Generation Panel Unit Root Tests Research Articles

The Effect of Audit Committee Expertise on Audit Quality: Empirical Evidence from Bangladesh

The purpose of this study is to examine the effects of diverse expertise types on audit quality, providing valuable insights for corporate governance and enhancing the audit process. This research uses 651 firm-year observations for 2001-2021 year. This research applies Breusch-Pagan LM, Pesaran Scaled LM, Bias-corrected Scaled LM, and Pesaran CSD test to check the cross-sectional dependency of the series. The study uses second generation panel unit root tests to check the stationary of the variables. After applying the panel cointegration test, this study uses the long run estimation model and robustness checking to examine the relationship. The findings reveal that financial, accounting, and non-accounting expertise all positively and significantly affect audit quality, suggesting that audit committees with diverse expertise can effectively enhance the audit process. This study finds single causal indicating that audit committee expertise improves audit quality. This study emphasizes the importance of incorporating experts from various backgrounds on audit committees to improve audit quality and increase stakeholder confidence in financial statements. This study implies that companies must focus on the expertise on the audit committee during the appointment of the members to maintain the quality of audit reports. This research is unique to the existing literature on audit committee expertise and audit quality by examining the influence of accounting and non-accounting expertise types in Bangladesh context and providing empirical evidence in support of the agency theory.

Exploring the impact of natural resources and energy transition on CO2 intensity in China.

As reported at the 26th UN Climate Change Conference (COP26), worsening climate situation has led to frequent extreme weather events around the world. The main cause of climate change is carbon emissions from human activities. While realizing rapid economic development, China has become the world's largest energy consumer and carbon emitter. To achieve the goal of carbon neutrality by 2060, it should reasonably use natural resources (NR) and promote energy transition (ET). In this study based on panel data on 30 Chinese provinces from 2004 to 2020, second generation panel unit root tests were performed after validating slope heterogeneity and cross-sectional dependency. Mean group (MG) estimation and error correction model were used to empirically test the impact of natural resources and energy transition on CO2 intensity (CI). The results show that natural resources exerted adverse effects on CI, whereas ET, economic growth and technological innovation were beneficial to CI. Analysis of heterogeneity indicates that natural resources exerted the greatest impact on CI in central China, followed by west China. Its impact in east China was positive but did not pass significance test. West China achieved the best result in carbon reduction through ET, followed by central China and east China. The robustness of the results was checked with augmented mean group (AMG) estimation. Our policy suggestions are to urge reasonable development and utilization of natural resources, accelerate ET to replace fossil fuels with renewable energy, and implement differentiated policies on natural resources and ET based on regional characteristics.

Gibson Paradox: Panel Data Analysis on ASEAN-T Countries

The existence of a long-term positive relationship between the nominal interest rate and the general price level is called the Gibson paradox in the economics literature. In other words, according to this paradox, high prices are the result of high interest rates. Studies on this paradox in the literature gained momentum after the work of Gibson (1923). The main purpose of this study is to test whether Gibson paradox is valid for ASEAN-T countries with quarterly data of 1993:Q1-2019:Q4. In this context, short and long term interest rates and consumer price index variables were used in the study. In the study, in which panel data analysis was carried out, it was first analyzed whether there was a cross-section dependency. Because of the cross-section dependency in the series, the CADF unit root test, one of the second generation panel unit root tests, was used. Panel ARDL (Autoregressive Distributed Lag) bounds test was carried out due to the different stationarity levels of the series. According to the panel ARDL bounds test findings, there is a positive relationship between the long-term interest rate and the consumer price index in both the short and long run. Therefore, the Gibson paradox is valid in the ASEAN-T countries in the examined period.

DEMOCRACY AND ECONOMIC GROWTH IN MIST COUNTRIES: AN EMPIRICAL ANALYSIS

Studies on institutions, which are one of the main determinants of economic growth, have been increasing intensively in recent years. In this context, despite many empirical and theoretical studies on the relationship between democracy and economic growth, there is no consensus about the effect of democracy on economic growth. This study analyzes the relationship between democracy and economic growth for MIST (Mexico, Indonesia, South Korea, and Turkey) countries. Firstly, the cross-sectional dependence was examined in the study for the 1973–2021 period. The second generation panel unit root test (Pesaran CADF (2007)) was chosen because of the cross-sectional dependence among the series. The stationarity of the variables at I(1) is ensured. Having determined the cointegration relationship (Westerlund Durbin-H test (2008)) between the series, the Panel CCE estimator was used to estimate the cointegration coefficients. Kónya causality test was used for the causality between democracy and economic growth. It is found that an increase in the level of democracy boosts the economic growth. It is suggested that the MIST nations continue to undertake policies targeted at establishing democratic institutions that contribute to economic progress.

BANKING SECTOR AND ECONOMIC DEVELOPMENT

Purpose- The most important tool in economic development is investments. Funds are needed for investments. Funds are obtained through domestic savings or foreign sources. Resources are known to be limited. For this reason, strong financial systems are needed. The banking sector is an important element in the financial system. The banking sector provides the collection and use of savings. In other words, the banking sector is closely related to economic development. The aim of this study is to examine the relationship between economic development and the banking sector. Methodology- BRICS-T countries are discussed in the study. Panel data for the 2001-2019 period were used. Human Development Index and domestic credit to private sector by banks (% of GDP) were used as variables. First, cross-section dependence tests were performed. Then unit root tests were applied. Heterogeneity was determined by delta test. In the last stage, causality test was applied. Causality was examined by the panel causality test developed by Dumitrescu and Hurlin (2012). Findings- Cross-sectional dependence tests showed that there is crossal-section dependence in the variables and the model. The stationarity of the series was obtained by the CADF test, which is one of the second generation panel unit root tests that takes into account the cross-sectional dependence. Delta test results showed that the slope coefficients were heterogeneous. It has been determined that the cross-sectional dependence and slope coefficients of the model are heterogeneous. The results of the Dumitrescu-Hurlin panel causality test applied showed that there is causality between the banking sector and economic development. Conclusion- The results of the research show that the banking sector contributes to the development of individuals. The increase in human development shows that there are educated, healthy and high-income people in a country. If the banking sector affects human development, human development activities will increase. High-quality human development will increase the level of technological knowledge, productivity in production, and therefore economic growth. Keywords: Banking sector, causality, economic development, human development index, panel data analysis JEL Codes: B26, G20, G21

Regional Economic Integration and Its Impact on Income Distribution and the Poverty Level: The Case of the WAEMU Zone

Abstract This study investigated the influence of regional economic integration (REI) on poverty reduction and the revenue distribution in the West African Economic and Monetary Union (WAEMU) over the period 1994–2018. The second generation panel unit root tests and the Westerlund panel cointegration test were employed for preliminary analysis. The elasticities of the variables were investigated using the Pooled Mean Group (PMG) approach. The results showed that REI reduced income inequality and increased the poverty rate. Moreover, the causal relationship revealed the presence of a bidirectional relationship between REI and poverty. The feedback causal effect operated between REI and remittances, while unidirectional causality runs from REI to income inequality, from economic growth per capita to income inequality, from remittances to poverty, from the control of corruption to income inequality, and from remittances to economic growth. Consequently, the study recommends an easing of governmental regional integration restrictions and provision of subsidies that help to increase the volume of trade and financial development while reducing poverty in the union.

Government and Household Expenditure on Education: The Role of Credit Constraint

Human capital accumulation is one of the most important factors of economic growth for both developed and developing nations. The central research question of this paper is to evaluate the tendency of household educational spending vis-à-vis government spending on education, given the household’s credit constraints. For this purpose, use annual data of 40 countries from 2004 to 2018 in this paper. The intensity of government and household expenditures on education is a more appropriate indicator to analyze the impact of human capital on economic development. This paper has applied the Fixed effect and the random effect model. The Panel Corrected Standard error (PCSEs) model to tackle the problem of heteroscedasticity, Serial Correlation of AR (1), and Cross-sectional dependence. For testing stationarity of the variables, the second generation panel unit root test is Im-Pesaran and Shin (IPS) Test at level and difference. As a robustness test, I estimated a VAR (3) and computed the Impulse response function using Cholesky decomposition along with a 95% confidence interval. The current study concludes that the causality runs from household expenditures (HEX) to government expenditure (GEX) on education directly and not the other way round. This paper also finds a negative contemporaneous relationship between GEX and NPL at the 5% significance level. This means that as households become more credit-constrained, the government tends to spend less on education.

Nonrenewable and renewable energy consumption, trade openness, and environmental quality in G-7 countries: the conditional role of technological progress.

The present study empirically investigates the tripartite impacts of renewable energy (RE), nonrenewable energy (NRE), and trade openness (TO) with the conditioning role of technology on environmental quality (CO2 emission) for the G-7 countries (Canada, France, Germany, Japan, Italy, USA, and United Kingdom) for the period straddling 1990-2019. The empirical analyses are anchored on a set of estimation procedures including; cross-sectional dependence test, second generation panel unit root test, Westerlund cointegration test, Hausman test, and pooled mean group (PMG). The following results emanate from the findings. First, the presence of cross-sectional dependence and long-run relationships are confirmed for the countries. Second, RE significantly lessens the prevalence of carbon emissions across the estimated models. This further underscores the mitigating effects of RE on CO2 emissions for the G-7 countries. Third, the impacts of NRE and TO are found to contribute to surge in CO2 emissions. Fourth, the effects of technological progress captured by research and development (RD) and eco-innovation significantly reduce the stock of CO2 emissions using both unconditional (single effect) and conditional (interactive effect) methods. Fifth, the existence of Environmental Kuznets Curve (EKC) receives empirical support for the G-7 countries. Other covariates such as foreign direct investment (FDI), Gross Fixed Capital Formation (GCFC), and service value-added (SVA) exert diverging impacts on CO2 emissions. Sixth, the country-level analyses show the heterogeneous nature of the G-7 countries as evident from each country's findings.

Sources of Macroeconomic Instability: Implications on Foreign Direct Investment Inflow in Sub-saharan Africa, A PMG/ARDL Approach

This study investigates the short and long run effect of diverse sources of macroeconomic instability on the inflow of foreign direct investment (FDI). The stability of the business environment of a host country will determine the extent to which these economies will absorb shocks and make the economy attractive to foreign investors. We evaluate the role played by macroeconomic instability conditions in determining the inflow of FDI in Sub-Saharan African (SSA) economies, where FDI inflow have been relatively low and macroeconomic instability variables like inflation, external debt and exchange rate has persistently shown volatile trends as compared to other regions in the world. This study employs the Pooled Mean Group (PMG), Mean Group (MG) and Dynamic fixed effect (DFE) autoregressive distributive lag (ARDL) estimation approaches which account for both non-stationarity and heterogeneity effects, in a panel of 31 SSA countries and covers the period 1990 to 2017. We equally employ first and second generation panel unit root test, cross sectional dependence test and cointegration test. The Hausman test is used to select the most efficient estimation technique between the MG, PMG and DFE techniques. The results reveal a negative but insignificant effect of inflation on FDI both in the short and long run. Equally, a positive but insignificant effect of external debt and a negative but insignificant effect of exchange rate are observed in the short run. In the long run, external debt significantly crowds out FDI while exchange rate significantly crowds in FDI in the sub-Saharan African sub region. Based on the findings, we recommend that debt contracted in the sub region should be channeled to productive use like road infrastructure and renewable energy, while currency depreciation should be encouraged in order to render investors within this region more competitive. The used of monetary and fiscal policies should be employed to tackle macroeconomic uncertainty. Capital account regulation should equally be adopted to ensure a competitive real exchange rate. Equally, the debt carrying capacity of each economy should be identified in order to avoid debt unsustainability or payment and servicing default.

ICT diffusion, financial development, and economic growth: Panel evidence from SAARC countries

This study examines the interrelation of ICT diffusion and financial development with economic growth in SAARC economies, by employing data for the time period 2000–2017. The empirical analysis is carried out using granger causality and cointegration techniques. First generation panel unit root tests namely LLC, IPS, ADF, and PP test were employed for this purpose. All the variables were found to be integrated of order one at first difference. Pedroni's cointegration test along with Kao's residual‐based cointegration test was used which reveals the presence of long‐run relationship among the variables. Further, cointegration coefficients are computed with the help of fully modified ordinary least squares and dynamic ordinary least squares method. While financial development, ICT diffusion, and trade openness were found to increase the growth rate, inflation exhibited negative impact on growth. Both short‐run and long‐run causality were examined using panel granger causality test which revealed unidirectional causality running from ICT diffusion and financial sector development to economic growth. However, the result of causation between financial sector development and the ICT diffusion was statistically insignificant.

The Effect of Tax Revenues on Inflation in Selected OECD Countries

If the seniorage leads revenue through state which can cause inflation at the same time, the expected income growth does not occur because of being delays in tax collection. In countries where the price elasticity of the tax system is less than 1, the Olivera-Tanzi effect, which states that the flaw in tax collection creates inflation and reduces real tax revenues, advocated a negative relationship between tax revenues and inflation. However, the main point here is the real value of taxes. In countries that adopt more liberal policies, the share of tax revenues in GDP is low. In this context, the aim of this study is to examine the effects of tax revenues on inflation in 28 OECD countries for the period 1995-2018 through panel data analysis. In the study, the horizontal cross-section dependency was neglected and first generation panel unit root tests were applied. Since the variables are stationary at the level, the cointegration test that gives the long-term relationship has not been passed. As a result of the Hausman test, it has been determined that the model will be estimated based on random effects. As a result of the study, it was determined that the increasing in tax revenues will increase inflation.

Do Social Factors Affect Poverty? A Dynamic Panel Data Analysis of 23 Selected Developing Countries

This research paper aims at investigating the social factors affecting poverty in selected developing countries which was hardly been investigated, yet. We incorporated income poverty index (poverty headcount ratio and poverty gap) and human poverty index as dependent variables, while social factors have been used as explanatory variables, through 1997-2016, for a group of twenty three developing nations. Whereas poverty indices have been constructed through PCA (Principal Component Analysis). Pesaran and Friedman CD (Cross-Dependence) tests have been applied to confirm the occurrence of cross-dependency in the panel data, while CIPS (second generation panel unit root) test has been applied to verify stationary of the variables. Besides, different first generation panel unit root tests have also been applied to confirm stationary of the variables. We applied Pedroni panel co-integration to check for the existence of long-run linkages among the variables, while System and difference GMM (one step) techniques have been used to find dynamic effects on poverty. The results conclude that age dependency ratio showed positive and significant relationship with poverty, whereas, social globalization depicted negative and significant relationship with poverty. Nevertheless, health (life expectancy at birth) and education (primary school enrolment) have negative relationship with poverty in both income and human poverty models, while, in income poverty model, these variables have insignificant impacts and in human poverty model, they have significant associations. Similarly, population growth has positive associations with poverty in the income and human poverty models.

The relationship between climate change and political instability: the case of MENA countries (1985:01-2016:12).

The aim of this study is to examine the relationship between climate change and political instability in the MENA region. To this extent, 18 Middle East and North African (MENA) countries are analyzed covering the period 1985:01-2016:12 with monthly data. In econometric analysis, at first cross-sectional dependency analysis is applied, and existence of cross-sectional dependency among countries is found. Therefore, CADF-second generation panel unit root test applied, and finally, Dumitrescu and Hurlin (2012) panel causality test that consider the cross-sectional dependency are utilized. For empirical analysis, temperature and precipitation data representing climate change, political instability, and conflict data are employed. According to the findings, there is a causal relationship from climate change to political instability in 16 countries and to conflict in 15 countries. In addition to this, at least one causal relationship is determined from climate change to political instability or conflict in all MENA countries. Therefore, empirical results support the assumption that climate change acts as a threat multiplier in MENA countries since it triggers, accelerates, and deepens the current instabilities.

The Effect of Renewable Energy Consumption on Sustainable Economic Development: Evidence from Emerging and Developing Economies

The objective of the paper is to figure out the nexus between renewable energy consumption and sustainable economic development for emerging and developing countries. In this paper, a panel of 30 emerging and developing countries is selected using the World Development Indicators (WDI) of the World Bank, Renewable Energy Country Attractiveness Index (RECAI) by Ernst and Young, and a random selection method based on the current trend of renewable energy consumption for five different regions of the world i.e., Asia, South-Asia, Latin America, Africa and the Caribbean. To achieve the objective, robust panel econometric models such as the Pesaran cross-section dependence (CD) test, second generation panel unit root test, e.g., cross-sectional augmented IPS test (CIPS) proposed by Pesran (2007), panel co-integration test, fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) are applied to check the cross-sectional dependence, heterogeneity and long-term relationship among variables. The panel is strongly balanced and the findings suggest a significant long-run relationship between renewable energy consumption and economic growth for selected South Asian, Asian and most of the African countries (Ghana, Tunisia, South Africa, Zimbabwe and Cameroon). But for the Latin American and the Caribbean countries, economic growth depends on non-renewable energy consumption. Renewable energy consumption in the selected countries of these two regions are still at the initial stage. In case of the renewable energy consumption and CO 2 emissions nexus, for selected South Asian, Asian, Latin American and African countries both GDP and non-renewable energy consumption cause the increase of CO 2 emissions. For the Caribbean countries only non-renewable energy consumption causes the increase of CO 2 emissions. An important finding regarding renewable energy consumption-economic growth nexus indicates the existence of bi-directional causality. This supports the existence of a feedback hypothesis for the emerging and developing economies. In the case of renewable energy consumption- CO 2 emissions nexus, there exists unidirectional causality. This supports the existence of the conservation hypothesis, where CO 2 emissions necessitates the renewable energy consumptions. Based on the findings, the study proposes possible policy options. The countries, who have passed the take-off stage of renewable energy consumption, can take advanced policy initiatives e.g., feed-in tariff, renewable portfolio standard and green certificate for long-term economic development. Other countries can undertake subsidy, low interest loan and market development to facilitate the renewable energy investments.

Import demand in heterogeneous panel data with cross-sectional dependence

ABSTRACTWe investigate the long-run income and price elasticity of import demand functions with a heterogeneous unbalanced panel of 34 countries over the period 1985:q1-2018:q3. To estimate world elasticities the model is tested with the activity variables derived from the theoretical and empirical literature: GDP, GDP minus exports, Private Demand, Aggregate Domestic Demand, National Cash Flow, and Import intensity-Adjusted Demand (IAD). First, we evaluate time series properties using second generation panel unit root and cointegration tests. Second, we rely on the dynamic common correlated effects mean groups (CCEMG) estimator to deal with cross-sectional dependence (CSD). We find that the IAD, whose world elasticity is close to one, is the best performing specification. Our results confirm that the most appropriate activity variable to assess import demand should encompass intermediate goods as suggested by the recent literature on global supply chains. Moreover, we partially solve the puzzle of the recent trade slowdown since, taking stock of the role of intermediates, the time needed to resort to the long run equilibrium in the aftermath of a global turmoil is greater than that predicted by previous studies.

EKONOMİK ÖZGÜRLÜKLERİN DIŞ TİCARET VE DOĞRUDAN YABANCI YATIRIMLARA ETKİSİ

İnsanların iktisadi faaliyetleri özgürce yapabilmelerini sağlayan ekonomik özgürlükler, ülkelere daha fazla yatırım gelmesine ve ekonomik kalkınmasına katkı sağlamaktadır. Bu yüzden ülkeler ekonomik açıdan daha özgür olmalıdır. Bu çalışmanın amacı, 15 gelişmiş, 15 gelişmekte olan ve 10 az gelişmiş ülkede ekonomik özgürlüklerin dış ticarete ve doğrudan yabancı yatırımlara etkisini incelemektir. 2000-2017 dönemine ilişkin verilerde ikincil nesil panel birim kök testleri kullanılmıştır. Sonra uzun dönemli ilişkinin varlığı sınanmaktadır. Çalışmanın sonucuna göre, gelişmiş ülkelerde, FMOLS tahmincisine göre ekonomik özgürlüklerdeki 1 birimlik artış ihracatı 0,099 birim (DOLS’ye göre 0,074), doğrudan yabancı yatırımları ise 2,352 birim (DOLS’ye göre 1,599) arttırmaktadır. Ekonomik özgürlüklerle ithalat arasında ise eşbütünleşik bir ilişki mevcut değildir. Gelişmekte olan ülkelerde ise, FMOLS tahmincisine göre ekonomik özgürlüklerdeki 1 birimlik artış ihracatı 2,151 birim (DOLS’ye göre 1,415), ithalatı 3,822 birim (DOLS’ye göre 1,72) ve doğrudan yabancı yatırımları 0,177 birim (DOLS’ye göre 0,169) arttırmaktadır. Az gelişmiş ülkelerde ise, ekonomik özgürlüklerle diğer değişkenler arasında eşbütünleşik bir ilişki tespit edilememiştir.

EXAMINATION OF THIRLWALL’S LAW FOR BRIC-T COUNTRIES

According to the Thirlwall’s Law, the main factor which restricts the economic growth in an open economy is the balance of payments. The aim of this study is to investigate the validity of the Thirlwall Law for BRIC-T (Brazil, Russi India, China, Turkey) countries for the period between 2000 and 2015. Panel data analysis has been used in the empirical part of the study. Heterogeneity (vice versa) and cross-sectional dependency of the variables are examined with some preliminary tests. Respectively, Delta test and CDlm test have been applied. After proving the stability of the variables with second generation panel unit root tests, the long-term cointegration relationship is estimated by Westerlund Durbin-H test. According to the results, Thirlwall’s Law is not valid for BRIC-T economies.

Investigating the relationship on co2, energy consumption and economic growth: a panel data approach

In this study, empirical analysis is conducted to reveal the relationship between three variables: energy consumption, GDP and CO2. The analysis is based on 13 oil importing countries and 11 oil exporting countries. The main objectives are to reveal the long-run relationship based on three different models using second generation panel unit-root and panel cointegration tests and to investigate the short-run relationship between pairs of variables using VAR Granger causality test. The panel unit root tests indicate that each variable is integrated of order one. Based on cointegration tests, the results reveal a long-run relationship in one of the models in both countries. The VAR Granger Causality shows evidence of a short-run relationship between the variables in both groups of countries.

Unemployment Persistence Insouthern African Countries: Further Evidence from Panel Unit Root Tests

The purpose of this study is to investigate the nonstationarity properties of unemployment rate in Southern African Countries over the period 1991 to 2014. In particular, we also analyze the hysteresis of unemployment rate in Botswana and South Africa.We used first and second generation panel unit root tests to determine whether output fluctuations are permanent or transitory.Our findings suggest that the shocks to unemployment rate are generally permanent. Results have important policy implications for macroeconomic policy in Southern Africa.

Re-Examining the Mean Reversion of Inflation Rate in ECOWAS

This paper investigates whether inflation series is mean-reverting in Economic Community of West African States (ECOWAS). First generation panel unit root tests (LLC, MW, Breitung, Hadri, ADF, PP and IPS) are conducted in the paper. These tests indicate that inflation do not contains a unit root. It is however well-known that these first generation unit root tests have a limit: they are based on the cross-sectional independency hypothesis. Hence, in this work, Panel Analysis of Nonstationarity in Idiosyncratic and Common Component (PANIC) is performed in order to investigate if inflation is mean reverting process even we relax the previous assumption. The main finding of this paper is that rate of inflation in ECOWAS is a stationary process.