Feasible Generalized Least Squares Research Articles

Will central bank transparency reduce inflation in emerging economies?

ABSTRACT This paper gauges the association between central bank transparency (CT) and the inflation rate in 19 emerging countries. The estimations are conducted on an unbalanced panel dataset from 1992 to 2021 using the feasible GLS method. The results show that greater overall CT lowers inflation. The same conclusion applied to all subcomponents of CT, except for political transparency. The robustness analyses mostly confirm the findings. These results suggest that a central bank could remain secretive in the policy weightage between inflation and output stabilization or monetary policy motives to maintain low inflation while being more transparent on other transparency components.

The nonlinear impact of renewable energy, fossil energy and CO2 emissions on human development index for the eight developing countries

This study analyzes the impact of renewable energy, fossil energy, CO2 emissions, urbanization, international trade and industrialization on human development for the eight developing countries over the period 1990–2021 using Karavias and Tzavalis (2014) panel unit root test regarding structural breaks and cross-section dependence and feasible generalized least squares (FGLS) estimator technique. The countries of interest are Brazil, Russia, India, China, South Africa (BRICS countries) plus Egypt, Iran and Turkey while human development index is used as a measure of human development. The findings reveal that there exists a U-shaped relationship between renewable energy consumption and HDI an inverted U-shaped relationship between fossil energy/CO2 emissions and HDI is relevant. Moreover, the positive impact of urbanization, international trade and industrialization on HDI is determined. As for policy implications, the policies oriented to renewable energy and to reduce fossil energy dependence and CO2 emissions should be adopted to improve human development in the developing countries. Additionally, policies promoting urbanization, international trade, and industrialization are necessary to achieve high levels of human development, provided that the negative effects of these policies are mitigated.

The moderation effect of institutional quality on the nexus between migrant remittance and financial inclusion in West Africa

BACKGROUND: Migrants' remittances are critical in financing the economies of Africa and the West African region, in addition to FDI and ODA. It is also a significant driver of financial inclusion. OBJECTIVE: This paper assessed the moderating role of institutional quality on migrants' remittances and financial inclusion in West Africa during 2004–2023. METHODS: Secondary data was used for this study, sourced from the World Bank’s World Development Indicators (WDI), the World Governance Indicator (WGI), and the IMF’s Financial Access Survey (FAS), 2023. This study employed the Panel Fixed Effects (PFE) estimation technique, which accounts for Driscoll and Kraay's (1998) standard error. To ensure the robustness of the findings, the analysis was augmented with the utilisation of feasible generalised least squares (FGLS). RESULTS: There was an overall positive impact of institutional quality on financial inclusion (FI), at a significant rate of 120.8%, accounting for deposit-taking microfinance institutions, thereby highlighting that institutions play a crucial part in improving financial inclusion in West Africa. Also, the moderating effect of institutional quality had a more positive impact on microfinance institutions than commercial banks, at a significant rate of 16.2%. CONCLUSION: In summary, attention should be given to establishing more microfinance institutions as they serve as a better remittance distribution channel when compared to commercial banks, emphasising enhancing quality in financial services delivery. This also encourages more people to be financially included, thereby making better economic use of the remittance received in West Africa.

Empowering rural South Asia: Off-grid solar PV, electricity accessibility, and sustainable agriculture

This study investigates the impact of off-grid solar photovoltaic (PV) systems on electricity accessibility and agricultural sustainability in rural South Asia, employing panel data methodology: least square dummy variable (LSDV) and Lewbel instrumental variable (IV) approach. The findings demonstrate a robust positive association between solar PV adoption and increased electricity access, even when accounting for individual and period-specific factors. Increased electricity access significantly contributes to higher agricultural value added per worker, but not necessarily to the overall share of agriculture in the economy. This analysis also reveals a positive and significant impact of solar PV (SPV) on agricultural value added per worker, independent of rural electrification levels. Heterogeneities across time and context, along with country-specific factors, play crucial roles in shaping these relationships. While factors like government effectiveness and GDP per capita have complex and sometimes counterintuitive effects, access to land, agricultural employment, and capital investments all contribute positively to agricultural sustainability. The Lewbel IV method offers strong impact of SPV on electrification, independent of external factors, and its direct contribution to agricultural output, make it a compelling tool for empowering rural communities and building a more sustainable future in South Asia. Robustness of the result is validated through three approaches: measuring variable averages at three-year sub-periods, applying three-stage least squares (3SLS), and utilizing alternative methods (panel corrected standard errors (PCSE), feasible generalized least squares (FGLS)) to consider various data characteristics. Off-grid solar PV emerges as a game-changer for rural electrification and a catalyst for sustainable agricultural development in South Asia. Governments and development agencies can prioritize investments in solar PV systems to address energy poverty and boost agricultural productivity.

Does financial expertise influence Islamic bank risk-taking?

PurposeThis study investigated how the financial expertise of the board of directors, risk management committee (RMC), audit committee (AC) and Shariá Supervisory Board (SSB) influences the risk-taking of Islamic banks.Design/methodology/approachThe study utilized unbalanced panel data for a sample of 43 full-fledged Islamic banks from 15 countries over 12 years (2010–2021). We employed feasible generalized least squares (FGLS) and heteroskedastic panels corrected standard errors (HPCSE) regression regressions as the primary estimation methods and used a two-step system generalized method of moments (GMM) estimator for robustness checks.FindingsThe results indicate that board financial expertise decreases insolvency and credit risks. Similarly, AC financial expertise and SSB financial expertise reduce insolvency and portfolio risks but increase credit risk. In contrast, RMC financial expertise raises insolvency risk. The remaining relationships are statistically insignificant.Research limitations/implicationsDue to the lack of disclosure regarding the educational and professional background of the board and committee members in the annual reports of some Islamic banks, this research used a sample of only 43 full-fledged Islamic banks operating in fifteen countries from 2010 to 2021.Practical implicationsThe findings can assist both local and international regulators in revising corporate governance codes and risk management guidelines in such a way as to ensure that the financial experts appointed to the board, AC, RMC and SSB, are capable of controlling excessive risk-taking behavior in Islamic banks.Originality/valueThis study contributes to the literature by providing comprehensive empirical evidence that corporate governance financial expertise influences the risk-taking behavior of Islamic banks.

Energy poverty and the green energy transition's impact upon income inequality in Latin America

In this study, we examine the relationships arising from the transition process to green economies and energy poverty in relation to income inequality across 22 Latin American countries during the period from 2000 to 2021. Our estimations are conducted using various estimators for energy poverty and the transition to green economies, employing feasible generalized least squares (FGLS) and panel corrected standard errors (PCSE) to ensure robustness. The results reveal a significant effect of both sets of variables on income inequality. Specifically, energy poverty contributes to higher levels of income inequality, while the ecological transition has the potential to address income inequality issues, provided an effective distribution of renewable energy resources among society is ensured. Failure to achieve equitable distribution of renewable energy resources may hinder the attainment of more egalitarian societies. To address this, a comprehensive set of policies is required to ensure equal access to renewable energy sources for the entire population, along with effective long-term measures that contribute to the equitable distribution of energy resources.

Linder hypothesis and India’s services

This study examines the empirical validity of the Linder hypothesis for India’s service sector exports from 2005 to 2021, focusing on 35 major importing countries. We use a gravity model trade, applying Feasible Generalised Least Squares (FGLS) and two-step system generalised method of moments (GMM), incorporating country- and time-fixed effects. Our results confirm that the Linder hypothesis does not hold for Indian service exports, revealing an increase in trade intensity between countries with dissimilar income levels. The study finds that distance has a positive and significant impact on Indian service exports. Exchange rates have a negative and significant impact on India’s service exports, while the results for the RTA dummy variable are inconclusive. Sharing a common border, a common colony, and a language has a positive and significant effect on Indian service exports.

Analyzing the impacts on passenger yield of incumbent companies after the entry of a new company into the aviation market: The case of Brazil

The public air transport market is generally oligopolistic, meaning that the market strategies of some companies can influence the decisions of rivals and impact consumer prices. This sector has been marked by a large flow of airline entries and exits. Considering this scenario, the objective of this work is to evaluate how the revenue from airline tickets of incumbent companies in the national aviation market in Brazil was impacted after the entry of a new company. A fixed-effects Difference-in-Differences model (DID) using a feasible generalized least squares (FGLS) estimator with panel data is used to assess this impact. To assess the impact of the entrant on yield dispersion, we apply the regression equation to P90 and P10 of the distribution. We also applied the equation, considering the Gini coefficient as the dependent variable. The results showed that the average income of incumbent companies reduced by an estimated magnitude of 5.9% in the period after the new company entered the market. Our findings also indicate an increase in distribution dispersion in the period following market entry, with a more pronounced reduction of 19% in the P10 and 1.5% in the P90. We conclude that the entry of the new company was readily assimilated by the incumbents, so that the competitive effect can explain the identified reduction in average income. The entry of a new competitor was especially beneficial to consumers in the lower tail of the distribution.

Revisiting the effect of information and communication technologies on employment growth in Ghana: The role of enterprise formality

The employment effect of information and communication technologies (ICT) on firm performance remains a critical topic for policy and academic research. However, our understanding of the ICT-employment growth relationship in both informal and formal sectors in developing countries remains limited. Based on repeated cross-sectional data collected in 2013 and 2015 on 483 Ghanaian manufacturing enterprises and estimating a Feasible Generalised Least Squares (FGLS) regression model, the findings show that access to the internet leads to employment growth in enterprises, while the adoption of mobile phone technologies reduces the number of workers in enterprises. The positive effect of internet access on employment growth tends to be greater in enterprises with a higher degree of formality, while informal enterprises appear to remain small in terms of employment by using internet technology. We discuss these findings and their implications for digital technology policy in developing countries.

The Interplay of Dietary Habits, Economic Factors, and Globalization: Assessing the Role of Institutional Quality.

Dietary habits are pivotal for population health and well-being, yet remain a pressing global issue, particularly in Sub-Saharan Africa (SSA), where economic instability and institutional challenges exacerbate dietary problems. Despite extensive research, there is a notable gap in the literature regarding the direct and interactive effects of institutional quality and inflationary shocks on dietary habits. This study delves into these complex interplays across 44 SSA nations from 2002 to 2022. Employing an innovative entropy method (EM) and the generalized autoregressive conditional heteroskedasticity (GARCH) modeling, the study introduces an inclusive institutional quality index and an inflationary shock predictor as crucial determinants of dietary habits in the literature. The results from the panel-corrected standard error (PCSE) method and feasible generalized least squares (FGLS) model reveal that per capita GDP, school enrollment rate, government expenditures, globalization index, and urbanization are positively associated with population dietary habits, while inflationary shock, food insecurity, and unemployment rate exert negative influences. Notably, institutional quality acts as a catalyst, amplifying the positive effects of the former group and absorbing the negative impacts of the latter on population dietary habits. Additionally, a dynamic panel causality analysis confirms a bidirectional causality nexus between population dietary habits and all variables, except for inflationary shocks, which demonstrate a unidirectional causality link. These findings carry significant policy implications, underscoring the complex dynamics between institutional quality, inflationary shocks, and dietary habits in the region. The bidirectional causality highlights the need for holistic interventions that address economic, social, and institutional factors simultaneously. Moreover, the unidirectional causality of inflationary shocks on dietary habits suggests that stabilizing inflation is critical to protecting dietary habits. These results provide critical insights for policymakers to design targeted interventions aimed at improving nutrition, bolstering institutional frameworks, and ensuring public health resilience in the face of economic and social shocks.

Globalization’s effects on South Asia’s carbon emissions, 1996–2019: a multidimensional panel data perspective via FGLS

Researchers and policymakers hold diverse opinions about the impact of globalization on environmental degradation. Over the past three decades, increased economic, social, and political interconnections have fueled this debate. However, prior studies have largely overlooked these facets of globalization concerning environmental implications, particularly carbon emissions in developing countries. We contribute to this discourse by examining how various aspects of globalization (economic, social, and political) and two specific measures, de facto and de jure trade, influenced carbon emissions in four selected South Asian countries from 1996 to 2019. The results obtained through feasible generalized least squares (FGLS) reveal that economic globalization increases carbon emissions while social and political globalization reduces them. These results further confirm that, in South Asia, the pollution haven hypothesis is associated only with economic globalization. In contrast, social and political globalization support the world polity theory, indicating potential for positive change. The results also show that both de facto and de jure measures of disaggregated globalization equally influence carbon emissions, suggesting a significant impact from policy interventions. For future environmental sustainability, the governments of these nations should intensify their efforts to strengthen social and political globalization. Meanwhile, the adverse effects of economic globalization can be mitigated by reducing reliance on fossil fuels and providing financial assistance to businesses to encourage the use of renewable energy and modern technology in production.

Impact of Account, Transparency, and Accountability Indicators on Economic Growth: Evidence from South Asian Countries

This study examines the intricate relationships between Account, Transparency, and Accountability indicators and GDP growth across a panel of countries, focusing on the Current Account Balance (CAB), Net Capital Account (NCA), Net Financial Account (NFA), CPIA Transparency Rating, and Voice and Accountability (VA). Drawing on economic theory and empirical analysis, we investigate how these variables influence Economic (GDP) growth dynamics. Theoretical underpinnings suggest that positive CAB reflects trade surpluses, contributing positively to GDP through increased economic activity, while NCA inflows stimulate long-term productivity gains. Conversely, negative NFA indicates potential adverse effects on GDP from capital outflows. Empirical findings using fixed effects, random effects, and Feasible Generalized Least Squares (FGLS) regression reveal significant associations: positive CAB and NCA correlate with higher GDP growth, whereas NFA shows a negative impact. CPIA and VA, while important for governance, do not directly affect GDP growth in this context. This research contributes by providing nuanced insights into the drivers of economic growth, informing policy strategies for sustainable development and institutional enhancement.

Institutional, macroeconomic and firm-specific determinants of financial leverage: the case of Vietnam

PurposeThis study aims to investigate the institutional, macroeconomic and firm-specific determinants of financial leverage in Vietnam and provides new evidence from the dynamic panel fractional estimator.Design/methodology/approachThis study uses a panel dataset of 859 Vietnamese firms from 2008 to 2022 and employs three estimators: Feasible Generalized Least Squares (FGLS), System Generalized Method of Moments (SysGMM) and Dynamic Panel Fractional (DPF), with DPF being particularly suitable for handling fractional dependent variables and the dynamic nature of financial leverage.FindingsThe results confirm the dynamic nature of the financial leverage model, with firm-specific factors, institutional factors and macroeconomic factors playing significant roles in shaping firms' financing decisions. The DPF estimator highlights the positive impact of stock market development on leverage. This study contributes to the literature by providing new evidence on the determinants of leverage in Vietnam, using the DPF estimator for more accurate estimation and revealing the significant impact of the size of the banking sector, the size of the stock market, the stock market development index, the financial development index and the corruption perception index on leverage.Originality/valueThis study contributes to the literature by providing new evidence on the dynamic nature of the financial leverage model and the impact of institutional, macroeconomic and firm-specific factors on financial leverage in the context of Vietnam. The use of the DPF estimator allows for a more accurate and reliable estimation of the determinants of leverage, considering the fractional nature of the dependent variable and the persistence of capital structure decisions over time.

The role of environmental tax in guiding global climate policies to mitigate climate changes in European region

AbstractThe purpose of this study is to perform a practical inquiry into the influence of environmental tax laws on the execution of climate‐related financial policies. Our research will assess the effectiveness of environmental tax measures in 23 European countries from 2011 to 2020. The panel‐corrected standard error (PCSE) model and the feasible generalized least squares (FGLS) model are used in the empirical examination of the link between environmental tax laws and the implementation of climate‐related financial measures. This study is based on panel data with cross‐sectional dependence. The results of our estimation highlight the need to improve policy effectiveness by using all four ecological tax indicators. These include total environmental tax revenue, energy tax revenue, pollution and resource tax revenue, and transportation tax revenue. Furthermore, we provide actual evidence clarifying the process by which the implementation of environmental tax policies improves the efficacy of climate‐related financial policies in the short term as well as the long term. According to the findings, a third of environmental tax policy indicators have a long‐term effect on the implementation of climate‐related financial measures, with no short‐term effects seen. Our findings are critical for economists and policy‐makers who support the environmental tax as an effective tool to promote a country's climate policy implementations.

Tác động của hoạt động tạo thanh khoản đến khả năng sinh lợi của các ngân hàng thương mại Việt Nam

This study investigates the effect of liquidity creation activities on the profitability of Vietnamese commercial banks. The research sample includes 308 observations from 28 commercial banks in Vietnam from 2012 to 2022. The estimated results from models with random effects (REM), fixed effects (FEM), and feasible generalized least squares (FGLS) show that liquidity creation (LC) has a negative impact on the profitability of commercial banks in Vietnam. Further analysis shows that liquidity creation on the asset side (LCA), liquidity creation on the liability and equity sides (LCC), and liquidity creation on the off-balance sheet side (LCOBS) have a negative effect on the profitability ratio of Vietnamese commercial banks. This study provides some policy implications for bank managers regarding profit maximization strategies in Vietnamese commercial banks

Unveiling the Nexus: Analyzing foreign direct investment and energy consumption in shaping carbon footprints across Africa’s leading CO2-emitting countries

Carbon emissions have become a pressing global concern because of its contribution to climate change and environmental degradation. Given the urgency to tackle climate change, especially by reducing carbon emissions, this study focuses on Africa’s leading CO2 emitters from 2000 to 2020. The aims of the study are; to examine whether there is evidence of an energy-Kuznets Curve among the leading CO2 emitters in Africa, to examine whether there is evidence of an FDI-Kuznets Curve among the leading CO2 emitters in Africa, and to Identify the turning points. The study employs an innovative analysis of unbalanced panel data utilizing sophisticated econometric techniques, the contemporaneous correlation methodology, which are; the feasible generalized least squares (FGLS), and the panel-corrected standard errors (PCSE) to uncover insights. The results reveal consistency across all employed techniques. The study confirms the existence of an Energy-Kuznets Curve among the leading CO2 emitters in Africa; it also finds evidence of a U-shaped relationship between foreign direct investment and carbon emissions among the leading CO2 emitters in Africa; finally, it also identifies crucial turning points at 2760.12kg and 2886.29kg of oil equivalent per capita for energy use and 6.89% and 6.17% for FDI inflow, respectively. By investigating the factors influencing carbon emissions and evaluating their impacts, our study offers valuable insights for policymakers. These findings can inform the development of targeted interventions to curb emissions intensity, enhance energy efficiency, and foster the adoption of renewable energy sources.

Corporate Governance Reforms and the Quality of Financial Information of Listed Non-Financial Services Firms in Nigeria

The increasing demand for high quality financial information by the relevant users of financial report has become a serious concern and inevitable on the management of listed non-financial services firms in Nigeria. The primary objective of this study is to examine the nexus between corporate governance reforms and the quality financial information of listed non-financial services firms in Nigeria. Using an ex-post facto as the research design for the study, data was obtained from the secondary sources through the extraction method from the annual financial reports and accounts of the listed firms for 276 firm-year observations, from 2018 to 2023 period. Out of the seventy-five (75) listed non-financial services firms in Nigerian Exchange Group as at 31st December, 2018, a sample size of fourty-six (46) listed firms were used with aid of purposive filter sampling technique. The Feasible Generalized Least Square (FGLS) regression was used as the model estimation technique for the study. Based on the regression analysis, it was found that board size, assurance services and transparency have positive significant impact on financial information quality of listed non-financial services firms in Nigeria. However, sustainability was statistically found to have insignificant impact on quality of financial information of listed non-financial services firms in Nigeria. Therefore, it is recommended that the board of directors of listed non-financial services firms in Nigeria ensure that more members are nominated to participate in the board’s decision. This is because of the fact that larger board sizes are more likely to create avenue for cross-fertilization of ideas thereby, making decisions that can safeguard, uphold and enhance the quality of the financial information of the listed non-financial services firms in Nigeria. The results also underscore the relevance of corporate governance codes and their impacts on FIQ and transparent disclosure. This study offers policy implications to regulatory agencies and standard-setters in their oversight function over the quality of financial information disclosed in annual reports.

BOARD STRUCTURE AND ISLAMIC BANK STABILITY: A STANDALONE RISK COMMITTEE MODERATING EFFECT

This study investigates the impact of board attributes on the stability of Islamic banks and whether the presence a standalone risk management committee (SARC) moderates their relation. Applying the feasible generalized least squares (FGLS) regression as well as the two-step system generalized method of moments (GMM) estimator for robustness to a panel sample of 43 Islamic banks across 15 countries over eleven years from 2010 to 2020, we document evidence suggesting that board meetings, board gender diversity and foreign directors do not influence the stability of Islamic banks. Conversely, board members holding doctorate degrees (PhDs) significantly and negatively affect the stability of Islamic banks. In addition, the presence of SARC significantly improves the stability of Islamic banks. The study further finds that SARC partially and positively moderates the effects of board members with PhDs and foreign directors on the stability of Islamic banks.

Female directors and cash holdings: The case of Vietnam

This study investigates the impact of gender equality on corporate cash reserves, focusing on the roles women occupy on corporate boards. Using data from 325 publicly listed companies in Vietnam between 2020 and 2022, the research employs various statistical models, including ordinary least squares (OLS), fixed-effect model (FEM), random-effect model (REM), and Feasible Generalized Least Squares (FGLS), to address heteroscedasticity. The findings reveal that the presence of female directors on corporate boards is significantly associated with lower cash reserves, suggesting that gender diversity influences cash management practices. This study contributes to the literature by highlighting the role of female directors in enhancing a firm's financial flexibility. It underscores the importance of creating an equitable workplace for female employees and provides insights into the benefits of gender diversity in corporate governance. The research specifically examines the Vietnamese context, reflecting the global trend towards gender diversity in corporate leadership. Regression analysis shows a significant negative relationship between the proportion of female CFOs and cash holdings, indicating that firms with more female CFOs tend to hold less cash. These findings have important implications for policymakers, investors, and corporate leaders by demonstrating the potential of female directors to shape financial policies and reduce risks associated with representative issues.

Does Islamic Mutual Fund Bear Higher Risk than Conventional Mutual Funds? An Empirical Analysis from Bangladesh

This study aims to identify whether Islamic mutual funds bear higher risk exposure than conventional mutual funds due to implementing their shariah screening criteria to select assets on the portfolio. For this purpose, monthly closing price data of Islamic and conventional funds operated in Bangladesh are collected from January 2016 to August 2023. A total of 2320 observations of each risk measure (e.g., standard deviation, semi-standard deviation, semi-standard deviation, and beta) are computed using a 12-month rolling window method to compare risk exposure between Islamic and conventional funds using univariable and multivariate analysis. The univariate analysis is conducted by performing an independent samples t-test, which confirms that overall, Islamic funds bear lower risk exposure than conventional funds. In multivariate analysis, the Feasible Generalized Least Square (FGLS) method, a dynamic panel data analysis model, is applied where the effects of macroeconomic variables such as deposit rate, GDP growth rate, exports, imports, broad money, and remittances are controlled. The results of the multivariate analysis also confirm that Islamic mutual fund risk exposure is lower than that of conventional mutual funds. This study will be helpful for practitioners and institutional investors in decision-making.