Fixed-effects Techniques Research Articles

Investigating the determinants of working capital in the Gulf Cooperation Council

This study aims to identify the determinants affecting the working capital of non-financial companies listed on the Gulf Cooperation Council (GCC). All non-financial companies listed on Qatar, Oman, Saudi Arabia, United Arab Emirates, Bahrain, and Kuwait were collected and resulted in a total of 532 companies during the period of 2008–2021. The final sample included 135 companies (25.38 percent of the total number of non-financial companies in the GCC) that had at least 10 years of data out of the 14 years. This paper applied the panel regression (random and fixed effects techniques); the insignificant result of the Hausman test favored the random effect results. The results argued that there is a negative significant effect of leverage, profitability, and firm size on working capital. This suggests that high-leveraged companies tend to have less working capital and this is due to the commitment to servicing the debts. In addition, large companies tend to have less working capital since they have huge expenses to pay and this affects negatively their working capital level. Also, an interesting result is that highly profitable companies tend to have less working capital since they include themselves in more projects. While, there is a positive significant effect of growth and cash flow on working capital, which confirms that high-growth companies tend to have better working capital.

Investigating the Crowding Out Effect of Foreign Direct Investment in South Asian Economies

Foreign Investment (FDI) in developing economies affects the supply of capital affecting local investment. This international practice can either be analyzed through substitution effect (crowding-out) or complementary effect (crowding-in). The former discourages local investors due to competitive pressure while the latter impacts the demand of domestic suppliers. This study intends to explore whether FDI crowds out domestic investment or not. The study analyzed the FDI-led capital formation hypothesis considering the panel data of South Asian economies for the time span of 1991- 2021. The study has utilized the fixed effect, FMOLS and DOLS techniques to analyze the data using FDI inflows. The empirical evidence of the study affirms the crowding in effect for the selected South Asian economies, The study suggests that internationalization, financial inclusion and |macroeconomic stability are potential channels to foster domestic capital in South incl countries.

Analysing Econometric Bias and Non-linearity in Returns to Education of Pakistan

This study estimates the returns to education while controlling endogeneity and sample selection biases in Pakistan, over a time period using Ordinary Least Square (OLS), simultaneous approach using both Heckman Sample Selection and Instrumental Variable, and Fixed Effect techniques. Household Integrated Economic Survey (HIES) data for 2004-05 and 2011-12 time periods have been used in this study. The returns to education have been found downward biased in OLS estimates for both time periods. The unbiased real returns to education have increased on average for wage workers over time period. Landholding and Non-earned income have been used as exclusion restrictions to control for sample selection bias in the Heckman Sample Selection technique. The endogeneity bias has been controlled for with the help of parental education as instrument in Instrumental Variable technique. Both techniques have also been used collectively or simultaneously to get more efficient estimate in simultaneous approach. Household Fixed Effect technique has also been used with the assumption that ability and family characteristics largely remain same within family or household. The increase in the unbiased and real returns to education shows that profitability still exists in investing in education whereas experience via skill enhancement reinforces this rise in wage. Sadly, the historic gender and regional discriminations persist or aggravate in wage market. Married persons are getting more in returns relative to the unmarried individuals. Having negative implications for income inequality, Convexity in education-earning relationship in Pakistan has been confirmed by Indicator Function technique for both time periods. Low education prompt low-earning workers who would be unable to bear the schooling cost of their children. This seriously inhibits earning potential making income inequality worse. JEL Classification: I26, I24, J24 Keywords: Returns to Education, Human Capital

Analysing sustainability based relationship between debt and growth in South-Asian economies and their impact on textile industry: a case for developing economies

This research aims to quantify the linear and non-linear relationship between debt and economic growth in selected developing economies. Based on theoretical arguments and annual data considerations in modelling the debt and growth as a complex relationship across countries, our panel methodology is based on the fixed effect technique. Our core finding indicates that government debt lowers the GDP in selected developing economies. We also find that the urban population is a key factor that improves economic growth. Moreover, government expenditures on health and industrialization are helpful to enhance the growth of the economies. Our study also suggests increased exports, industrial development, and investment in education for growth. We also propose certain supporting strategies to reduce the adverse effects of debt-growth relation in the considered economies. Given developing economies’ status, the prerequisite for broad, dynamic and rule-based debt policy is of paramount importance, ensuring the factual choices among numerous possibilities, addressing financial constraints and ensuring intergenerational welfare impact.

Environmental protection investment and enterprise innovation: evidence from Chinese listed companies

PurposeChina has emerged as the world's second-largest economy due to rapid industrial expansion and phenomenal economic growth of China in recent decades. Though, this exponential economic turnaround has been fueled by widespread energy consumption, making China among the largest pollutant emitters in the world. Chinese enterprises have come under greater scrutiny and the Government has mandated Chinese companies to undertake environmental protection investment. This study aims to explore the relationship between environmental protection investment and enterprise innovation by taking evidence from Chinese listed firms.Design/methodology/approachThe data of 2,568 Chinese A-share listed firm-year observations were collected from the Shanghai and Shenzhen stock exchanges during 2008–2016. This study employed ordinary least square and panel data fixed effects techniques to ascertain the association between proposed variables.FindingsThe authors' findings conjecture the crowding-out effects of environmental investments on enterprise innovation-related expenditures. Furthermore, additional empirical testing reveals that Research and Development (R&D) undertakings of state-owned and politically connected enterprises are not affected by environmental investments. Likewise, corporate innovation activities are not negatively influenced by environmental investments in polluting industries. The study findings offer fresh insights to regulators, corporate managers and stakeholders. The authors' results are robust to alternate econometric specifications and alternate variable specifications.Originality/valueThis study makes the following contributions toward the extant literature. First, the study investigates if there is a crowding-out effect of spending on environmental protection in the current period and the innovation expenditure in the upcoming period. Empirical results confirm that there exists a trade-off between both types of spending, implying that the spending on environmental protection will negatively influence the spending on innovation. Second, the study deepens the analysis in considering other influences in this relationship. For instance, the authors' separately consider the aforementioned trade-off in state-owned enterprises and non-state-owned enterprises. The study also examines the mediating influence of corporate political connections and industry attributes, whether or not these influence the relationship between the actual spending on environmental protection and the upcoming spending on innovation.

DO ENVIRONMENTAL AND ECONOMIC FACTORS MATTER FOR INNOVATION? EVIDENCE FROM OIL-IMPORTING AND OIL-EXPORTING COUNTRIES

The purpose of this paper is to investigate the effect of gross domestic product per capita, trade openness, renewable energy, energy consumption, foreign direct investment, carbon emission, and oil prices on innovation for selected 11 oil-importing and 11 oil-exporting countries and to compare the results from both country groups to see the differences and similarities. For this purpose, we employ Poisson regression and negative binomial fixed effect techniques from 1990 to 2018. The empirical findings illustrate that all variables are significant except for renewable energy in oil-exporting countries. Trade openness and carbon emission have a significant and negative relationship with innovation, while gross domestic product per capita, energy consumption, foreign direct investment, and oil price have a significant and positive relationship with innovation in oil-exporting countries. Gross domestic product per capita, energy consumption, and carbon emission have a significant and positive relationship with innovation in oil-importing countries, while there is a significant and negative relationship between renewable energy and innovation.

Food price volatility and household welfare: A case study of major cities of Pakistan

The purpose of this paper is to find the impact of food price volatility on the welfare of urban households of Pakistan. Food price volatility in monthly prices of major food commodities for main cities of Pakistan is calculated through standard deviation method. Moreover, the study adopts the methodology provided by Alkire and Foster 2007, and Alkire and Santos 2010 to develop Household Deprived Welfare Index (DWI) for major cities of Pakistan. Following Deaton 1985, the study uses pseudo panel approach. Fixed Effect technique is applied to estimate the impact of volatility on household welfare. The results generated from pseudo panel fixed effect technique depicts that food price volatility has significant and negative impact on household welfare. This study lengthens the literature by identifying the impact of food price volatility on household welfare at city level in Pakistan, using four waves of PSLM/HIES data 2007-08, 2011-12, 2013-14 and 2014-15.This type of micro-level research has not been conducted (nationally or internationally) so far; therefore, it would help the policy makers to implement policies to combat the effect of volatile prices and develop programs for the welfare of severely affected areas.

Economic and Political Drivers of Remittance Transfer

Abstract This paper explores the political and economic determinants of remittance transfers by foreign workers in hosting countries with an application to the case of the Gulf Cooperation Council (GCC) countries. Our empirical model is estimated with the fixed-effects technique applied on annual data covering the period 1996-2019. The main result confirms that both the economic and political stability do matter to remittance transfers. First, our findings suggest that higher per capita growth across the GCC region tends to discourage remittance transfers. Second, we find a statistically significant and positive relationship between oil prices and remittance transfers. Third, our findings show that political stability across the host countries can shape remittances. Put it simply, higher political stability tends to induce lower remittance outflows. While conventional findings on importance of economic factors for remittances are confirmed, this research signifies that any change in political stability across the GCC might affect decisions made by foreign workers. This finding has general implications for similar regions throughout the world suggesting that political stability has a strong effect on the flow of remittances.

Empirical evidence of the relationship between terrorism and firm financial performance in Nigeria

PurposeThis paper investigates the relationship between terrorism and firm financial performance in Nigeria. The country has become one of the riskiest countries in Sub-Saharan Africa due to the intensity of recent terror attacks. Also, there is a growing focus on the importance of firms, given firms' economic contribution towards growth, employment and economic and industrial transformation. However, no study has tried establishing a relationship between terrorism and firm financial performance. Therefore, providing empirical proof of this relationship is the primary purpose and motivation of this paper.Design/methodology/approachData from the World Bank Enterprise Survey (WBES) and the Global Terrorism Database (GTD) were used for this study. The baseline analysis was estimated using the pooled ordinary least squares regression technique. For robustness checks, the fixed effects technique was used to control for heterogeneity across the authors' sample of firms and unobserved factors that are time-invariant, while the IV technique was employed to control for any potential endogeneity.FindingsThe results obtained from the regression analysis were robust to different econometric estimations and approaches. Terrorism was found to have a consistent and significant negative impact on firm financial performance. Furthermore, the marginal effect of terrorism on firm performance was more substantial when state-level terrorism data were used.Originality/valueStudies often focus on the impact of political instability (which is a measure subjectively based on perception) on foreign direct investment or on the activities of multinational corporations. The authors' research is new in supplying evidence of the relationship between terrorism (an objective measure) and the financial performance of manufacturing firms in Nigeria. Methodologically, this study also employed spatially distributed incidents of terrorism within the country. This is because incidents of terrorism are often spatially distributed within a country (i.e. province or state). This will provide new evidence of the effects of within-country variations of terrorism on firm financial performance.

Do robots really destroy jobs? Evidence from Europe

While citizen opinion polls reveal that Europeans are concerned about the labour market consequences of technological progress, our understanding of the actual significance of this association is still imperfect. In this article, the authors assess the relationship between robot adoption and employment in Europe. Combining industry-level data on employment by skill type with data on robot adoption and using different sets of fixed-effects techniques, the study finds that robot use is associated with an increase in aggregate employment. Contrary to some previous studies, the authors do not find evidence of robots reducing the share of low-skill workers across Europe. Since the overwhelming majority of industrial robots are used in manufacturing, the findings should not be interpreted outside of the manufacturing context. However, the results still hold when including non-manufacturing sectors and they are robust across a wide range of assumptions and econometric specifications.

Do business linkages play a role in upgrading workers’ skills among small and medium-sized enterprises in Vietnam?

Business linkages are of interests to many firms as they can have positive impacts on firms’ performance. Nevertheless, there have been few studies on possible influence of business linkages on motivation to upgrade workers’ skills among small- and medium-sized enterprises (SMEs). Applying a Probit estimation model with Fixed-Effects techniques for panel data with a sample covering more than 6,000 observations of SMEs from Vietnam, the study provides key findings. First of all, the increase in the number of business linkages helps SMEs to upgrade workers’ skills by reducing the percentage of unskilled workers. Secondly, the rise in workers’ skills increases the probability that SMEs train their existing workers, but not new workers. Finally, the increase in firm size plays an important role for SMEs in Vietnam to upgrade their workers’ skills.

Exploring the role of corruption and money laundering (ML) on bank’s loan portfolio quality: a cross-country investigation

PurposeCorruption and money laundering (ML) are severe concerns for both developing and developed countries. According to international organizations, such as Transparency International, the Basel Institute on Governance and the International Country Risk Guide, corruption and ML exist in every country. This research aims to investigate the impact of corruption and ML on the loan portfolio quality of banks.Design/methodology/approachFrom 2013 to 2019, this study used the panel data of 132 countries, including 87 highly corrupt and 45 least corrupt countries: the fixed effect and random effect econometric regression techniques for data analysis. Additionally, this study used the generalized methods of moment technique to check the result’s robustness.FindingsThis study shows that corruption and ML have diverse relationships with non-performing loans in highly corrupt and low corrupt countries. It is potentially because of the differences in the regulatory structure of a highly corrupt and least corrupt environment.Originality/valueTo the best of the authors’ knowledge, this study is the first attempt that provides a unique perspective on corruption, ML and its effect on the loan’s portfolio quality of banks. Furthermore, this study suggests that governments in highly corrupt environments develop robust anti-corruption and anti-ML regulations.

Has mining agglomeration affected energy productivity in Africa?

Given the rising resource exploration and mining openings, energy demand improvement is crucial for African sustainable development as it forms an integral part of public revenue. However, mining agglomeration benefits on energy productivity have been recognized in prior studies, yet empirical insights on Africa's mining sector remain unknown. This paper evaluates the impact of mining agglomeration on energy productivity in Africa using country-level data on 21 economies from 2009 to 2017. The study applied panel fixed effect model, and panel threshold fixed effect technique to estimate linear and nonlinear effects. Energy productivity is computed using Shephard energy distance function (SEDF). The findings suggest that mining agglomeration directly enhances energy productivity. Also, a nonlinear relationship exists between mining agglomeration and energy productivity. In particular, the positive impact of mining agglomeration only exists at a certain level of economic development. Further, on average, total Africa's mining energy productivity improved over the sample period, but performance differs among economic regions. The study findings support the view that policymakers should re-enforce, upgrade, and adopt innovative cluster development strategies and investor-friendly elements in regional mining codes.

Research on influencing factors of renewable energy, energy efficiency, on technological innovation. Does trade, investment and human capital development matter?

Studies on renewable energy, energy efficiency, and sustainability appear to have accelerated worldwide in response to the need for alternate energy sources against conventional fossil-based sources. This work contributes to the current body of information by estimating the effects of renewable energy and energy efficiency on technological innovation using panel data from 1995 to 2017 and employing the instrumental variable fixed effect technique. The results indicate that renewable energy and energy efficiency promote innovation performance at the aggregate and disaggregate levels. A one percent increase in renewable energy will lead to about 0.437% increases in trademark and 0.114% increase in the patent application, respectively. Increasing energy efficiency promotes trademark by 0.029% and patent by 0.054%, respectively. Another important finding illustrates the moderating impact of investment, trade and human development on the aforementioned relationship. A series of robustness checks support our essential findings. The research supports Porter's hypothesis and directs key policy suggestions regarding environmental policies and promotes policy measures for the use of cleaner energies; Décentralisation of the energy industry to give more room for private sector participation; financial incentives to energy consumers for using renewable energy; issuance of green certificates and intensification of feed-in-tariffs; introduction of the polluter-pay principles for accountable.

The impact of ownership and contractual practice on the technical efficiency level of the public transport operators: An international comparison

We aim to assess the impact of ownership and contractual practices on technical efficiency in the public bus transport sector in the world. The sample is decomposed from eight Tunisian firms and thirty firms from France, Spain, Belgium, and so on for the period of [2009–2016]. The methods used for this purpose is the two-stage DEA in which we used three techniques in the second stage namely the Tobit and Truncated regressions and Bootstrap technique and the SFA via the Batesse and Coelli (1995) and True Fixed Effect techniques. The main results show that the TFE model has the greatest mean of efficiency scores with a value equal to 0.88, while the CRS version of the DEA approach has the lowest score with a value equal to 0.27. Regarding the second stage, there is a significant impact of the ownership on the technical efficiency estimates, the public mode affect negatively the efficiency with a value equal to0.24 (Truncated regression), an interpretation is similar to the cost-plus contract. Also, according to the statistical tests, we find a significant difference between the public and private firms as well as the cost-plus and fixed-price contract in terms of technical efficiency.

Can Africa raise export competitiveness through economic complexity? Evidence from (non)‐parametric panel techniques

AbstractEconomic complexity is an indicator of a nation's productive capabilities. It therefore determines the nature and quality of the products that a country can put up for exports. This suggests that building economic complexity can serve as a channel through which African countries can boost export competitiveness. To this end, the impact of economic complexity on the export volume of Africa's top 10 exporting countries which jointly account for about 78% of total trade volume on the continent for the period 2000–2018, is examined. Employing a parametric common correlated effects mean group estimation technique and a non‐parametric time‐varying model with fixed effects technique, this study shows that economic complexity is indeed a determinant of export competitiveness. However, its effect is not as powerful as those of GDP, real exchange rate, trade openness and foreign direct investment. This suggests that, although policies that emphasize economic complexity are useful, they should not be treated as stand‐alone policies. Instead, governments should adopt holistic trade policy reforms that take economic complexity into account, along with other factors such as exchange rates, economic growth, trade openness and foreign direct investment.

Does the Inflow of FDI Boost the Health of the Population in SAARC Countries Evidence from a Panel Data Analysis

Purpose:The relationship between foreign direct investment and population health has been the focus of research among researchers in recent years. One of the basic individual rights is a healthy life and decent living conditions, but the SAARC countries are lagging behind in this respect.The goal of this study is to evaluate the effect of foreign direct investment inflows on population health by integrating growth, foreign aid, and human capital into the model for selected SAARC countries.
 Design/Methodology/Approach:The fixed effect technique based on the Hausman test was implemented through the period of 1996-2018 because of the Panel nature of the data.
 Findings:Our empirical results indicate that FDI inflows have a positive and significant effect on population health. Increase in FDI inflows in the host country raises the income of the people, as better job opportunities are available to them.
 Implications/Originality/Value:This research is a crucial step in observing the complicated relationship between Foreign Direct Investment and Population Health. It is expected that this research motivates the debate and enhance the knowledge further in this line of research.Government should provide incentives to the foreign investors by providing concessions in taxes, and better facilities in terms of improved infrastructure.

The Nexus between Sustainable Economic Development and Government Health Expenditure in Asian Countries Based on Ecological Footprint Consumption

Health has vital importance in maintaining economic development since it is essential for, and a result of, economic development. This indicates that health makes a large contribution in achieving sustainable development and health outcomes. The significance of health is shown in the millennium development goals (MDGs) and in the sustainable development goals (SDGs), where four of the seventeen objectives focus on improving health outcomes (UN, 2021). As compared to other countries, some Asian countries are still worse off regarding health outcomes and are facing challenges in achieving positive outcomes for such goals. This study mainly focuses on identifying the link between public health expenditures and health outcomes in nine Asian economies from 2000 to 2018. The study implements fixed effects panel data estimations by using the Hausman specification test to identify the fixed effects model as the suitable estimator for the study. The empirical results from the fixed effects technique show that immunization, GDP per capita, trade openness, and utilization of basic water service facilities improve under-five and infant mortality in Asian economies. However, ecological footprint increases under-five and infant deaths by damaging the environment.

Chinese FDI for Infrastructure Development in Africa – Assessing the Impact of Cooperation

Globalization today is quite effectively governed by patterns defined by China’s dominance in global trade and commerce. China has started to correspond with numerous countries in order to build economic corridors. Historically, China has a keen interest in African countries where cheap workers and plentiful resources are available. This opportunity has been favourably received by the African countries. However, it has been observed from various sources that Chinese investment in Africa has been intended for exploiting the resources and the countries in Africa. This study aims to investigate the potential impact of unprecedented Chinese FDI on infrastructure development in selected African countries. The empirical analysis is conducted by using a panel data approach for 28 African countries spanning from 2003-15. These empirical estimations have been carried out through fixed effects technique. The findings of the study reveal that Chinese investment has a positive impact on infrastructure development in the sample countries. Based on study findings, it is safely concluded that Chinese investment and infrastructure development move parallel in the sample countries.

Ownership structure, corruption, and capital investment: Evidence from firms in selected Sub‐Saharan African countries

AbstractIn this study, we investigate the relationship between ownership structure, corruption, and capital investments in firms operating in a selected sample of Sub‐Saharan Africa (SSA) countries. Using a sample of an unbalanced panel of firms over different time periods that ranged from 2003 to 2016, and estimating with the fixed effects technique, we find that foreign ownership and bribery payments have positive and negative effects, respectively, on the capital investment of firms. Furthermore, the marginal effects analysis reveals that the effects of ownership structure and bribery payments differ significantly across our selected sample of countries and across different firm sizes. Policy implications were deduced from the findings.