Generalized Method Of Moments Research Articles

Empirical Analysis of Financial Inclusion's Role in Economic Growth and Poverty Reduction in Sub-Saharan Africa

This research aims to investigate the correlation between financial inclusion (FI), economic growth (EG), and poverty reduction in several Sub-Saharan African (SSA) countries throughout the period of 2014-2021. The research used the generalized method of moments (GMM) econometric methodologies. A financial inclusion (FI) composite index was constructed using principal component analysis (PCA) to include the many attributes of FI indicators. The findings indicate a positive and significant impact of financial inclusion on economic development and a reduction in poverty in Sub-Saharan Africa. These results emphasize the crucial significance of legislators and governments giving priority to policies that enhance the availability, utility, and accessibility of financial goods and services. The outcome will include a reduction in poverty and an increase in equitable economic progress throughout Sub-Saharan Africa.

INSTITUTIONAL ENVIRONMENT AND MARKET STRUCTURE AS DRIVERS OF BANKING INDUSTRY PERFORMANCE

We analyze the effects of market concentration, income diversification, and institutional environment on banking industry performance. We used a sample of 168 countries for the 1994-2019 period and the GMM estimators for dynamic panel data regressions. Our results show that market concentration and diversification have a positive effect on bank performance. The institutional environment, both public-political and private-regulatory, has a negative effect on bank profitability, showing that these financial institutions obtain higher returns in countries with institutional weaknesses. When countries have a high institutional quality, the positive impact of market concentration and income diversification is reversed. Strengthening countries’ institutional quality makes it possible to combine competition between banks and specialization in traditional activities with higher performance. These results are relevant for bank stability and financial policy design, given that the institutional framework includes both direct and indirect channels that affect the general behavior and strategies of banks in the industry.We analyze the effects of market concentration, income diversification, and institutional environment on banking industry performance. We used a sample of 168 countries for the 1994-2019 period and the gmm estimators for dynamic panel data regressions. Our results show that market concentration and diversification have a positive effect on bank performance. The institutional environment, both public-political and private-regulatory, has a negative effect on bank profitability, showing that these financial institutions obtain higher returns in countries with institutional weaknesses. When countries have a high institutional quality, the positive impact of market concentration and income diversification is reversed. Strengthening countries’ institutional quality makes it possible to combine competition between banks and specialization in traditional activities with higher performance. These results are relevant for bank stability and financial policy design, given that the institutional framework includes both direct and indirect channels that affect the general behavior and strategies of banks in the industry.

Tax Planning, Corporate Tax Avoidance and Real Earnings Management: GMM Approach in Nigeria

The study examines the effect of tax planning and corporate tax avoidance on Real Earnings Management (REM) in Nigeria. Data were gathered from the financial reports of 58 listed non-financial firms for twelve years, from 2010 to 2021. Preliminary analyses such as descriptive statistics, correlation matrix, and variance inflation factor were conducted. The Generalized Method of Moments (GMM) was employed to identify a possible effect on REM. The study revealed that tax planning has a positive and significant effect on REM, while corporate tax avoidance has a negative and significant influence on REM. Also, leverage revealed a negative significant effect on REM, while firm growth has no significant effect on REM. However, firm size has a significant positive influence on REM. The study concludes that tax planning and corporate tax avoidance have a significant influence on REM. Thus, the study recommends that tax authorities should ensure that firm management engages in lowering capitalization limits, ensures first-in, first-out instead of last-in, reduces nonobligatory expenses for short periods, and ensures moderate deferred tax expenses in order to reduce REM through tax planning.

Resilience through mineral resource development, oil, and natural resource efficiency: Strengthening economies

This study examines the role of resilience in bolstering economies via the development of mineral resources and oil, alongside adaptability and natural resource efficiency, particularly within the G7 economies from 1995 to 2022. Employing the Generalized Method of Moments (GMM) model, the research aims to unravel the complexities of how resource-rich economies can leverage their natural assets to enhance economic resilience and sustainability. The investigation reveals a positive correlation between the strategic development of mineral resources, oil, and the adaptability of economies to external shocks, highlighting the critical importance of natural resource efficiency in ensuring long-term economic stability and growth. These findings underscore the necessity for G7 nations to implement policies that not only foster the responsible exploitation and development of natural resources but also promote adaptability and efficiency in resource use. The study's policy implication suggests a paradigm shift towards more sustainable and resilient economic models, emphasizing the balanced integration of resource development and environmental stewardship.

The Asymmetric Effects of Consumer Confidence on Credit Card Spending in Turkey

This paper analyzes the asymmetric effects of consumer confidence on personal credit card expenditures in Turkey. To this end, the impact of the consumer confidence index on real credit card spending is investigated from January 2013 to June 2023 using the threshold generalized method of moments (GMM). The linear GMM model findings indicate that consumer confidence increases real credit card expenditures. Furthermore, when the threshold GMM model is estimated using the annual percentage change of the consumer confidence index as a threshold variable, the coefficients differ across low- and high-confidence regimes. More specifically, the consumer confidence index has a statistically significant positive impact on credit card expenditure in the low-confidence regime but not in the high-confidence regime. This indicates that the optimistic expectations of economic units in a low-confidence environment may stimulate credit card spending.

The Impact Of Islamic Finance, Economic Growth, And Globalization On CO2 Emissions

This paper examines the impact of Islamic finance, economic growth, and globalization (economic, social, political, and overall aspects) on carbon dioxide emissions in 4 countries for the period 2015-2020. Employing the System GMM estimation method, which fulfills criteria for model unbiasedness, validity, and consistency. Findings reveal that Islamic finance, economic growth, and globalization simultaneously contribute to increasing and decreasing carbon dioxide emissions with a significance level of 0.010. Partially, Islamic finance and globalization’s overall aspect in short or long term contribute to a decrease in carbon dioxide emissions with a significance level of 0.010. Meanwhile, economic growth and globalization in economic, social, or political aspects in short or long term contribute to an increase in carbon dioxide emissions with a significance level of 0.010. This scientific article provides a new contribution to the research results that have been obtained with a significance level of 0.010 or 99 per cent confidence level.

What explain capital structure determinants choices of Shariah firms?

This study aims to discover key capital structure determinants for the entire Shariah firms operating in dissimilar contexts. Moreover, it also estimates the adjustment speed for these firms to maintain targeted capital structures at all times. For this purpose, 321 Shariah firms that are operational in Saudi Arabia, Pakistan, the UAE, and Indonesia are nominated. The empirical analysis is conducted using 11 years, i.e., 2011-2021, of balanced Panel Data. The debt-to-asset and debt-to-equity ratios are used as variables of interest, whereas the asset tangibility ratio, current ratio, return on equity, size, non-debt-tax shield, inflation, and gross domestic product are used as explanatory variables. The robust estimator, i.e., Generalized Method of Moments (GMM), is executed to perform the analysis. The results show that the most important factors for Shariah-tagged firms are inflation, the gross domestic product, the asset ratio, the return on equity, the non-debt tax shield, and the lagged dependent variables. The important role of asset tangibility, lagged variables, and the presence of adjustment speed postulate that Shariah-tagged firms are following the provided guidelines of Dynamic Trade-Off theory to preserve capital structure. The findings are a new contribution to the limited empirical inquiries of Shariah firms’ capital structure and a fresh addition to Islamic Finance literature. Besides, the outcomes are also helpful for policymakers and assist them in developing an optimal model of capital structure for Shariah-tagged firms that decreases overall capital costs and enhances these firms’ market value.

The influence of environmental diplomacy, economic determinants and renewable energy consumption on environmental degradation: Empirical evidence of G20 countries.

This study examines how various environmental and economic variables contribute to environmental degradation. Industrialization, trade openness, and foreign direct investment are among the variables, as are environmental diplomacy, environmental diplomacy secure, and renewable energy consumption. Therefore, the data covers the years 1991-2020, and our sample includes all 19 countries and two groups (the European Union and the African Union). The research used the Pesaran CD test to determine cross-section dependency, CIPS and CADF test to determine stationarity, the Wald test for hetrodcedasasticity and the Wooldridge test for autocorrelation; therefore, VIF for multicollinearity, Durbin and Hausman to analyze the endogeneity. It also employed Westerlund's cointegration test to ensure cross-sectional dependence, Wald test for group-wise heteroscedasticity, Wooldridge test for autocorrelation, VIF for multicollinearity, and Durbin and Hausman for endogeneity. The two-step system generalized method of moments (GMM) is used to estimate the results and confirm the relationship between independent variables (Industrialization, trade openness, FDI, environmental diplomacy, secure environmental diplomacy, and renewable energy) and dependent variables (Environmental Degradation) in G20 countries. Therefore, Industrialization, trade openness, foreign direct investment, ecological diplomacy, and renewable energy consumption significantly impact ecological degradation. Environmental diplomacy is crucial to combat degradation and stimulate global collaboration. G20 nations enact strict environmental restrictions to tackle climate change and encourage economic growth.

Examining the impact of revenue diversity on government productivity using stochastic frontier production function: the U.S. State government

ABSTRACT This study empirically examines the impact of revenue diversity on government productivity across U.S. states via a two-step system generalized method of moments (GMM) estimation during a 41-year period (1980–2020). Government productivity is driven by revenue diversity, economic growth, fiscal health, and population density. In particular, increasing revenue diversity promotes state governments’ productivity, supporting our hypothesis. This result holds even after the mortgage crisis. These new findings suggest that states can enhance their productivity by expanding their revenue sources. Economic growth and rising fiscal health foster government productivity; these results apply after the mortgage crisis as well. An increase in population density also boosts government productivity during the study period. Climbing tax burdens undermine productivity, whereas growth in long-term debt facilitates productivity after the mortgage crisis. This study defines and expands the concept of productivity in U.S. state governments and explores influencing factors. Subsequent research can build on this theoretical model by integrating other variables tied to government productivity.

Impacts of anti-dumping duties on firm’s performance: Evidence from listed firms in seafood industry in Vietnam

The study aims to examine the impact of the anti-dumping tax imposed by the United States under the simultaneous influence of financial factors on the performance of enterprises in the seafood export industry. The author selected data including 21 companies listed on the Vietnamese stock market in the period 2017 - 2022, and used GMM estimation technique to retest the influence of familiar factors such as lag of the firm’s performance, size, leverage, liquidity ratio, sales growth rate to the firm’s performance (measured by ROA), in addition, the paper also provides additional evidence on the impact of new factors: anti-dumping tax and export sales ratio. Research results show that (1) 6 out of 7 independent variables including , Size, Liq, g, ADr, Exp.re / Tot.re are statistically significant, (2) anti-dumping tax rate and geographic revenue structure are both recorded negative impacts on performance. The results of this study contribute academically by providing a new insight into the relationship between revenue and profit in the case of exporting to countries that apply anti-dumping tax and contribute practically by proposing some implications for foreign trade policy and corporate financial management strategy.

How Do Commercial and Non-commercial Banks Adjust Capitalization Ratio: Evidence from Tanzania

This study examines the dynamic balanced panel data to explore the level of capitalization adjustment process for commercial and non-commercial banks in Tanzania for a period of 10 years from 2012 to 2021 in a two-step system GMM estimator. The findings of the research reveal that the cost of adjustment towards the required bank capitalization ratio is lower for commercial and non-commercial banks operating in Tanzania. The results are significant to the instantaneous adjustment process of a capitalization ratio measured in terms of the ratio of bank total equity to total assets. This finding is consistent with the dynamic trade-off theory of capitalization ratio using the coefficient value of the lagged response variable. The result reveals further that return on assets reduces the cost of the target bank capitalization ratio which means it eliminates the financial distress because return on assets is easier to be valued by investors. Therefore, it can be used as an indicator of the good performance of banks that can increase the easy availability of external capital from prospective and existing investors. The negative and significant sign of the bank size coefficient (-0.710) implies that the sample of banks in this study in terms of equity to assets ratio causes the capitalization ratio to deviate from the target level. This is consistent with the too-big to fail hypothesis. Abdulhamid et al. (2019) hold that an inverse association between bank size and capitalization ratio would happen because large banks have comparative advantages in non-traditional banking activities (interest) since they can operate with a fixed cost. The findings of this study have significant policy implications for economic and financial sector growth.

The heterogeneous impact of social distancing on household-level economic performances: evidence from a large survey in Vietnam

ABSTRACT This study utilizes a large dataset surveyed by Facebook and several academic institutions to examine the heterogeneous impact of social distancing on household-level economic performances, employing the generalized method of moments (GMM) estimator and controlling multi-channel fixed effects. In particular, in this case study, the Vietnamese government’s sudden social distancing policy, which is seen as a quasi-experiment, has created favourable conditions to evaluate the causality of this nexus. The results confirm that increased social distancing leads to a higher likelihood of unemployment, especially for women and lower education levels groups. Notably, the study also finds that people with less desirable economic status (i.e. higher rate of unemployment and food insecurity) are more heavily hurt by social distancing practices. Therefore, the findings suggest the need for welfare programmes for these disadvantaged groups post-pandemic.

The causal relationship between income inequality and economic growth: evidence from panel data for Vietnam

ABSTRACT By analysing a panel dataset of 63 provinces of Vietnam (2004 − 2021), this study demonstrated that there was a causal relationship between income inequality (measured by the Gini coefficient, income gap, and the income share of the top 20%) and economic growth (expressed by real GDP per capita). The Kuznets curve, which is a well-known inverted U-shaped relationship between real per capita GDP and income inequality, was found by applying the robust fixed-effects method (FEM). In Vietnam during 2004 − 2021, economic growth first increased income inequality and later reduced it at a higher stage of economic development. This empirical evidence demonstrates that the Kuznets curve is an apparent empirical phenomenon in both national and provincial data. The Two-step System GMM Estimation examined the impact of income inequality and other socioeconomic factors on GDP per capita and showed the significant positive impact of income inequality, investment, employment rate, and education attainment, as well as a significant negative impact of headline inflation and the urbanization rate on economic development. Moreover, the results show that not literacy rate but educational attainment (the percentage of the population aged 15 years and older with a bachelor’s degree or higher) significantly influence economic growth.

The Role of Innovation in Promoting Economic Diversification In Mena Oil-Exporting Countries: An Empirical Study

This paper casts light on the role innovation seems to play in accelerating economic diversification in 11 MENA oil-exporting countries over the period 1996-2019. More specifically, the novelty of this paper principally lies in detecting the rate of increase in the level of economic diversification if these countries’ rates of innovation will be on par with those of a country that has successfully diversified its export base, like Canada. The results gleaned from using the Arellano-Bond difference GMM estimator demonstrate that strengthening innovation can give a sturdy impetus to economic diversification in oil-rich MENA countries. More precisely, the GCC countries' level of innovation-driven economic diversification is likely to increase more rapidly than that of non-GCC countries. The findings also illustrate that MENA oil exporters’ economic diversification seems to be positively and significantly influenced by governance, human development, credit to the private sector, and economic freedom. Surprisingly, oil rents appear to genuinely frustrate these countries' efforts to diversify their economies. Furthermore, good governance and oil revenues can jointly speed up these countries’ economic diversification. More importantly, the results distinctly unearthed that MENA oil exporters’ economic diversification will increase by 1.77% if their innovation rates can catch up with those of Canada. By and large, encouraging innovation and technological development proved to be a truly giant step forward in these countries’ endeavors for economic diversification.

Repackaging FDI for inclusive growth: Nullifying effects and policy-relevant thresholds of governance

This study examines whether foreign direct investment (FDI) to SSA contributes to inclusive growth in the region. The study further investigates whether SSA's institutional fabric moderates the effect of FDI on inclusive growth in SSA. To this end, we draw data on 42 SSA countries for the period 1996–2020 for the analysis. The empirical evidence, which is based on the GMM estimator, shows that: (1) FDI impedes inclusive growth in SSA, and (2) the region's weak institutional fabric amplifies the shared growth-deteriorating effect of FDI. Nonetheless, the optimism, which we provide by way of threshold analysis, shows that efforts aimed at improving regulatory efficiency enhance inclusive growth from the short-term through to the long-term. The study concludes that robust structures for regulatory efficiency and corruption control are critical for moderating FDI to promote inclusive growth in SSA. A few policy recommendations are discussed in the end.

Does the education level of the CEO and CFO affect the profitability of real estate and construction companies? Evidence from Vietnam

This article aims to determine the level and trend of the impact of the educational level of CEOs and CFOs on the profitability of real estate and construction companies in Vietnam. Because Vietnam is an emerging economy, insights into the profitability of this market will be lessons learned for other economies with similar characteristics. This quantitative study is based on secondary data collected from audited financial statements, annual reports of 123 Vietnamese real estate and construction companies, and macroeconomic data. Pool OLS, Fixed effect and Random effect regression models and the Hausman test are used to find the appropriate model. The study uses GLS regression to overcome heteroscedasticity and autocorrelation and uses the generalized method of moments (GMM) to overcome endogeneity. We find that the profitability of listed construction and real estate companies with highly educated CEOs is no higher than that of other companies. Furthermore, companies whose CFOs have master's or doctorate degrees are less likely to be profitable. Other findings confirm the heterogeneous effects of operating efficiency, economic growth rate, and financial leverage on different profitability measures. The study also proves that company age, firm size, net working capital, liquidity ratio and inflation rate do not affect profitability.

Profit shifting to tax havens: Withholding tax impact on passive flows from Poland

This paper aims to identify determinants and channels of tax avoidance through passive flows to tax havens using harmful tax competition, considering the effect of changes in withholding tax regulations. For the empirical analysis, we exploit the data of 110 ​907 nonresidents from 134 countries that gain passive flows paid by Polish taxpayers. We utilise data from IFT-2R returns on withholding tax (WHT) for 2012–2019. We use a two-stage Arellano-Bond estimator of the Generalised Method of Moments (GMM) with instrumental variables for dynamic panel data and the difference-in-differences method. We show that the amendment to the withholding tax legislation, preceded by a no-avoidance clause in 2017, reduced passive flows overall and separately from the manufacturing and service sectors, primarily profit-shifting through interest, royalties and intangible services payments. Moreover, our results confirm that the tax system tightening against aggressive tax competition has reduced passive income transfers from service companies, not manufacturing companies. Instead, the latter make higher transfers to tax havens included in both Polish and the E.U. list of countries applying harmful tax competition.

Africa's resource curse: The key role of property rights

The purpose of this paper is to examine whether property rights can change the curse of natural resources into a blessing in African countries. To examine the above question, this study uses the Fraser Institute's and V-dem's index of property rights. Using data from 47 African countries over the period 2000–2020, the system GMM estimates suggest that the negative growth effects of resource rents may turn positive in countries with greater property rights. Furthermore, the quality of the judicial system as a proxy measure of property rights indicates that independence, impartiality, accountability, and the absence of corruption in judicial decisions also mitigate the negative effect of resources on growth. In addition, entrepreneurship, labor productivity, industrialization, and unemployment reduction are the main transmission channels. Strengthening property rights in Africa is therefore an effective policy to reverse the curse related to natural resources.

Navigating banking transitions: insights into competition and stability from Vietnam’s experience

ABSTRACT This article investigates the relationship between bank competition and stability within a transitioning economy, focusing on Vietnamese banks from 2007 to 2018. Set against the backdrop of a transformative banking landscape post the collapse of the socialist bloc, the article utilises the Lerner Index to measure bank competition. The Z-score is used as a measure of bank stability. Panel fixed effects and difference GMM estimations suggest that heightened competition correlates positively with bank stability. Notably, these dynamics hold true even after omitting state-owned banks, signifying that government-controlled banks do not exclusively drive the observed relationships. Policymakers, hence, face the crucial task of balancing liberalisation efforts with safeguarding bank stability and emphasising the need for robust risk management and strong corporate governance in transitioning economies dominated by public ownership. This article thus offers valuable insights for policy refinement in similarly poised nations.

Navigating the climate challenges in Africa: Exploring the synergy and threshold effects of renewable energy and foreign direct investment on climate risk

Renewable energy is widely acknowledged as an essential response to climate change, which poses a severe threat to humanity and natural ecosystems. Drawing from the greenhouse theory of climate change and the pollution haven hypothesis, this study contributes to the literature by addressing three critical issues. First, we examine the effect of renewable energy on climate risk. Second, we explore the intervening role of foreign direct investment (FDI) on the renewable energy-climate risk nexus. Third, we determine the minimum threshold required for renewable energy to minimise climate risk. The analysis was based on 47 African countries and estimated using the generalised method of moments (GMM) and dynamic panel threshold regression techniques. The GMM technique is essential due to its ability to address endogeneity issues in the model. Also, the dynamic panel threshold technique is employed because it is built on the principles of GMM and provides an estimate of the threshold level and nonlinearities in the model. The empirical evidence presents a significant negative relationship, suggesting that renewable energy minimises the surge in climate risk in Africa. Second, the findings reveal that the weakening effect of renewable energy on climate risk is contingent on FDI. Third, the dynamic panel threshold results demonstrate that the minimum threshold required for renewable energy to reduce climate risk is 56%. Beyond this level, renewable energy presents a significant negative impact, implying that high renewable energy consumption lessens climate risk. Policy recommendations for boosting renewable energy consumption to alleviate climate risk have been provided.