Innovation Accounting Techniques Research Articles

Modeling the Effects of Agricultural Innovation and Biocapacity on Carbon Dioxide Emissions in an Agrarian-Based Economy: Evidence From the Dynamic ARDL Simulations

In this paper, we modeled the effects of income, agricultural innovation, energy utilization, and biocapacity on Carbon dioxide (CO2) emissions. We tested the validity of the environmental Kuznets curve (EKC) hypothesis for Nigeria from 1981 to 2014. We applied the novel dynamic autoregressive distributed lag (ARDL) simulations to develop conceptual tools for policy formulation. The empirical results confirmed the EKC hypothesis and found that agricultural innovation and energy utilization have an escalation effect on CO2 emissions whereas income and biocapacity have long-run emission-reduction effects. The causality results found agricultural innovation attributable to CO2 emissions and observed that income drives energy demand. Income, biocapacity, and energy utilization are found to predict changes in CO2 emissions. These results are validated by the innovation accounting techniques—wherein 22.79% of agricultural innovation corresponds to 49.43% CO2 emissions—5.95% of biocapacity has 35.78% attributable CO2 emissions—and 1.61% of energy spurs CO2 emissions by 16.27%. The policy implication for this study is that energy efficiency, clean energy utilization and sustainable ecosystem recovery and management are the surest ways to combat climate change and its impacts.

Financial development during COVID-19 pandemic: the role of coronavirus testing and functional labs

The outbreak of the SARS-CoV-2 virus in early 2020, known as COVID-19, spread to more than 200 countries and negatively affected the global economic output. Financial activities were primarily depressed, and investors were reluctant to start new financial investments while ongoing projects further declined due to the global lockdown to curb the disease. This study analyzes the money supply reaction to the COVID-19 pandemic using a cross-sectional panel of 115 countries. The study used robust least square regression and innovation accounting techniques to get sound parameter estimates. The results show that COVID-19 infected cases are the main contributing factor that obstructs financial activities and decrease money supply. In contrast, an increasing number of recovered cases and COVID-19 testing capabilities gave investors confidence to increase stock trade across countries. The overall forecast trend shows that COVID-19 infected cases and recovered cases followed the U-shaped trend, while COVID-19 critical cases and reported deaths showed a decreasing trend. Finally, the money supply and testing capacity show a positive trend over a period. The study concludes that financial development can be expanded by increasing the testing capacity and functional labs to identify suspected coronavirus cases globally.

Influence of Exchange Rate on the Economic Growth in the Turkish Economy

The traditional view asserts that there is a positive relationship between the foreign exchange rate and economic growth. So much so that an increase in foreign exchange rates enhances the net export volume and thus positively affects economic growth due to the increasing total demand. However, structural economists argue that there is an inverse relationship between the exchange rate and economic growth. Especially in developing countries, the input structure of production depends on imported capital and intermediate goods, so an increase in exchange rates makes import production inputs more expensive and thus negatively affects economic growth. Turkey, leaving foreign exchange rate free float since 2002, has implemented the Inflation Targeting (IT) regime as the monetary policy. Therefore, Turkey has a real experience to analyse the role of exchange rate changes on economic growth. Accordingly, in our study, using the quarterly data between 2002-Q1 and 2019-Q1, the relationship between exchange rate and economic growth was examined by employing Johansen cointegration test, Granger causality test and Innovation Accounting Techniques. Empirical findings suggest that there is a negative causal relationship between exchange rates and economic growth, as claimed by structuralist economists. In terms of policy implications, it can be argued that, even under the inflation targeting regime in Turkey, both price and exchange rate stability should be provided together.

Tourism and Growth in Nigeria: Application of TYDL Granger-Causality Test and Innovation Accounting Techniques

Tourism and Growth in Nigeria: Application of TYDL Granger-Causality Test and Innovation Accounting Techniques

Economic Growth and Demographic Dividend Nexus in Nigeria: A Vector Autoregressive (VAR) Approach

In demography and population economics discourse, the macroeconomic implications of an upsurge in working age population, notably the labour force, on economic growth has been widely studied and the inherent beneficial impact has become known as demographic dividend. However, the exact mechanism linking the dividend to growth remains a perennial question. This motivates the current study to investigate empirically the dividend-growth nexus in the context of Nigerian economy in a multivariate VAR model spanning between the period 1970 and 2017. Specifically, the paper attempted to answer the question: Is the Nigerian Demographic Dividend an Education-triggered Dividend? Innovation Accounting Techniques was applied to assess the dynamic interactions among the variables. The empirical evidence obtained revealed that the innovation in gross enrollment made much contribution to the variation in economic growth relative to innovation in economic support ratio. The magnitude ranges between 20.09 and 27.54 percent. This result, thus, lend credence to the theoretical view of the education-triggered dividend model which ascribes to education twofold roles of helping to lessen fertility and also enhancing productivity but invalidates the conventional dividend paradigm.

Economic Growth and Population Ageing in Nigeria: Innovation Accounting Techniques

While global ageing suggests a triumph of social, economic, and medical advances over diseases, however, in economics regarding the growth implications of ageing, it is a puzzle as to what direction the effect will go. This motivates the current study to investigate empirically the economic growth consequences of population ageing in the context of Nigerian economy spanning between the period 1970 and 2015. Innovation Accounting Techniques was applied to assess the dynamic interactions among the variables. The results obtained revealed that the innovation in life expectancy and change in adult age dependency had the least contribution to the variation in per capita real GDP growth rate. The magnitude ranges between 1.45 and 8.33 percent. These results, thus, lend credence to the pessimistic view which contend that the inequality in a country’s population age structure, particularly, a greater share of the population of the elderly, depresses the country’s productivity level. Hence, the study recommends that any long term growth strategy aimed at boosting per capita income at a sustainable rate over the next ten (10) to fifteen (15) years needs to envision policies and reforms that are likely to foster savings and boost returns on them.

FOREIGN DIRECT INVESTMENTS AND ECONOMİC GROWTH: HOW WELL DOES THE TECHNOLOGY CHANNEL WORK IN TURKEY?

The interaction between foreign direct investments (FDI) and economic growth is one of the frequently discussed issues in the literature, both theoretically and empirically. The role of different channels through which FDI promotes economic growth is an aspect that should be focused on. The main purpose of this study is to assess the impact of the technology spillovers as a driving force for economic growth of Turkey in terms of manufacturing industry using the data of 1988-2012 period. For this aim, the dynamic interactions between export of the manufacturing industry (EXP) as a measure of technology spillover, gross domestic product (GDP), gross fixed capital formation (GFCF) and FDI in manufacturing industry were investigated via cointegration and causality tests in addition to the innovation accounting techniques in the vector autoregressive (VAR) framework. While the cointegration test yields no clear evidence of long-run equilibrium relationship among these variables. Granger causality test indicates that there is a univariate causality running from the EXP to the all other variables, and FDI is not Granger cause for the other variables. Nevertheless, the positive impact of FDI on the GDP and EXP variables is observed within the results of the innovation accounting analysis. From this point of view, it is concluded that the FDI leads economic growth more significantly in indirect ways rather than through direct ways. Under the light of these empirical outcomes, proposing policies based on strategies which encourage FDI inflows to the sub-sectors of manufacturing industry with higher technological gaps seem as effective and valuable in terms of promoting economic growth.

Financial Deepening and Economic Growth in Jamaica

The paper empirically examines the question of whether bank liquid reserves to bank assets ratio and domestic credit to private sector as a percentage of GDP strengthens financial deepening on the real sector and hence catalyzes economic growth in Jamaica. A Granger causality approach is employed within a multivariate framework. Cointegration is used to examine the short and long run relationships within the model. Innovative accounting techniques (impulse response function and variance decomposition) are also utilise to determine the out-of-sample relation between financial deepening and economic growth. The empirical analysis is conducted with annual data from 1980 to 2014 with three proxies for financial deepening. The empirical evidence suggests a ‘supplying-leading’ relationship in both the short and long run. These results are confirmed by the innovation accounting techniques (impulse response function and the variance decomposition). Our findings imply that Jamaica should first concentrate on developing its financial sectors which has the potential to spur higher levels of economic growth in the real sectors of the economy.

Financial Deepening and Economic Growth in Jamaica

The paper empirically examines the question of whether bank liquid reserves to bank assets ratio and domestic credit to private sector as a percentage of GDP strengthens financial deepening on the real sector and hence catalyzes economic growth in Jamaica. A Granger causality approach is employed within a multivariate framework. Cointegration is used to examine the short- and long-run relationships within the model. Innovative accounting techniques (impulse response function and variance decomposition) are also utilized to determine the out-of-sample relation between financial deepening and economic growth. The empirical analysis is conducted with annual data from 1980 to 2014 with three proxies for financial deepening. The empirical evidence suggests a ‘supplying-leading’ relationship in both the short and long run. These results are confirmed by the innovation accounting techniques (impulse response function and the variance decomposition). Our findings imply that Jamaica should first concentrate on developing its financial sectors which has the potential to spur higher levels of economic growth in the real sectors of the economy.

Households savings and inflation expectations: Cointegrated evidence from South Africa

The main aim of this paper is to find out if expected inflation by different sectors has a long-run effect on household savings in South Africa for the period 2002Q1 to 2013Q4. This is established using cointegration and innovation accounting techniques (variance decomposition and impulse response functions). Prior to the establishment of such relationship, the time series properties of data are performed and this include, the unit root test (Zivot-Andrews) in order to establish the stationarity within the series. The cointegration test reveals the existence of the long-run relationship between household savings and expected inflation in South Africa. Innovation accounting techniques indicated a significant contribution of the explanatory variables to household savings. VD shows that inflation expectations from analysis (A), business (B), finance (F) as well as trade unions (TU) bring some innovations into HHS and that variations in HHS are largely due to changes in expected inflation from TU. This is also supported by the GIRFs, which indicate that HHS reacts to shocks in expected inflation

Measuring financial contagion: a directed acyclic graphs and error correction model

Vector autoregressions (VARs) are economically interpretable only when identified by being transformed into a structural form the (SVAR) in which the contemporaneous variables stand in a well-defined causal order. These identifying transformations are not unique. It is widely believed that practitioners must choose between them using a priori theory or other criteria not rooted in the data under analysis. We show how to apply graph-theoretical approach of searching for causal structure based on relations of conditional independence to select the possible causal orders – or at least to reduce the admissible them to a narrow equivalence class. This study investigates the dynamic structure of four major stock markets using an error correction model and directed acyclic graphs (DAG). The DAG representation provides a structure of causality among these markets in a contemporaneous time. Building this contemporaneous structure and the estimated error correction model, innovation accounting techniques are applied.

Corporate Social Responsibility at the Global Level: an Investigation of Performances and Integration of Socially Responsible Investments

Our paper analyses the performance of socially responsible investments (SRI) as evidenced by a number of global and regional indices. We investigate the degree of price co-movements among global SRI markets by using vector-autoregressive models, Granger-causality and innovation accounting techniques, in order to detect their interdependence in terms of level and structure. The results of our research indicate that SRI markets, both at national and regional level, are interdependent, although less than expected given the crisis period under analysis. However, since these markets are somehow segmented, managers of SRI funds may still benefit from the virtues of international diversification when deciding to extend their holdings of SRI assets abroad. At the same time, since these markets are integrated to some extent, the perils of shocks propagating from one country to the other cannot be ignored, which requires a consistent policy in the area of SRI markets regulation, so that contagion risks may be better mitigated.

Granger causality and innovation accounting analysis of the monetary transmission mechanism in Croatia

This article explores the pass-through of different monetary policy channels to inflation in Croatia between January 1998 and December 2009. Using a four-step procedure: unit root test, co-integration test, Granger causality and innovation accounting techniques, we find that (i) interest rates, credits and the nominal exchange rate do not Granger-cause inflation individually; however, they do with nominal M1 money supply jointly at lag two; (ii) the nominal effective exchange rate is the most important pass-through to inflation statistically, accounting for approximately 11% of forecast error variance after four years; (iii) credits and nominal M1 have very small portions in explaining variations in the total variance of inflation; and (iv) the nominal interest rate is the weakest but statistically significant channel to inflation in the long run. These results are discussed within the Croatian monetary framework and future developments of monetary channels in Central and Eastern European countries.

Saving Growth Nexus in Pakistan: Innovation Accounting Technique

The paper investigated the relationship between economic growth and domestic savings by employing the technique for causal relationship between them. In the model ARDL Bounds Testing, Johanson Cointegration Approach for long-run association, Innovation Accounting Techniques along with Toda and Yamamoto (1995) for causal relationship has been applied on annual time series data from 1971 to 2997. Ng-Perron De-trended Test is used for order of integration of running actors. Results revealed that there exists a long-run relationship between economic growth and domestic savings and tier association is robust at least in long span of time. Causal results through innovation accounting technique assert that there is one-way causality running from economic growth to domestic savings while very weak from opposite side. Results by Toda and Yamamoto’s technique also confirm that economic growth leads domestic savings in Pakistan.

On the Causal Relationship between Stock Prices and Exchange Rates: Evidence from Romania

The paper investigates the dynamic links between stock prices and exchange rates in Romania, considering the changes in the exchange rate regime occurred after 1997. The research employs advanced econometric methods - cointegration and innovation accounting techniques, in order to capture the relationship between stock prices, exchange rates and other macroeconomic variables, applied to monthly data over the January 1998 - September 2007 period. We identify a long-term equilibrium relationship between stock prices, official reserves and nominal effective exchange rates, while the real exchange rate and the money supply are found not to be statistically significant in any of the models. The signs of variables in the cointegrating vectors are consistent with economic reasoning: we find there is a positive relationship between money supply and stock prices, on one hand, and between the nominal effective exchange rate and stock prices, on the other hand. Also, there is a negative relationship between official reserves and stock prices, and between the real effective exchange rate and stock prices. Conversely, while over the short run stock prices react mainly to their own one standard deviation shocks, over the long run we observe that shocks in money supply and reserves generate responses from stock prices.

Macroeconomic Factors and Stock Market Movement: Evidence from Ghana

This study examines the role of macroeconomic variables on stock prices movement in Ghana. We use the Databank stock index to represent Ghana stock market and (a) inward foreign direct investments, (b) the treasury bill rate (as a measure of interest rates), (c) the consumer price index (as a measure of inflation), and (d) the exchange rate as macroeconomic variables. We analyze both long-run and short-run dynamic relationships between the stock market index and the economic variable with quarterly data for the above variables from 1991.1 to 2006.4 using Johansen's multivariate cointegration test and innovation accounting techniques. We established that there is cointegration between macroeconomic variables identified and Stock prices in Ghana indicating long run relationship. Results of Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) indicate that interest rate and Foreign Direct Investment (FDI) are the key determinants of the share price movements in Ghana.

Foreign Direct Investment, Domestic Investment and Economic Growth in China: A Time Series Analysis

This paper investigates the causal link between foreign direct investment (FDI), domestic investment and economic growth in China for the period 1988–2003 using a multivariate VAR system with error correction model (ECM) and the innovation accounting (variance decomposition and impulse response function analysis) techniques. The results show that while there is a bi‐directional causality between domestic investment and economic growth, there is only a single‐directional causality from FDI to domestic investment and to economic growth. Rather than crowding out domestic investment, FDI is found to be complementary with domestic investment. Thus, FDI has not only assisted in overcoming shortage of capital, it has also stimulated economic growth through complementing domestic investment in China.

Does consumer debt cause economic recession? Evidence using directed acyclic graphs

This study investigates the relationship between consumer debt and aggregate economic activity based on time series methods and directed acyclic graphs (DAG). Quarterly US data, measured over the period 1980 to 2003, on consumer debt, gross domestic product (GDP), interest rates, housing starts, and domestic auto sales, are analysed in an Error Correction Model (ECM). Contemporaneous innovations from this ECM are given a structural representation, using recent developments in DAG modelling. The ECM and DAG components are summarized using innovation accounting techniques (impulse response functions and forecast error variance decomposition). The DAG causal pattern reveals a causal flow from GDP to consumer debt; the subsequent innovation accounting results also show that consumer debt is not exogenous in contrast to GDP and other indicators. This result concurs with a previous study based on Granger causality, but contradicts other works that claim consumer debt is a root cause of aggregate economic performance.

Innovation accounting analysis on cross‐border mergers and acquisitions between Europe and the USA since the late 1990s

PurposeThe aim of this research is to find out which mergers and acquisitions (M&A) market is better able to absorb all the shocks from legislations in securities and banking in Europe and the USA, 11 September 2001 terrorist attacks in the USA, and other global events. The most exogenous or self‐dependent market may be the mover and shaker in the M&A deals in the world. The sample period spans from October 1998 to September 2004.Design/methodology/approachThis research uses cointegration and innovation accounting techniques (variance decomposition analysis and impulse response functions) to find out: if the two M&A markets are linked and explained each other in the long‐run; which of the two markets can able to withstand all the list shocks in the observed period; how long each of the market is about to deal with the shocks (are the shocks long‐lasting or short‐lasting?).FindingsThe major findings are: The cointegration results indicate that the M&A markets in Europe and the USA tend to move together in the long‐run, particularly, the European M&A deals (EUMA) and US cross‐border M&A deals in Europe (USCROSS). On one hand, the most consistent result from the variance decomposition analysis and impulse response functions is that the European M&A market is the most exogenous or self‐dependent market in the observed period. On the other hand, the most interactive market (less able to deal with the shocks) is the US M&A market (USMA) because it is significantly impacted by the legislations in securities and banking, 9/11 and other global events. US cross‐border M&A deals in Europe (USCROSS) and European cross‐border M&A deals in the USA (EUCROSS) are able to deal with the shocks when the order of VAR is 6. However, when the order of VAR is extended to 12 they are less able to absorb the shocks.Research limitations/implicationsThe limitation of the data at that time did not allow examination of US M&A deals with individual European countries, particularly, United Kingdom that has historically invested in the US more than any country in Europe.Practical implicationsThe pivotal conclusion of this study suggests that EUMA and USCROOS move together in the long‐run and EUMA is the strongest market in dealing with shocks, the world business may be gradually shifting to Europe. Practically, most of the multinational corporations (MNCs), especially the US MNCs are craving for market niches in Europe.Originality/valueThe real value of this paper is that the changing financial landscape is the US implies that all the shake‐up may lead to Europe. Philosophically, “all roads lead to Rome” New trends in world business is that the center of gravity in business may be pointing to Europe.

Integration and Causality in International Freight Markets: Modeling with Error Correction and Directed Acyclic Graphs

1. IntroductionIn January 1985, the Baltic Exchange developed the then known Baltic Freight Index (BFI), which, in May 1985, would become the underlying asset of the Baltic International Freight Futures Exchange (BIFFEX) contract, a contract designed to hedge uncertainty associated with volatile freight rates. On the basis of their exposure to the risk of adverse freight-rate fluctuations, ship owners and cargo owners (charterers) could buy or sell BIFFEX contracts to protect their freight-rate revenue or control their freight-rate cost, respectively. In addition to its once use for futures trading, the BFI is also considered to be the leading indicator of the condition in the dry-bulk shipping markets. On a daily basis, it provides accurate information about the level of freight rates across a variety of shipping routes worldwide. This information is extremely valuable for shipping market agents and is an invaluable tool in their decision-making process. This is so because in an industry such as shipping, where trades are being concluded across the globe, there is not a central reporting place to record and monitor the level of activity in the markets.The principal objective of this article is to assess the degree of interconnectivity between the major shipping routes that constitute the BFI, across different time horizons, reflecting the typical trading patterns in this market. To this end, we employ directed acyclic graphs (DAGs) (Spirtes, Glymour, and Scheines 1993), which enable us to assess this issue in a dynamic manner. Based on an error correction model (ECM) of freight rates, we also develop a framework for estimating forecast error decompositions by employing DAGs. From a practical standpoint, the information provided by innovation accounting techniques, coupled with DAG analysis, provides an intuitive method for assessing the information flows from the shipping markets and allows us to make an assessment on whether the underlying freight index, on which the futures contract is traded, is correctly composed.The current article, therefore, makes significant contributions to the literature from several angles. To date, research has not estimated the relationships in a truly dynamic manner and has, as such, failed to discuss the implications for derivatives and physical trading. In addition, the application of innovation accounting in this study is different from most other studies in the sense that we use the causal ordering of variables, as indicated by the estimated DAGs, for the orthogonalization of the contemporaneous innovation covariance; as suggested by Swanson and Granger (1997), this step is crucial in providing sound inference in innovation accounting techniques. Finally, investigation of this issue has important implications for the purposes of futures trading, as the BIFFEX contract was eventually delisted in April 2002. In this article, we identify whether the index is correctly composed and whether there are any obvious patterns or redundancies within the index that may have led to the demise of the futures contract. Indeed, our analysis provides a mechanism for deciding upon the correct index and has obvious, yet profound, implications for other research in the area of index construction.The rest of the article is as follows. Section 2 offers a brief discussion of freight indices. Section 3 outlines the methodologies employed in the article, including an introduction to DAGs, and section 4 describes the underlying properties of the data series. Section 5 presents the empirical results, and section 6 concludes.2. Freight Indices and Freight FuturesGiven uncertainty surrounding freight rates, the benefits of providing a futures market in freight rates has been recognized by market practitioners for a long time. However, the freight futures market was eventually established only in 1985. The reason is that the underlying asset of the market--the service of seaborne transportation--is not a physical commodity that can be delivered at the expiry of the futures contract. …