Fully Modified Ordinary Least Squares Research Articles

On the Way to Net Zero Emissions. Can Environmental Tax be the Game Changer? The Vise Grad Group Evidence

Today, protecting the environment is a top issue for global policy. In essence, the literature has identified several macroeconomic problems as factors in environmental deterioration. The purpose of the investigation was to explore environmental deterioration (EVD) and energy consumption (ENC) by Vise grad regions. Environmental taxes (ENTX) and carbon taxes have been proving to be a significant factor in carbon mitigation. The analysis was carried out for the period 1994-2021, employing the fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS). The empirical evaluation indicates that ENC had a positive while ENTX had a negative nexus with EVD for the Vise grad nations. Similarly, the moderating role of ENTX*ENC – EVD exhibited an inverse affiliation. In the long run, the dependence on non-renewable energy appreciates EVD. However, effective policy implementation of ENTX will lead to quality of the environment. The empirical results have shown that ENTX can be employed to control the demand and utilization of coal, gas, and nuclear in the Vise grad regions. This research offers policymakers and government organizations in these areas a reference point for their investments in more eco-friendly technology, human capital, urbanization, trade openness, and appropriate environmental levies to demonstrate the quality of the environment.

The role of Islamic banks in promoting economic growth and financial stability: Evidence from Saudi Arabia

The aim of this study is to provide a suitable empirical framework for the interaction between Islamic finance, financial stability, and economic development. Additionally, it is an attempt to empirically evaluate how the levels of financial system stability and economic growth in an oil-rich nation are affected by the financing provided by Islamic banks. The study employs the fully modified ordinary least squares (FMOLS) and quantile regression (QR) based on quarterly data from 2013 to 2022. The findings indicate strong evidence that Islamic banking finance supports economic growth and improves financial system stability. Moreover, the study highlights that this positive relationship is negatively affected by inflation rates and levels of economic policy uncertainty. Financial inclusion has an important positive impact on both dependent variables, reinforcing this link. Furthermore, oil rents in Saudi Arabia (KSA) have contributed to improving economic development and supporting the financial sector’s development to achieve economic diversification as outlined in the Saudi Vision 2030. These findings confirm the necessity of paying attention to developing Islamic banking and increasing its market share by creating products and services that achieve economic efficiency in accordance with suitable policies for making the financial sector a strategic sector that supports economic development in KSA. AcknowledgmentThis work was supported and funded by the Deanship of Scientific Research at Imam Mohammad Ibn Saud Islamic University (IMSIU) (grant number IMSIU-RPP2023024).

Financial inclusion and environmental pollution in sub-Saharan Africa: moderating effects of economic growth and renewable energy.

A thriving literature exists about the role of financial inclusion in socio-economic development. Nevertheless, the environmental effects of financial inclusion are largely unknown in the literature, especially in sub-Saharan African countries. Therefore, this study explores the association between financial inclusion and CO2 emissions utilizing data from 23 sub-Saharan Africa for the period 2004-2019. Based on different estimation methods such as dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), canonical correlation regression (CCR), and an instrumental variable generalized-method of moment (IV-GMM), the results show that financial inclusion is responsible for a substantial increase in CO2 emissions. In addition, financial inclusion moderates economic growth, resulting in higher CO2 emissions. Alternatively, financial inclusion moderates renewable energy use to lower CO2 emissions. The outcomes also verify the presence of the Environmental Kuznets Curve hypothesis (EKC). This study proposes uniting financial inclusion and environmental policies as a strategy for reducing CO2 emissions in sub-Saharan Africa.

A waste Kuznet curve: The negative shadows of tourism industry in West Nusa Tenggara, Indonesia using fully modified and dynamic ordinary least squares

This empirical study investigates the relationship between the tourism industry and municipal solid waste (MSW) creation in West Nusa Tenggara, Indonesia, to determine whether a Waste Kuznet Curve (WKC) exists. The study runs from 2014 to 2020, using data acquired from several government official websites in ten Regencies/Districts. Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) regression approaches were employed to analyze this relationship. This inquiry yielded three important discoveries. First, a significant and negative link is seen between the development of the tourism business and the increase in MSW output. This demonstrates that the booming tourism sector hurts environmental conditions, exacerbating environmental issues that require government intervention. This empirical study investigates the relationship between the tourism industry and MSW creation in West Nusa Tenggara, Indonesia, to determine whether a WKC exists.

Geo-political risks, uncertainty, financial development, renewable energy, and carbon intensity: Empirical evidence from countries at high geo-political risks

Geopolitical risks and uncertainty negatively affect the economy and environmental quality. High geopolitical risks and high uncertainty increase carbon emission intensity by increasing dependence on fossil fuels. However, research in this area is still in its infancy and more empirical evidence is needed to justify the causal link. This research examines the causal mechanism linking geopolitical risk, uncertainty, financial development, renewable energy, and carbon intensity in a sample of eighteen countries with high geopolitical risk between 1985 and 2021. The selected countries have a high intensity of geopolitical risks due to internal and external conflicts that have worsened in recent years. We employ cointegration techniques from Hatemi-J [1] and Maki [2] in the presence of structural breaks, fully modified ordinary least squares (FMOLS), canonical cointegration regression (CCR) models, and static time-variant Granger causality (1969) test. We find robust empirical evidence that geopolitical risk, financial development, renewable energy, uncertainty, and carbon intensity have a cointegrating relationship in the presence of structural breaks. Results from FMOLS and CCR models indicate that carbon intensity responds differently to changes in geopolitical risk, renewable energy, uncertainty, and financial development. Environmental and energy policymakers should mitigate carbon intensity through long-run rather than short-run mechanisms to achieve SDG12 and SDG13.

Moving toward sustainable goals 7 and 13: An inclusive mechanism to achieve environmental sustainability through digitalization and energy transition in OECD countries

In line with Sustainable Development Goals (SDGs) 7 and 13, this study proposes a policy framework while considering digitalization as a critical tool in shaping the energy transition process to attain environmental suitability in OECD countries. The study employed multifaceted empirical techniques, including Method of Moment Quantile Regression (MMQR), Fully Modified Ordinary Least Squares (FMOLS), and Dumitrescu and Hurlin (D-H), augmented with robustness tests over the period 2000 to 2021. The results indicate that digitalization augments energy transition and green finance to attain environmental sustainability. However, moving toward higher quantiles (4th, 6th, and 8th), the total impact of energy transition and digitalization is diminished. Besides that, a bidirectional causal relationship was reported running from green finance and digitalization to greenhouse gas (GHG) emissions. This study offers a detailed policy framework while considering SDGs 7 and 13.

Public investment on renewable energy R&D Projects: The role of geopolitical risk, and economic and political uncertainties

Recently, there has been growing concern about the impacts of geopolitical tension as well as economic and political uncertainties on the decision-making process of governments when it comes to allocating resources for renewable energy R&D. This paper employs the panel autoregressive distributed lag (ARDL), cross-sectional panel autoregressive distributed lag (CS-ARDL) and Fully Modified Ordinary Least Squares (FMOLS) technique to examine the impacts of geopolitical risk, economic and political uncertainties, renewable energy technologies innovations, government financial affordability and CO2 emissions on government spending on renewable energy research and development projects. The novel aspects of the panel ARDL and CS-ARDL methodologies lie in their ability to capture both short-run and long-run dynamics within a panel data framework, as well as their ability to provide a more comprehensive understanding of the relationships under investigation. The empirical results presented in this paper indicate that in the face of ongoing geopolitical tension, as well as economic and political uncertainties, financially capable governments continue to increase their investments in renewable energy R&D in the long run. This strategic move aims to safeguard the supply of renewable energy, uphold economic and political policy credibility, maintain a first-mover advantage, and establish control over the intellectual property rights associated with renewable energy technology.

The longitudinal relationship between tourism, electricity consumption, and CO2 emissions

The objective of the study is to determine the electricity use, and tourism industry environmental impacts, and increase in CO2 emissions in Pakistan. What are the linkages of foreign direct investment, intercountryal trade, gross domestict product, and CO2 emissions. The study has applied the Autoregressive distributed lag (ARDL) method to analysis the data set from 1985 to 2023. The robustness test is applied using Dynamic Ordinary Least Square (DOLS), and Fully modified ordinary least squares (FMOLS). The results reveal that the increase in the electricity use, and tourism industry has significant negative impacts on CO2 emissions in both short- and long-run. The increase in intercountry trade effects the Domestic Product growth (GDP) growth and causes to increase in use of fossil fuels, which are the major source of CO2 emissions. The increase in foreign direct investment (FDI) increase the GDP growth, and FDI also increase the CO2 emissions in Pakistan. The results suggests that the incresae in the renewal energy consumption for the electricity production and transportation can help to decrease the CO2 emissions in Pakistan.

Does Mobile Technology Help to Deepen Financial Inclusion? Evidence from South Africa

ABSTRACT Despite the huge penetration of mobile telephone in South Africa, the country lags its peers (upper middle-income economies) on some financial inclusion metrics such as bank account access and the usage of financial products. Thus, the study investigates the impact of mobile technology on financial inclusion in South Africa over the period 1980–2021, while also looking at the transmission channels. The study adopts a battery of econometric techniques such as the ordinary Least Square (OLS) technique, the fully modified OLS (FMOLS), and the Dynamic OLS (DOLS). The study finds that mobile technology does not help to deepen financial inclusion (when financial inclusion is measured by the number of commercial bank branches per 100, 000 adults). While mobile technology deepens financial inclusion (when measured by volume of credit by the financial sector/GDP). This implies that expanding the digital economy may help to deepen access to credit in South Africa. However, the results also indicate that the effect of mobile technology on financial inclusion may not be direct but through investment in education to improve the citizens’ capability and preparedness to cope with innovative technologies. The research and policy implications are discussed.

Natural resources and economic growth: Examining the role of globalization, financial development, and digitalization in India

Natural resources are considered vital for economic growth, laying the foundations for various industries. Therefore, the present study aims to examine the importance of natural resources, globalization, financial development, and digitalization in India's economic performance from 1970 to 2020. The study utilizes the Auto-regressive distributed lag (ARDL) techniques with structural breaks and the Granger causality test to detect the direction of causality. Further, Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS) were used to check the robustness of the long-run coefficients. The finding supports the “Resource curse hypothesis” in India. Globalization and financial development drive the long-run growth performance. In the short run, digitalization and globalization enhance growth performance. The Granger causality result unfolds a bidirectional causal relationship between economic growth and digitalization and unidirectional causation from financial development and globalization to economic growth. The study's outcomes have notable policy implications that emphasize the need to induce financial development, integrate digital technology into core sectors of the economy, and encourage market openness and efficient utilization and management of natural resources for sustainable economic growth.

Road map from dirty growth to sustainable green growth in Turkiye: Management of trade and financial processes?

This study examines how business, financial, monetary, and trade freedom influence Turkiye's green growth from 1995 to 2022, utilizing the ARDL approach to cointegration. Our results confirm the long-term cointegration among the variables. Robustness tests, such as Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS), consistently show that business and trade freedom hinder Turkiye's green growth. Financial freedom and monetary freedom consistently foster it. Business freedom and heightened trade freedom lead to increased fossil fuel consumption, whereas monetary freedom stabilizes Turkiye's currency, and financial freedom promotes entrepreneurship. Enhancing eco-friendly energy sources and investing in green technologies are crucial for promoting sustainable growth, reducing production costs, fostering entrepreneurship, and encouraging competition. The fact that the impact of these variables on green growth in Turkiye has not been studied before makes the study's findings novel.

The governance factor: Mitigating carbon emissions through FDI and financial development in emerging Asian economies

This study investigates the influence of foreign direct investment (FDI), financial development (FD), and governance on carbon emissions in 15 emerging Asian economies (EAEs) from 2000 to 2021. It aims to assess how successful these nations have been in upholding ecological sustainability while promoting themselves as alternative manufacturing destinations to China and fostering domestic manufacturing through significant financial development. It creates a composite governance quality (GQ) measure and three subdimensions—EcoGov, InstGov, and PolGov—to assess its precise role in influencing the FDI–carbon dioxide (CO2) and FD–CO2 nexuses. Using fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) panel cointegration techniques, this study yielded findings revealing that FDI and FD significantly enhance carbon emissions. The overall GQ significantly moderates the FD–CO2 nexus but fails to moderate FDI's detrimental environmental influence. More specifically, EcoGov significantly moderates FDI's and FD's influence on carbon emissions, whereas InstGov significantly enhances their influence on emissions. In contrast, PolGov is only found to moderate FD's impact on environmental quality since the Government frequently endorses liberal environmental regulations to facilitate FDI-led growth. The findings from this study are robust and carry distinct policy ramifications.

Synergy for climate actions in G7 countries: Unraveling the role of environmental policy stringency between technological innovation and CO2 emission interplay with DOLS, FMOLS and MMQR approaches

The significant and indestructible repercussions of global warming have an enormous effect on economies worldwide. Inevitably the preservation of the environment remains a crucial element in the pursuit of sustainable development goals. The primary aim of this study is to assess the moderating effect of environmental policy stringency (EPS) between technological innovation (INV) and CO2 emission and direct association between financial development (FD), and financial globalization (FG) and environmental quality among the G7 countries. This analysis is conducted using a dataset covering the time period from 1990 to 2020, employing the Dynamic Ordinary least Square (DOLS), Fully Modified Ordinary Least Square (FMOLS), Canonical Cointegration Regression (CCR), and Method of Moment Quantile Regression (MMQR) estimation approaches. The results of DOLS, FMOLS, & CCR indicates that INV*EPS increase environmental quality by −0.21168, −0.21257 and −0.21255, respectively. Further, the outcomes of MMQR demonstrate that combine effect of INV & EPS contributes −0.2003 to −0.2264 across all quantiles from 20th to 80th. This indicates that technological innovation leads to enhanced environmental quality by mitigating CO2 emissions and implementation of more stringent environmental rules enhance the positive effects of green technologies by employing eco-friendly technologies to achieve carbon neutrality target. In order to effectively attain sustainable development goals, the study suggests that in economies that exhibit a higher degree of innovation, strong financial system, the adoption and implementation of environmentally sustainable technologies have a significant influence on the mitigation of CO2 emissions and the enhancement of environmental conditions. The study findings suggest few polices to policymakers: enhancing the green finance structure and strengthening the design of environmental regulations to promote green innovation. Research and development (R&D) activities have the potential to significantly contribute to the reduction of CO2 emissions through the effective application of scale effects and the implementation of efficient marketing tactics.

Towards sustainable initiatives: Evidence from green finance mitigating ecological footprint in East Asia and Pacific nations

Green finance serves as a bridge between development and ecological sustainability. It provides a roadmap for countries to accomplish sustainable development goals by simultaneously curbing their ecological footprint. Green financing prioritizes eco-friendly technologies, sustainable behaviors, renewable energy, and green infrastructure, promoting positive changes. This study examines the role of green finance on the ecological footprint of 11 East Asian and Pacific countries from 2000 to 2023. This study uses different diagnostic tests to prove the existence of cross-sectional dependency, non-normality, and slope heterogeneity. The coefficients are estimated using the fully modified ordinary least squares (FMOLS) approach and panel quantile regression at different quantiles. The results show the validity of an inverted U-shaped relationship between green finance and the ecological footprint. Further analysis explores that at the middle quantile, all selected countries except Mongolia and the Philippines, while the FMOLS approach shows that all countries’ green finance reduces their ecological footprint. Additionally, globalization reduces the ecological footprint, while economic growth, industrialization, and urbanization increase the ecological footprint. This study recommends that to fight against climate change, the selected countries should focus more on green finance. Financial institutions should provide funds only for environment-friendly technologies.

Tourism development and carbon emissions in sub-Saharan African countries: is there an inverted U-shaped relationship?

ABSTRACT In this study, we examine the existence of an inverted U-shaped relationship between tourism and carbon emissions in 29 sub-Saharan African (SSA) countries using data from 1995 to 2019. Departing from the previous studies, we have also grouped SSA countries into low- and middleincome countries, thereby estimating three panels. We have used a wide range of panel estimation techniques to examine this linkage, including the dynamic common-correlated effects (DCCE), the Driscoll-Kraay estimators, and the fully-modified OLS (FMOLS). Our results show that the relationship between tourism and carbon emissions depends largely on the estimation technique used and the level of income of the individual countries. Overall, we can conclude that there is primafacie evidence of an inverted U-shaped relationship between tourism and carbon emissions in middle-income countries and all SSA countries combined, but not in low-income countries. This means that the perceived adverse effects of tourism expansion on environmental pollution may only be experienced in the early stages of tourism development and that as the tourism sector develops, tourism is likely to promote energy conservation through sustainable tourism or green tourism, thereby leading to a reduction in carbon emissions. Policy implications are discussed.

Does industry 4.0 and environmental quality asymmetrically affect South Africa’s manufacturing sector? A fresh insight from nonlinear autoregressive distributed lag (NARDL) model

Owing to recent developments and implications inspired by fourth industrial revolution (4IR) technologies in the global manufacturing sector through the Industry 4.0 (I4.0) concept, this study was conducted to discover the impacts of I4.0 and environmental quality on the South African manufacturing sector, considering governance quality. To the best of our knowledge, no study has analysed the long-run and short impacts of I4.0, environmental quality and governance quality on the South African manufacturing sector integrating the bound test cointegration, Fully-Modified Ordinary Least Squares (FMOLS) & Dynamic Ordinary Least Squares (DOLS) and nonlinear autoregressive distributed lag (NARDL) estimations techniques. Therefore, this study attempts to bridge this gap using different econometric approaches. The data used spans from 2000Q1 to 2020Q4. The principal component analysis was used to create Industry 4.0 (I4.0) and governance quality components. In this study, utilising the dynamic NARDL, it is seen that the LCO2, representing environmental quality, possesses positive and significant relationship with the LMVA, but when in interaction with the governance quality variables (GOV, INS, POL & ECO), there exists a positive and insignificant relationship with the LMVA showing there exists a dearth of green innovative technologies in the South Africa manufacturing sector respective of its significance. Utilising the FMOLS and DOLS, the GOV, INS, POL & ECO which represents governance quality, mostly possesses negative but significant relationships with the LMVA, even when in interaction with the I4.0 variable proving the I4.0 technologies have not yet started to be impactful to the South African manufacturing industry at large.

Effect of Exchange Rate on Foreign Direct Investment in Nigeria

This study investigates the relationship between exchange rates and Foreign Direct Investment (FDI) in Nigeria from 1981 to 2021. Employing a Fully Modified Ordinary Least Squares (FMOLS) regression analysis, the study reveals a significant positive correlation between exchange rates and FDI. Conversely, the study finds a positive but statistically insignificant association between trade openness and FDI. Finding on interest rates (INTR coefficient: -0.104) indicates a negative relationship with FDI, lacking statistical significance. Similarly, inflation rates (INFR coefficient: 0.012) exhibit a positive yet statistically insignificant link with FDI. Notably, the study highlights a substantial and statistically significant negative relationship between human capital (HC coefficient: -77.787) and FDI, signifying the importance of human capital development in attracting foreign investment. In summary, the research findings indicate a substantial impact of exchange rates on FDI in Nigeria. It suggests that policymakers should proceed with caution to avert possible depreciation of the exchange rate, which could deter foreign investors. Furthermore, adopting a comprehensive strategy for macroeconomic stability could foster a more conducive atmosphere for foreign investment.

Examination of Banks' Performance and Intellectual Capital in Cambodia: Utilizing FMOLS and DOLS Methods

In order to address the potential presence of serial correlation and heteroscedasticity in static panel data models such as Pooled Ordinary Least Square (Pooled OLS), Fixed Effect (FE), and Random Effect (RE) models, the study employed Panel Fully Modified Ordinary Least Squares (FMOLS) and Panel Dynamic Ordinary Least Squares (DOLS) methodologies to evaluate the influence of value-added capital and its specific components - human capital, structural capital, and capital employed - on the performance of banks in Cambodia. The results of the research revealed that intellectual capital significantly impacted the return on assets in a positive manner. Specifically, human capital and capital employed were recognized as crucial elements in determining this connection. Both the FMOLS and DOLS estimation techniques produced reliable outcomes, showing positive slope coefficients that were deemed statistically significant at the 1% level. Conversely, the impact of structural capital on bank performance produced diverse results. While the determined slope was considered extremely significant at the 1% level through the FMOLS technique, the findings were inconclusive. More precisely, the projected coefficient showed a positive value when applying the FMOLS approach, but displayed a negative value when using the DOLS method.

Building Resilience for Transformational Recovery: An Analysis of Monetary Policy and Economic Growth in West Africa before and Following the COVID-19 Periods

This study investigates the effectiveness of monetary policy in the pre and post COVID-19 periods in West Africa. The panel fully modified ordinary least squares (FMOLS) was used. Before the estimation, the correlation analysis and summary statistics were done. Unit root test was carried out to ascertain whether the data series are stationary or not and the panel cointegration test was used to determine the existence of long run relationship among the variables. The findings indicate that monetary policy has 12.3% negative and significant effects on economic growth in the periods before COVID-19, while it has insignificant effect after the pandemic. Furthermore, monetary policy has 21.01% negative and significance effects on inflation in the pre COVID-19 era, while it has 52.5% negative and significant effect on inflation after the pandemic. This indicates that the effectiveness of the central bank’s efforts to affect and control inflation has declined after COVID-19. Causes for this could include the pandemic’s effect on supply chains, demand, and the weaker economic environment. On this basis, the monetary authority should create an economic environment that will play a crucial role in determining the effectiveness of monetary policy in the post-COVID-19 periods to foster economic recovery.

The impact of taxation, technological innovation and trade openness on renewable energy investment: Evidence from the top renewable energy producing countries

In the context of contemporary global warming, transitioning from traditional fossil energy to renewable energy sources emerges as a crucial strategy to reduce carbon emissions and achieve the 7th sustainable development goal (SDG). Tax policy significantly shapes the investment landscape, influencing all factors concerning the transition to renewable energy, such as technological innovation and trade openness. However, no empirical studies have examined the direct and moderating role of taxation on renewable energy investment, mainly due to the scarcity of tax data. Therefore, this paper utilizes the recently released Government Revenue Dataset (2023) to explore the complex link between taxation, technological innovation, trade openness, and renewable energy investment for a sample of the top 37 renewable energy-producing countries during the period (1996-2021). The results of the cross-section ARDL (CS-ARDL) and the pooled mean group ARDL (PMG-ARDL) models indicate that taxation has a negative and significant influence on renewable energy investment across all model specifications, both in the short and long run. Conversely, innovation and trade openness exhibit a positive and significant influence on clean energy investment. Regarding the moderating influence of taxation, the results revealed that tax revenues depress the positive impact exerted by technological innovation and international trade. Furthermore, the fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) models affirm the robustness of the long-run results obtained from CS-ARDL and PMG-ARDL models. The study's findings offer significant insights into how countries engaged in renewable energy production can enhance their taxation framework to leverage trade and innovation to promote renewable energy investment.