Existence Of Long-run Relationship Research Articles

The Impact of Financial Development and Economic Growth on Environmental Quality of Kenya

Of recent times many countries are suffering from environmental problems such as global warming and emission of greenhouse gases. Emissions of carbon dioxide as been recognized as the major contributor to global warming and climate change. This paper examines the long run relationship among the variables environmental quality, financial development and economic growth in Kenya using time series for the period 1970-2019. Autoregressive distributed lag bounds test is used to investigate long run relationship and Granger causality method is used to test for causality among the variables. Empirical results indicate that there is long-run relationship among the variables. Long run results suggest that increases in financial development, lagged CO 2 , energy consumption, population growth, and trade openness significantly worsens environmental quality in Kenya. Natural resources significantly improve environmental quality in Kenya. According to the results the relationship between CO 2 and financial development in Kenya is non-linear suggesting presence of EKC between CO 2 and financial development. The empirical results confirm that the Environmental Kuznets curve does not exist between CO 2 and economic growth in Kenya in the long run. Short-run results also show that financial development, lagged CO 2 , FDI, population growth, and trade openness increase CO 2 emissions while natural resources reduce it. Causality results show unidirectional causality running from financial development to environmental quality and from CO 2 to GDP. According to the findings, there is evidence of neutrality hypothesis between financial development in Kenya and economic growth. Existence of long run relationship suggests that the government of Kenya needs to implement appropriate environmental policies that reduce pollution during economic growth. The government should set policies and guidelines to the financial sector so that the sector offers credit to firms that reduce air pollution. Keywords : Financial development, economic growth, CO 2 , Autoregressive distributed lag model, Kenya JEL Classification: E44, C32, Q43, Q56 DOI: 10.7176/JESD/11-12-03 Publication date: June 30th 2020

Money Supply-Economic Growth Nexus: Evidence from a Landlocked Country

Background: There is special role of money in the economy due to its astonishing importance as change in the amount of it can have a significant effect on the major macroeconomic variables. Money supply is generally considered as policy-determined phenomenon. Like in all the nations, macroeconomic stability of Nepal also depends on the variation in the quantity of money.
 Objective: The principle objective of the study is to examine the impact of money supply on the economic growth of Nepal.
 Methodology: This study applies the ARDL approach to cointegration. Bounds test (F-version) has been carried out to determine the existence of long-run relationship between variables.
 Results: The empirical results pointed out that there is positive and significant long-term relationship between money supply and real economic growth in Nepal. Causality result reveals that there is unidirectional causality from money supply (M2) to Real GDP. The error correction term is found negative and statistically significant suggesting a correction of short-run disequilibrium within two and a half years.
 Conclusions: The study concludes that increase in the money supply helps to increase the real economic growth in Nepal. So, money supply and real GDP are associated in the long-run. 
 Implications: The implication of the study is that, real economic growth in Nepal can be achieved if Nepal Rastra Bank emphasized on monetary policy instruments which help to increase the flow of money supply both in the short and long run.

Market arrival of apples under risk in Jammu & Kashmir, India: evidence from an ARDL application

PurposeThe purpose of this paper is to examine the market response of apple growers to price and price risk along with weather factors and weather risk in the state of Jammu & Kashmir. In other words, it tries to find the both short-run and long-run price elasticities of apples' market arrival and also the elasticity with respect to price-risk and weather-risk variables.Design/methodology/approachThis paper uses the bound test approach of “auto-regressive distributed lag” (ARDL) model. Monthly data on market arrival of apples and respective prices along with other nonprice factors are used.FindingsThe bound test approach of ARDL confirms the existence of long-run relationship between the market arrival of apples and price and nonprice factors. The market response to price is found to be inelastic both in shortrun and longrun. The risk coefficients are negative indicating that apple growers are risk averse. However, they do respond strongly to weather risk than price risk.Research limitations/implicationsWeather insurance must be provided to the apple growers to safeguard their production loss due to weather risks. Proper infrastructure in the form of storage facilities, marketing information, transport and communication to local markets should be provided to them. Unavailability of data at the district level poses a great difficulty to have a panel data analysis. But future research can be initiated to bridge this gap.Originality/valueThis paper considers the market response of apple growers under both price risk and weather risk which is first in its nature. The authors have not found any other paper discussing this in the case of apple in India.

A Vector Error Correction Model Approach to Investigate the Causal Relationship among Energy Consumption, Real GDP, and Industry Value Added of Bangladesh

The paper focuses on investigating the casual relationship among Energy Consumption, Real GDP, and Industry Value Added of Bangladesh using the World Bank Development Indicators data set. The Granger causality approach has been applied to identify the short-run causality direction for all possible pairs of dynamic variables of the study. Results from the approach indicate the unidirectional short run causal relationship from Real GDP to Energy Consumption, while another unidirectional short-run causality has been found from Industry Value Added to Real GDP. The concept of cointegration and Vector Error Correction Model (VECM) are employed to find the long-run relationships among the variables. Our results show the existence of long run relationship between each pair of variables. Furthermore, the Variance Decomposition (VDC) techniques and Impulse Response Function (IRF) was also used to measure the extent/degree of dynamic properties of the variables. Bangladesh has an emerging economy with limited energy resources. Here, the evidence from our study would help policymakers in setting the appropriate energy consumption policies that will enhance and sustain economic growth for the welfare/development of this country.

IMPLICATIONS OF MACRO-ECONOMIC VARIABLES FOR NATIONAL FOOD SECURITY IN NIGERIA

In recent time, the impact of macro-economic variables on agriculture has become an issue of concern in terms of securing adequate food supply for the populace. This study evaluated the implications of macro-economic variables for national food security in Nigeria. This study made use of time series data sourced from the publications of Central Bank of Nigeria Annual Reports, Statistical Bulletins and the National Bureau of Statistics spanning from 1995 to 2015. The Autoregressive Distributed Lag (ARDL) co-integration test with Error Correction Model (ECM) was adopted to substantiate the implications of these macro-economic variables. The results of the Augmented Dickey Fuller (ADF) test showed that Food security, Interest rate, Exchange rate, Net export and Government expenditures were non stationary at their respective level forms and became stationary at first difference. While Inflation and Money supply were found to be stationary at level form. ARDL bounds test for co-integration confirms the existence of long run relationship between the variables. The results of long run and short run relationships shows that Interest rate, Inflation, Government expenditures and Money supply were both significant at 5% and 1% levels indicating that these variables had a significant impact on food security. The estimated error correction coefficient of -0.7996 is highly significant, has the correct sign, and implies a fairly high speed of adjustment to equilibrium after a shock. However, these findings recommend farmers in Nigeria to take good advantage of the linkages between macroeconomic variables and agricultural productivity, as this useful information can assist them to boost their land productivity, hence increased food security at all times.
 Osuji, E. E. | Department of Agricultural Economics, Michael Okpara University of Agriculture Umudike (MOUAU), Abia State, Nigeria

The Dynamic Relationship of Domestic Credit and Stock Market Liquidity on the Economic Growth of the Philippines

The paper examines the dynamic relationship of domestic credit and stock market liquidity on the economic growth of the Philippines from 1995 to 2018 applying the autoregressive distributed lag (ARDL) bounds testing approach to cointegration, together with Granger causality test based on vector error correction model (VECM). The ARDL model indicated a long-run relationship of domestic credit and stock market liquidity on GDP growth. When the GDP per capita is the dependent variable there is weak cointegration. Also, the Johansen cointegration test confirmed the existence of long-run relationship of domestic credit and stock market liquidity both on GDP growth and GDP per capita. The VECM concludes a long-run causality running from domestic credit and stock market liquidity to GDP growth. At levels, domestic credit has significant short-run causal relationship with GDP growth. As for stock market liquidity at first lag, has significant short-run causal relationship with GDP growth. With regards to VECM for GDP per capita, domestic credit and stock market liquidity indicates no significant dynamic adjustment to a new equilibrium if a disturbance occurs in the whole system. At levels, the results indicated the presence of short-run causality from stock market liquidity and GDP per capita. The CUSUMSQ plot complements the findings of the CUSUM plot that the estimated models for GDP growth and GDP per capita were stable.

Does renewable energy efficiently spur economic growth? Evidence from Pakistan

There is a strong relationship between energy consumption (EC) and economic growth (EG) of a country. However, different sources of energy have different influence on EG of different countries. This paper attempts to identify the source of energy that efficiently spurs EG in Pakistan by exploring the short- and long-run relationship between EC and EG during 1972–2015. Breakpoint unit root test was used to investigate the stationarity properties of the variables along with structural break. Autoregressive distributive lag (ARDL) bound testing approach was used to determine the existence of long-run relationship among variables. The results of the ARDL model confirm the presence of cointegration among the variables. The findings confirm that renewable as well as non-renewable EC enhance EG in Pakistan. However, the magnitude of the coefficients and high significance level confirm that renewable energy (RE) spurs EG more efficiently than non-renewable energy. The study concludes that the government needs to increase investment in the development and exploration of RE resources to ensure sustainable EG in Pakistan.

Government Expenditure and Education Sub-sector Development in Nigeria: An Empirical Investigation

This paper examined empirically the impact of government expenditure on the education sub-sector development in Nigeria for the period 1980 to 2017. Government expenditure was decomposed into capital and recurrent expenditures, while education sub-sector development was viewed from the perspectives of the States and Local Governments dependence (FDR), fiscal concentration (FCR), and per capita income (PCI). The data of the study were obtained from both the National Bureau of Statistics and the Central Bank of Nigeria Statistical Bulletins. The fully modified ordinary least squares (FMOLS) approach of the econometrics was used to estimate the findings/results of the paper. Some of the major findings of the paper indicated that all the variables became stationary after first differencing and that the series for all the equations were cointegrated thereby suggesting the existence of long run relationships among the variables. The short run dynamics results were robust and impressive given that each of the coefficients of determination (R-squared) and their adjusted counterparts were quite high. Furthermore, the results indicated that while capital expenditure exerted negative impact on the education sub-sector development, recurrent expenditure displayed a positive impact on the sub-sector. The paper therefore recommends that government, as a matter of frantic efforts and deliberate policies, scales up its capital expenditure on education sub-sector development as well as intensifying capacity building that would engender qualitatively improved education service delivery. This would only be possible if urgent institutional frameworks, procedures and governance styles that accord with international standards are urgently introduced and implemented.

Testing the pollution haven hypothesis for CO<SUB align=right>2 emissions: a common correlated effects (CCE) approach

The aim of this research is to investigate the Pollution Haven Hypothesis (PHH) from 15 countries, spanning the period 1970-2014, utilising CO2 emissions as an indicator of air pollution. Moreover, we utilised Gross Domestic Product (GDP), GDP square, energy consumption, fossil fuel energy consumption, foreign direct investment and trade openness as its main determinants. The evidence from panel cointegration methodologies indicates the existence of long-run relationships between the variables. Moreover, GDP square, energy consumption and fossil fuel energy consumption have positive impact on CO2 emissions, while GDP, foreign direct investment and trade openness decrease emissions in the selected countries. This indicates that PHH holds in 3 out of the 15 countries. A number of policy recommendations were provided according to the results obtained.

Futures Price and Trading Volume: Evidence From Malaysia

This paper examines the long- and short-run dynamic causality between the futures price and trading volume in the Malaysian equity market. The data of futures price, trading volume and spot price are in daily frequency, spanning from 2006 to 2009. By using ARDL cointegration and VECM causality tests, the findings revealed the existence of long-run relationship between futures price, volume and spot prices. In addition, there exists a short-run bidirectional causality relationship running between futures return-trading volume and futures return-spot return. Thus, the stock index futures market in Malaysia is not informational efficient.

The Determinants of Labor Productivity in Jordan During the Period 1980-2017

This study aims at investigating the long-run and short-run relationships between labor productivity in Jordan and each of capital intensity, wages, trade openness and regulatory quality over the period 1980-2017. All the study variables are found to be stationary at the first difference. Johansen cointegration test revealed that there is a unique cointegrating equation. Therefore, Vector Error Correction Model (VECM) was implemented to estimate the short and long-run effects. The empirical results show that capital intensity, wages and regulatory quality have significant long-run positive impact on Jordanian labor productivity. However, all the independent variables have insignificant short-run effects on labor productivity during the study period. The significant negative coefficient of the error correction term (ECT) confirms the existence of long-run relationships. Moreover, this paper highlights the important role of regulatory quality as a governance indicator in improving labor productivity in Jordan, thus the study recommends improving public administration, strengthening governance, and applying the appropriate policies and regulations that promote and enhance national and foreign direct investments, and ensure efficient allocation of resources.

Causality Analysis on Export and Economic Growth Nexus in Ghana

The study examined the causal relationship between export and economic growth based on monthly data for the period 2010 to 2019. Composite Index Economic Activity (CIEA) was used as a proxy for real GDP (economic growth). Time series econometric techniques were employed to explore long-run and short run relationships as well as the causality between them. The results revealed the existence of long-run relationships; evidence of bi-directional causality and a rapid adjustment to equilibrium between real GDP and exports. Recommendations are that, policy makers should focus on implementing export oriented policies and promote economic growth to achieve sustainable development.

Energy Consumption and Economic Growth in Ethiopia: Evidence from ARDL Bound Test Approach

The present study aims to investigate the dynamic relationship between economic growth and energy consumption. Specifically, the study tries to answer the questions whether energy consumption has any significance effect on economic growth of the country and it also determined the magnitude of the effect. In doing this, the study used an ARDL bound test approach to analyze Ethiopian data from 1970 to 2017 with real GDP as a function of energy consumption, human capital., physical capital., trade openness and policy change dummy. To do so, secondary data were obtained from WDI, UNCTAD stat and NBE. Co-integration test approves the existence of long-run relationship among the variables. Moreover, the estimation result reveals that, energy consumption found statistically insignificant in affecting economic growth in the long-run. However, it was positive and statistically significant in short-run. Likewise, the dummy variable incorporated to capture the policy change found insignificant in long-run and with positive significant result in short-run. Also, we applied the Granger causality test in linear multivariate models to evaluate how important is the causal impact of energy consumption on economic growth. The results give the evidence of causality running from economic growth to energy consumption supporting “conservation hypothesis”, implying that reducing energy consumption may be implemented with little or no adverse effect on economic growth. Hence, this study recommended the policy makers to improve the existing policies on energy consumption so as to enhance the level of efficiency in the energy sector i.e. energy regulation policies supporting the shift from lower-quality to higher-quality energy services.

Do agriculture-based economies mitigate CO2emissions?

PurposeThis study aims to fill the gap in income-environment literature by adding agricultural contribution to the nexus. The authors investigate the short-run and long-run impact of agricultural contribution, renewable energy consumption, real income, trade liberalisation and urbanisation on carbon emissions for a balanced panel of five South Asian Association for Regional Cooperation (SAARC) countries spanning the period 1990-2013.Design/methodology/approachPedroni and Kao cointegration techniques have been used to test the existence of long-run relationship between the variables. The directions of causal relationships have been verified using Granger causality tests. Further, the long-run parameters of the baseline equation have been estimated by using the fully modified ordinary least squares, the technique developed by Pedroni, (2001a) for heterogeneous cointegrated panels.FindingsThe result reveals that agricultural contribution and renewable energy consumption improve environmental quality in the long run, while urbanisation and per capita real income degrade it. The study did not find any evidence of “pollution heaven hypothesis” in the selected countries. The Granger causality tests confirm bidirectional causality between carbon emissions and income and between carbon emissions and urbanisation. In addition, there is unidirectional causality running from agricultural contribution to renewable energy consumption.Originality/valueThis is the only study to investigate the role of agriculture sector in carbon mitigation from a panel of South Asian economies. To the best of the authors’ knowledge, it is also the first study to test the applicability of “pollution heaven hypothesis” for SAARC countries.

Verifying Tourism-Led Growth Hypothesis (TLGH) in Ethiopia: Time series analysis

Tourism-led growth hypothesis argues that international tourism is a source of economic advancement through generating foreign currency, creating employment opportunities, stimulating greater investments in infrastructure and inspiring the development of other economic sectors that ultimately improved the living standard of the citizens of a country. Knowing the importance of tourism sector, Ethiopia has taken this sector as a strategy to achieve its short and long run economic objectives. Therefore, the principal objective of this study is to validate the Tourism-Led growth hypothesis (TLGH) in Ethiopia over the annual period 1991-2018. To attain the envisaged objective, the standard Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests were applied to check the stationarity of each series. To scrutinize the long run relationship between tourism and economic growth, ARDL bound test of cointegration was applied. In addition, pairwise Granger causality test was used to identify the direction of causality between tourism receipt and economic growth. The empirical findings confirm the existence of long run relationship between tourism receipt, economic growth and other control variables. The results of the pairwise Granger causality also predicted unidirectional causality running from tourism receipt to economic growth in long run. This validates the tourism-led growth hypothesis for Ethiopia. Hence, policy makers should focus on promoting and development of the untapped tourism industry of the country to augment economic growth in Ethiopia. Keywords : Tourism, economic growth, cointegration, pairwise causality DOI : 10.7176/JTHS/45-01 Publication date: December 31 st 2019

International reserves and domestic money market disequilibrium

Purpose The purpose of this paper is to examine the likely determinants of the demand for official international reserves (hereafter reserves) for India and China in the long run in a basic buffer stock model. The paper also examines the role of domestic money market disequilibrium in the short-run demand for official reserves for both the countries in a dynamic synthesis model. Design/methodology/approach The study used quarterly data for the time period 1993:Q1–2015:Q4. The long-run model is being estimated by following the Frenkel–Jovanovic (1981) buffer stock model and includes the determinants such as transaction motive variable (GDP or Imports), opportunity cost variable (domestic interest rate), precautionary motive variable (volatility of reserves) and exchange rate. The study also examined the role of domestic money market disequilibrium in addition to the above variables in the short-run reserve demand model. The money market disequilibrium term is expected to be negative and significant in the short run. The study employed autoregressive distributed lag bound testing approach to co-integration and unrestricted error-correction model (UECM) approach developed by Pesaran et al. (2001) for estimating the long-run and short-run models, respectively. Findings The co-integration test suggests the existence of long-run relationship between international reserves and its determinants. In the long run, all the variables are statistically significant with expected sign, except domestic interest rate variable for China. It is also found that, the money market disequilibrium term in the short run is negative and significant which validates that an excessive money demand (supply) induces an inflow (outflow) of international reserves for both India and China with a lag of four quarters. The recursive residual tests (CUSUM and CUSUMSQ) confirm the stability of both long-run and short-run reserve demand models. Practical implications The findings and policy implications of this study may be useful for the policy makers of the similar emerging economies for designing money and currency policies. Originality/value This paper is a comparative study which systematically analyzed the reserve demand behavior of the two emerging economies India and China. The study integrates the domestic money market with the international reserve demand behavior for these two economies.

Export Performance of Linseed and Its Determinant in Ethiopia

This empirical study investigates the determinants of linseed export performance of Ethiopia over a period 1983-2017. The study identified four factors influencing export performance in terms of export earned like GDP, gross capital formation as a ratio of GDP, openness to trade and world price. As a first step unit root analysis was conducted to test the stationarity of the variables. The variables were non stationary at levels but stationary at their first difference. Second co integration test were employed to check the existence of long run relationship between non stationary variables and found that on co integrating relationship exists in the long run. As a last step vector error correction model was employed to describe the dynamic interrelationship between variables both in the short and long run. The results derived from this study suggest that all variables are significantly influencing on the export in the long run. In the long run, GDP and openness to trade are found to have a positive impact whereas; world price and capital formation had a negative impact. In the short run capital formation and world price had significantly influencing export performance whereas: GDP and openness to trade was insignificant Keywords: export, vector error correction model DOI : 10.7176/DCS/9-12-03 Publication date: December 31 st 2019

Verifying Tourism-Led Growth Hypothesis (TLGH) in Ethiopia: Time Series Analysis

Tourism-led growth hypothesis argues that international tourism is a source of economic advancement through generating foreign currency, creating employment opportunities, stimulating greater investments in infrastructure and inspiring the development of other economic sectors that ultimately improved the living standard of the citizens of a country. Knowing the importance of tourism sector, Ethiopia has taken this sector as a strategy to achieve its short and long run economic objectives. Therefore, the principal objective of this study is to validate the Tourism-Led growth hypothesis (TLGH) in Ethiopia over the annual period 1991-2018. To attain the envisaged objective, the standard Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests were applied to check the stationarity of each series. To scrutinize the long run relationship between tourism and economic growth, ARDL bound test of cointegration was applied. In addition, pairwise Granger causality test was used to identify the direction of causality between tourism receipt and economic growth. The empirical findings confirm the existence of long run relationship between tourism receipt, economic growth and other control variables. The results of the pairwise Granger causality also predicted unidirectional causality running from tourism receipt to economic growth in long run. This validates the tourism-led growth hypothesis for Ethiopia. Hence, policy makers should focus on promoting and development of the untapped tourism industry of the country to augment economic growth in Ethiopia. Keywords : Tourism, economic growth, cointegration, pairwise causality DOI : 10.7176/JTHS/45-01 Publication date: December 31 st 2019

Most stringent test of null of cointegration: a Monte Carlo comparison

To test for the existence of long run relationship, a variety of null of cointegration tests have been developed in literature. This study is aimed at comparing these tests on basis of size and power using stringency criterion: a robust technique for comparison of tests as it provides with a single number representing the maximum difference between a test’s power and maximum possible power in the entire parameter space. It is found that in general, asymptotic critical values tends to produce size distortion and size of test is controlled when simulated critical values are used. The simple LM test based on KPSS statistic is the most stringent test at all sample sizes for all three specifications of deterministic component, as it has the maximum difference approaching to zero and lesser than 20% for the entire parameter space.

Resource curse hypothesis and role of oil prices in USA

This paper employs an augmented production function to examine resource curse hypothesis by incorporating oil prices as an additional determinant of economic growth. In doing so, the bounds testing approach to cointegration is applied in the presence of structural breaks in the series. The directional of causal association between the variables is examined by applying the VECM Granger causality approach. The empirical results show the existence of long run relationship between the variables. Moreover, natural resource abundance is negatively linked with economic growth confirms the validation of resource curse hypothesis. The nonlinear relationship between natural resource abundance and economic growth is inverted U-shaped. Oil prices add in economic growth. Capitalization increases economic growth. Labor boosts economic growth. The causality analysis reveals the unidirectional causal relationship running from natural resource abundance to economic growth. The feedback effect exists between oil prices and economic growth. Capitalization causes economic growth and in return, economic growth causes capitalization in Granger sense.