carbon economy, renewable energy, sustainable urban development, climate-smart agriculture,

Short-term and long-term interest rate spread's dynamics to risk and the yield curve.

The yield curve is perceived to be an indicator of the future state of the economy. For example, an inverted yield curve is considered to be a signal of a forthcoming economic slowdown. Does risk explain the slope of the yield curve as well? In this paper, we explore the dynamics of short-term and long-term interest rate spread to changes in risk and government debt using time-series data. Government-issued bonds are perceived to be risk-free assets. Financial intermediaries consider government-issued securities as a secondary reserve, and they are also used during open market operations. We explore the dynamics while controlling for a potential long-run common trend between the interest rate spread and government debt. We employ the bounds test for cointegration in an auto-regressive distributed lag model and evaluate impulse responses to develop insights into the dynamics. The ARDL bounds test finds evidence of cointegration between the measures interest rate spreads and government debt. A shock to government-issued bonds indicates that the short-term spread decreases, whereas the long-term spread rises by a small margin. We conjecture an upward sloping yield curve resulting from a shock to government debt. A shock to the financial market risk index indicates that the short-term spread decreases for a brief period before returning to its pre-shock level, whereas the long-term spread more or less remains unchanged. We conjecture a downward sloping yield curve resulting from a shock to risk. This conjecture on the impact of risk on short-term and long-term interest rate spreads make the prediction about the inverted yield curve based on the expectation hypothesis and the segmented market theory somewhat weak.