Generalized Method Of Moments Research Articles

Investigating the impact of credit channels, energy production and oil revenues on agricultural development in sub-Saharan Africa

Development of the agricultural sector can numerously gift the economy by ensuring food security and rural livelihoods, fostering economic growth, reducing poverty, promoting social stability, and achieving sustainable development goals. But agricultural activities especially in Sub-Saharan Africa are faced with numerous challenges like lack of required credits to the farmers, unavailability of needed energy for powering the farm machinery and transportation of farm produce, and fluctuation of crude oil prices which serve as the main source of energy in Sub-Saharan Africa. However, the sequel to these highlighted challenges that face agricultural activities, this study examines the impact of credit channels, energy production, and oil revenue on agricultural development in sub-Saharan Africa using an annual time series covering 21 years (2001–2021) drawn from selected sub-Saharan African countries under study. Using the panel autoregressive distributed lag model (ARDL) as the baseline model and the generalized method of moment (GMM) as the robustness check, we made the following findings. From the ARDL perspective, we found that credit channels have a negative impact on agricultural development. In contrast, energy production and oil revenue have positive and negative significant impacts on the agricultural development of sub-Saharan Africa. Further, results of the Generalized Method of Moment (GMM) revealed that while credit channels have both negative and positive long-run relationships with agricultural development, energy production, and oil revenues have positive and significant long-run relationships with agricultural development in sub-Saharan Africa. The study concludes that credit channels have both negative and positive long-run relationships with agricultural development. In contrast, energy production and oil revenue have negative and significant long-run relationships with agricultural development in sub-Saharan Africa. We recommended effective agricultural credit provision and a mechanized farming system to increase the quality and quantity of food supplies in sub-Saharan Africa.

Do firms’ performance act as a catalyst of innovation: empirical evidence from innovative Indian manufacturing firms

PurposeThis paper aims to explore whether firms’ performance determines innovation using a sample of Indian manufacturing firms. The impact of innovation on firms’ performance across specific countries has been discussed in the literature. However, the effect of firms’ performance on innovation output, especially for a developing country like India, remains an open question. Against this backdrop, this paper investigates whether firms’ performance determines innovation in Indian manufacturing firms.Design/methodology/approachThe authors use patent filing information to instrument innovation and total factor productivity to instrument firms’ performance. The patent data are collected from the Patent Search and Analysis Software database and firm-level data from the Centre for Monitoring Indian Economy’s Prowess database. The study uses a sample of 309 Indian manufacturing firms from 2005 to 2021. Given the count nature of the data set used in this study coupled with over-dispersion issues, the authors have used the negative binomial regression to estimate the empirical specification of the models. There could be a possible problem of endogeneity due to the contemporary nature of innovation and firms’ performance. Therefore, to address the possible issues of endogeneity in the model, the authors have used the Generalized Method of Moments (GMM) estimators for more robustness checks of the empirical results.FindingsThe empirical results exhibit a positive and significant impact of firms’ performance on the innovation output, validating that firms’ performance determines innovation in Indian manufacturing firms. The posterior estimation results using GMM estimation also corroborate that firms’ productivity is a determining factor for the innovation output of Indian manufacturing firms. Furthermore, empirical results exhibit that the ex ante innovativeness of the firms substantially affects the current innovation. This validates that the firms’ prior experience, learning by doing and past innovative efforts are more likely to precipitate more innovation in the current period.Originality/valueThis paper’s main contribution is empirically estimating whether firms’ performance determines innovation, which is hardly discussed in the existing innovation literature, specifically using Indian manufacturing industries. Further, it adds to the existing literature in two other prominent ways. First, this paper investigates whether firms require ex ante expertise to innovate or if a firm starting from scratch can innovate significantly without any hindrances. Second, it enriches the literature by instrumenting innovation in output terms with the patent application against input measures of innovation, such as research and development expenditures, acquisition of machinery and equipment, while discussing the relationship between firms’ performance and innovation, specifically in the context of a developing economy like India.

How does family business affect the association between corporate social responsibility disclosure and cost of debt in Indonesia?

AbstractThis study examines how corporate social responsibility (CSR) disclosure and family firms affect the cost of debt (COD) using a sample of companies listed on the Indonesia Stock Exchange between 2017 and 2020. Ordinary least square regression was applied to investigate this association. This study also addresses the endogeneity problem using the generalized method of moments (GMM). This study finds that CSR lowers a company's COD. Firms with more CSR reporting minimize information asymmetry and improve their reputation. Next, we investigate whether family ownership can moderate the relationship between CSR and the COD. These findings support the hypothesis that family ownership moderates the relationship between CSR and COD. It is possible that family businesses use CSR to maintain a good reputation among their stakeholders, thus producing more CSR reports. The findings contribute to the literature by providing empirical evidence on how CSR and family firms experience a lower COD capital in the emerging economy context of Indonesia. Furthermore, this study provides academic implications by investigating whether family ownership can be a moderator variable in the association between CSR and COD. The study also has practical implications for practitioners and regulators in creating policies that promote better CSR initiatives and corporate governance systems.

External Debt, Transmission Channels, and Economic Growth: Evidence of Debt Overhang and Crowding-Out Effect

This study investigates the intricate relationship between external debt, debt service, and economic growth by using the panel data of 32 Asian Developing Economies (ADE) spanning 1995 to 2020. Employing a two-step system generalized method of moments (GMM) and a dynamic common correlated estimate (DCCE) model, the research explores key macroeconomic channels through which debt influences growth and rigorously tests for debt overhang and crowding-out effects. Findings reveal that public and private investment, total factor productivity, and national savings are pivotal channels transmitting the non-linear effect of external debt on economic growth. Notably, only private and public investment convey the non-linear effects of debt service to economic growth, while productivity and savings convey the linear effect. Evidence of debt overhang and crowding-out effects is identified in the sampled economies. The study suggests strategic measures for developing countries, emphasizing the productive use of accumulated debt, enhanced debt management, and timely project completion. Furthermore, it advocates for fostering economic growth through increased productivity, domestic savings, and private sector expansion to reduce dependence on foreign debt, facilitating both debt repayment and economic self-sufficiency.

The impact of public debt on the economic growth. evidence for Kosovo

This study aims to analyze how public debt influences economic growth in Kosovo, using quarterly data from Q1 2008 to Q4 2022 and employing the generalized method of moments (GMM). The research reveals that there is a negative relationship between public debt and economic growth when other factors such as trade openness, total investment, current account balance, and primary balance are considered. Furthermore, the findings confirm an inverted “U-shaped” relationship between public debt and economic growth, indicating that the optimal debt level is between 27.75% and 36.2% of GDP.

A real effect of climate-related shareholder proposals: Diversification

To date, the literature has not discovered diversification to be a firm policy that shareholders can influence through their proposals at annual meetings but has explained contexts in which diversification can defend. I contemplate and test diversifying responses to shareholder proposals made in the context of climate change. By following 440 shareholder-initiated proposals in the United States that contain “climate change” – from the first instance in the 1994 proxy season until 2020 – I find that firms in receipt of such proposals diversify more, mostly into related industries. Further, diversification prompted by climate proposals generally leads to wealth enhancements. Beyond correlations and the main results of ordinary least squares regressions, I address the endogenous nature of corporate policies in a variety of ways: a matching estimator, fixed effects, and an instrumental variable, along with a placebo and a GMM estimator. Robustness tests confirm prior results and expose a subtle difference between sales and asset diversification. Climate-related proposals appear to influence sales diversification slightly more than asset diversification, suggesting that agents may be less responsive to owner concerns than customers. Overall, shareholder proposals related to climate change can have the real effect of prompting firms to diversify.

Recent trends in firm‐level total factor productivity in the UK: new measures, new puzzles

AbstractUnderstanding the poor productivity performance of the UK economy since the financial crisis is complicated by the well‐known challenges in estimating total factor productivity (TFP) using only revenue data. We develop a structural framework to infer quality‐adjusted TFP from an estimated firm‐level revenue function. We use microdata for two sectors previously identified as being significant contributors to the UK's productivity growth slowdown—manufacturing and ICT—from 2008 to 2019. The revenue function is estimated using the Blundell–Bond System GMM estimator. We also use an alternative cost‐shares approach to identifying and measuring TFP. For both methods, we find an overall fall in TFP levels in manufacturing and a rise in ICT. We find a striking decline of between 13% and 18% in the level of within‐firm manufacturing TFP, and of between 11% and 16% in ICT, although with reallocation effects differing between the two sectors. The finding of declining within‐firm TFP is robust, although the magnitude varies between methods. We discuss a possible explanation for this extended UK productivity puzzle based on the relative underperformance of UK firms in international markets.

Climate Change-Trade Openness- Financial Depth Index-Economic Growth Nexus: A Study of G-20

This study examines the impact of climate change, which is seen as an environmental problem but has the power to affect the economic and financial structure, of trade openness, economic growth, and depth of financial markets in G-20 countries between 1980 and 2020. It has been concluded that the variables can be used as a policy tool in this context, where the development of trade openness and financial depth in the G-20 countries, which account for 80% of global trade, has the effect of reducing climate change by creating environmentally friendly economic growth. Panel Var and Holtz-Eakin, Newey, and Rosen GMM Estimator method were used in the study. In addition, it has been determined that action-response functions have an effect on the variables in the face of a shock to the carbon dioxide emission variable.

Examining the Interconnections among ICT, Education, and Unemployment Evidence from Selected Asian Economies

Purpose of the research: This study investigates the influence of education and information communication technology (ICT) on economic growth and development in selected Asian countries, with a focus on reducing unemployment rates. Design/methodology: Using the Generalized Method of Moments (GMM) technique, the research analyses the relationship between unemployment rates and key independent variables such as secondary education, ICT index, foreign direct investment (FDI), economic growth, and inflation. Results/findings: The findings highlight the significant impact of secondary education, ICT, FDI, economic growth, and inflation on reducing unemployment levels in the selected Asian countries. The study emphasizes the importance of government initiatives to provide free higher education and expand financial debt facilities to boost per capita income and stimulate economic growth. Practical Implications and Conclusions: The research underscores the critical role of education, ICT, and economic policies in addressing unemployment challenges and fostering sustainable development in Asian economies. It recommends prioritizing investments in education and technology infrastructure and implementing measures to enhance financial accessibility and ICT utilization to combat unemployment effectively.

Modeling Determinants of Profitability in Ethiopia Manufacturing Companies: A Dynamic Panel Model Approach

Background: Profitability is the primary measure of the overall success of company. The analysis of profitability ratios is important for the shareholders, creditors, prospective investors, manufacturers and government alike. Objective: The objective of this study was fitted a dynamic panel regression model that efficiently fit the data and further to identify the determinants contributing significantly to profitability in Ethiopia. Methods: This study was conducted on secondary data of 32 sample manufacturing companies collected from the audited financial statements of large tax payers’ office and national bank of Ethiopia. The study was covered a period of seven years from 2011 to 2017. The panel unit root test of Levin-Lin-Chu tests was made for each variable and applied first difference transformation for the variables that had unit root. A dynamic panel regression model was utilized for data handling technique using generalized method of moments (GMM) estimation. Results: We compared the results when one unit increase in lagged profitability, managerial efficiency, capital intensity, GDP, exchange rate and one ratio decrease in leverage, ceteris paribus, turn out were found to increase the profitability of manufacturing companies by around 0.69, 0.179, 4.52E-06, 3.844, 0.04 and 0.393 ratio, respectively. The model reveled that previous profitability, leverage, capital intensity, managerial efficiency, GDP and exchange rate had a statistically significant (P<0.05) effect on companies’ profitability in Ethiopia. Conclusion: As per our findings, the manufacturing companies should minimize leverage financing from its capitals and should emphasize the management of appropriate financing to increase profitability. Finally, we recommended that policy makers should coming up with better policies on improvement of profitability.

ESG PERFORMANCE, DEBT EQUITY CHOICES, AND RAPID ADJUSTMENTS IN INDONESIA

Previous research has explored the relationship between sustainability performance and firm performance; however, there is a noticeable scarcity of studies addressing the intricate connection between sustainability performance and firm financing. This study aims to bridge this gap by investigating how sustainability performance impacts firm financing decisions and capital structure adjustment in the context of Indonesia. Leveraging Environmental, Social, and Governance (ESG) performance data specific to Indonesia, this research contributes novelty to financing choices and the speed at which firms adjust their leverage. Through a combination of fixed-effect modelling and dynamic panel Generalized Method of Moments (GMM), the study employs a dataset containing 506 firm-year observations, evenly distributed between ESG firms and non-ESG firms. The findings demonstrate that firms that incorporate ESG principles into their operations display a greater inclination towards equity financing. Additionally, the research underscores that ESG firms exhibit a more rapid adjustment pace toward their target leverage ratios compared to non-ESG firms.

Green finance and renewable energy growth in developing nations: A GMM analysis

This research aims to examine the interrelationship between green finance and its influence on the renewable energy industry in a sample of 30 developing nations from 1990 to 2018. The main aim of this study is to investigate the interconnected effects between green bonds, investments in renewable energy, and carbon markets, with a specific emphasis on the influence of the banking system in shaping these interrelationships. To accomplish this objective, the Generalized Method of Moments (GMM) is utilized to examine the data and comprehend the intricate interrelationships among the variables. The emergence of green finance offers a favourable prospect for tackling environmental issues while concurrently fostering sustainable economic development. Nevertheless, the degree to which it impacts the adoption of renewable energy and carbon markets has yet to be thoroughly investigated, especially in developing nations. This study seeks to provide insights into the factors that influence the development of green finance and its implications for investments in renewable energy by examining a diverse group of 30 emerging countries. The findings of this research provide compelling revelations regarding the interdependence between green finance and its influence on the renewable energy industry. The results underscore the notable contribution of the banking sector in enabling the transfer of capital into sustainable energy initiatives via the utilization of green bonds. Furthermore, we have discovered dynamic spillover effects between green bonds, renewable energy investments, and carbon markets. These financial mechanisms have the potential to influence each other within the framework of sustainable development. A comprehensive comprehension of the complex interconnections among green finance, renewable energy, and carbon markets is imperative for policymakers, investors, and financial institutions seeking to promote sustainable practices and efficiently allocate resources. This research adds to the expanding corpus of literature on green finance and offers significant implications for advancing a more environmentally friendly and sustainable future in developing nations.

Impact of Corporate Social Performance on Financial Performance: Evidence from Islamic Banks, Conventional Banks and Social Banks

Purpose — This study aims to assess the impact of banking models on the relationship between corporate social performance (CSP) and corporate financial performance (CFP) in determining a viable model for sustainable banking. Design/Methodology/Approach — The study uses a cross-country sample of 117 financial institutions across 36 countries over an 8-year observation period between 2013 and 2020. To address heterogeneity and endogeneity issues, the authors use the System Generalised Methods of Moments (GMM) estimation models. The study also constructs a novel CSP Index as the independent variable for the research. This CSP Index comprises six indicators reflecting dimensions of financial inclusion and intermediation, serving as proxies for sustainable banking. Findings — The findings reveal that the distinct banking models have a significant impact and can alter the direction of the CSP-CFP relationship. Specifically, the conventional banking (CB) model exhibits a statistically significant negative association between CSP and CFP. Conversely, the Islamic banking (IB) model emerges as a promising avenue for sustainable finance, indicating that increased corporate social responsibility (CSR) activities within Islamic banks (IBs) lead to greater profitability. This difference arises from the inherent strengths of the IB system in conducting financial intermediation and inclusion activities. This contrasts with the CB model’s reliance on debt-based instruments, which exacerbates risk and detrimentally impacts financial performance. The findings also show that the social banking (SB) model has a significant effect on the CSP-CFP relationship. Originality/Value — The findings give new insights into the longstanding debate on the CSP-CFP relationship by examining the impact of banking models. Introducing a novel CSP Index, characterised by its objectivity and verifiability, addresses the prevalent issue of bias inherent in the CSP indices of previous studies.

Role of institutional quality in the public education financing–educational quality nexus: evidence from Sub-Saharan Africa

PurposeThis paper investigates the moderating role of institutional quality in the relationship between public education financing and educational quality in Sub-Saharan Africa (SSA).Design/methodology/approachThis paper uses a two-step system generalised method of moments (GMM) to investigate the dynamic relationships among the variables using data from the World Bank covering the periods 2002–2020 for 46 SSA countries.FindingsThe results show that institutional quality moderates the effect of public education financing on educational quality at SSA’s primary, secondary and tertiary levels. This finding shows that improved institutional quality enhances the effectiveness of public educational investments.Practical implicationsThe findings of this study imply that policymakers seeking to enhance educational quality must not only increase educational investments but also institute measures to improve institutional quality.Originality/valuePrior studies fail to examine the moderating role of institutional quality in the nexus between public education financing and educational quality. This study analyses the role of institutional quality in the public education financing–educational quality nexus in SSA. The findings of this study contribute to improving the return on public education financing in SSA.

The Technological Effects of Renewable and Non-Renewable Energy on Agricultural Productivity in Developed Countries

Existing literature confirms both the role of agricultural technology in elevating agricultural productivity and the positive effects of green energy on environmental sustainability; nevertheless, less attention has been paid to agrotechnology’s energy sources and their adaptability to agri-environmental conditions using econometric methods. This study examines the association between renewable and non-renewable energy agrotechnology, and agricultural productivity in 32 developed nations from 2000 to 2021. We apply a difference Generalised Method of Moments (GMM) panel data estimation and Dumitrescu and Hurlin causality test. The findings report a significant and negative coefficient for non-renewable energy agrotechnology indicating that fossil fuel agrotechnology reduces agricultural productivity and thereby causes concerns over sustaining agricultural growth in developed countries. In contrast, the coefficient of renewable energy agrotechnology is positive and highly statistically significant, confirming maximising effects on agricultural productivity. We conduct two robustness checks to assess the credibility of the results. Using panel quantile regression analysis allows for establishing various relationships between the estimated variables at different quantiles of agricultural productivity. Testing for Dumitrescu and Hurlin causality test, we find bidirectional causal links between agricultural productivity and non-renewable energy agrotechnology, renewable energy agrotechnology and FDI, but only a one-way causal relationship between the other variables. This result suggests no integrated policy among the developed countries towards agricultural sustainability, despite their commitments to the Sustainable Development Goals (SDGs). These findings emphasise the employment of sustainable renewable energy agrotechnology as a strategy to tackle the fundamental problems of sustainable agricultural growth.

THE ROLE OF BANKING SYSTEM IN PROVINCIAL ECONOMIC DEVELOPMENT: A STUDY OF TURKIYE, FROM THE 70S TO THE 2000S

This research examines the relationship between banking activities and provincial economic development. In particular, the study offers insight on the nature of the regional economic development discrepancies in Turkiye. The study finds that, despite the trend towards decentralisation that takes place in regional economic policies, the banking system adopts centralisation policies. Using dynamic generalised method of moment (GMM) estimates, we evaluated a unique data set including 39 years of provincial demographic, socioeconomic, and financial factors in Turkey. The study demonstrates that the banking intermediation is detrimental to provincial development. The Turkish banking system’s hierarchical structure prevents financial intermediaries from fulfilling their role in fostering development. Consolidation and concentration strategies must be reassessed, since they tend to favour centralisation, which has been shown to be inefficient for regional convergence. The results also suggest that branch managers should be granted greater decision-making authority to make better use of locally produced information when approving or rejecting projects, which would eventually lead to a reduction in provincial disparities.

THE EFFECTS OF SOCIAL ASSISTANCE PROGRAMS ON STUNTING PREVALENCE RATES IN INDONESIA

Background: Social assistance, such as Non-Cash Food Assistance (BPNT) and the Family Hope Program (PKH), is among the instruments used to eradicate stunting in the short and long term. Therefore, it is important to ensure that individuals effectively use it. Aims: This study aimed to review the effect of social assistance on stunting prevalence rates in Indonesia. Methods: This research employs a quantitative approach, utilizing numerical measurements and statistical analysis. The data is secondary and sourced from the Central Bureau of Statistics and the Ministry of Finance. The specific method applied is the generalized method of moments (GMM) dynamic panel regression. The research sample encompasses panel data from 34 provinces from 2015 to 2021. This study utilizes the indicator of very short height for children less than five years of age as a proxy for stunting. Furthermore, low height in children is adopted as a measure of stunting. Furthermore, this study adopted a measure of low height in children to indicate stunting. Results: The results showed that social assistance negatively affected stunting, supported by various other indicators such as the proportion of proper sanitation, the average length of schooling, protein consumption, and drinking water sources. Meanwhile, excessive calorie consumption increases stunting in a certain period. Conclusion: In this condition, government social assistance was urgently needed since access to the lowest decile households increased stunting rates. The practical implications for policy derived from these findings involve optimizing the efficiency of social assistance initiatives, emphasizing the significance of addressing environmental factors in programs aimed at preventing stunting, integrating health and nutrition initiatives, and implementing educational campaigns within communities to raise awareness about calorie consumption. Keywords: child health, social assistance, stunting, toddlers

Financial inclusion, competition and financial stability: New evidence from developing economies

This study utilizes cross-country data from 2002 to 2019 from 60 selected developing countries to explore the impact of competition and financial inclusion on financial stability. Employing the system GMM estimator, compelling evidence is revealed, highlighting a number of key findings. Firstly, it is observed that financial inclusion has a weakening effect on financial stability within developing countries. Conversely, competition among these nations demonstrates a significant capacity to bolster financial stability. Additionally, the study underscores the pivotal role of financial development, identifying it as a primary driver that enables financial inclusion to positively influence financial stability within developing nations. Furthermore, the introduction of the square term of financial inclusion yields noteworthy insights, revealing a nonlinear relationship. Specifically, the findings suggest that strategic investments in the financial inclusion of developing countries have the potential to enhance financial stability up to a certain threshold. Therefore, for emerging economies seeking to fortify their financial stability, prioritizing efforts to augment financial inclusion is imperative. Over the long term, such endeavors have the potential to yield tangible improvements in financial stability.In conclusion, the research offers valuable policy implications. These include recommendations aimed at fostering greater financial inclusion within developing economies as a means of bolstering overall financial stability. By heeding these suggestions and implementing targeted policies, policymakers can work towards cultivating a more resilient and robust financial landscape within their respective nations.

Shadow Economy: Determinants and Its Impact on Foreign Direct Investment

The shadow economy poses a significant threat to government revenue and the effectiveness of economic policies. This paper investigates the causes of the shadow economy and its influence on foreign direct investment (FDI). Our study employs the currency demand approach, a component of the indirect method, to identify the determinants of the shadow economy in a dataset covering 105 countries from 2001 to 2017. These countries are categorized into four income groups: high-income, upper-middle-income, lower-middle-income, and low-income. Parameter estimation is conducted using the Generalized Method of Moments (GMM) model, with robustness tests incorporating reference estimates from Partial Least Squares (PLS) and Fixed Effects Model (FEM). Our findings indicate that a higher GDP and lower interest rates are associated with reduced shadow economy activity. Elevated market interest rates increase the cost of funds in the informal sector, discouraging engagement in shadow economic activities due to reduced profitability. Furthermore, higher tax revenues correlate with intensified regulatory enforcement, increasing the risks associated with shadow economy involvement. A larger workforce and lower unemployment rates similarly diminish shadow economy activity. In the context of foreign direct investment (FDI), the shadow economy positively affects FDI flows when formal institutions, including legal frameworks, property rights protection, and regulatory systems, are either weak or overly burdensome. In such scenarios, economic actors may opt for informal channels like the shadow economy, offering a flexible and cost-effective alternative to the formal sector, a crucial consideration for foreign investors.

Dynamic panel data analysis of the impact of governance on bank capital structure in Indonesia

The banking industry plays a crucial role in driving the Indonesian economy. Therefore, any financial upheaval within this sector would have a significant influence on the overall economy. Hence, this study examines the capital composition of banking institutions in Indonesia to assess the financial soundness of the banks. A bank’s susceptibility to default will adversely affect client confidence in the bank. This study investigates the influence of governance attributes, such as board size, board meeting frequency, risk committee presence, institutional ownership, and independent committee existence, on the capital structure of Indonesian banks. 31 samples were intentionally chosen using purposeful sampling. Data estimation was performed using a two-step Arellano-Bond Generalized Method of Moments (GMM) estimator. The findings suggest that the bank risk committee, institutional ownership, and independent committee exert a notable and favorable influence on the capital structure of banks in Indonesia. Nevertheless, the size of the board and the frequency of board meetings do not exert a substantial impact. The size of the board and the use of leverage have no substantial impact. Developing efficient corporate governance procedures is essential for ensuring the bank’s financial stability. This involves maximizing the effectiveness of the risk committee, institutional ownership, and independent committee. AcknowledgmentThis paper is funded by PPM-PTM Grants of the Ministry of Education, Culture, Research and Technology of 2023 (03/SP2H/RT-MONO/LL4/2023).