Johansen Cointegration Test Research Articles

Impact of fiscal and macroeconomic imbalances on economic growth: A context of regulation

Promoting sound fiscal policies and sustainable economic growth is a global priority, including in Nepal. This study analyzes the effect of fiscal and macroeconomic imbalances on the Nepalese economy from 2006–2007 to 2020–2021. Utilizing time series data, the study examines the relationship between gross domestic product (GDP), budget deficit, trade deficit, and foreign direct investment (FDI). The augmented Dickey-Fuller (ADF) test confirms variables’ stationarity at the first difference, with long-term relationships analyzed through the Johansen cointegration test (JCT) and short-term changes captured by the error correction model (ECM). Short-term economic growth (i.e., GDP) exhibits a negative correlation with the budget deficit and a positive correlation with the trade deficit and FDI, though not statistically significant (p > 0.05). However, these variables are cointegrated in the long run, emphasizing their interconnectedness and potential linear combination. The error correcting term (-0.034) indicates a convergence speed of 3.4 percent towards long-term equilibrium. Additionally, diagnostic tests confirm the stability of coefficients in the employed models. The results align with Ahmad et al. (2013) in Pakistan but contrast with Aung (2017) in Myanmar, suggesting that while a trade deficit may stimulate short-term growth, its prolonged existence could potentially harm the nation’s economic growth in the long term.

Analysis of the effects of climate change on palm oil output in Nigeria

The study examined the effect of climate change on palm oil output in Nigeria from 1965-2015. It focused on the trend of oil palm output during the period, the effects of climatic factors on the output. Secondary data were used for the analyses using tables, graph and time series analyses. The result of the Augmented Dickey Fuller (ADF) unit root test showed that all the variables became stationary after the first difference was taken while the Johansen cointegration test indicated the existence of a long run equilibrium relationship among the variables. Error Correction Mechanism (ECM) result indicated that rainfall (t= 3.01), relative humidity (t=2.56), temperature (t=4.50) and solar radiation (t=4.23) were significant at 5% level (p<0.05): were significant climatic factors affecting palm oil output. This validates the alternative hypothesis one (Ha1), that climatic factors have significant effect on palm oil output in Nigeria. The study recommends that concerted effort should be made to reduce the level of solar radiation by mitigation in Nigeria.

The Effect of Green Taxation on Financial Performance of Selected Oil and Gas Firms in Nigeria.

This study investigated the effect of green taxation on financial performance of selected oil and gas firms in Nigeria for the period 2017-2022. The specific objectives were to investigate the effect of carbon emission taxes; to find out the effect of petroleum profit tax; and to investigate the effect of industrial pollution tax on financial performance of selected oil and gas firms in Nigeria for the period 2017-2022. The model included the total assets of the oil and gas firms as dependent variable. The study adopted ex post facto research and employed times series data sourced from the annual financial records of the oil and gas firms, and the Federal Inland Revenue Service (FIRS). Evidence of longrun relationship was found among the model variables through the Johansen test, and a fast speed of adjustment at 32.01% annually. The major findings of the study are: carbon emission taxes had significant negative effect on financial performance of oil and gas firms in Nigeria; petroleum profit tax has significant negative effect on financial performance of oil and gas firms in Nigeria; and industrial pollution tax has significant negative effect on financial performance of oil and gas firms in Nigeria. Based on the findings, the study concluded that green taxation had significant negative effect on the financial performance of oil and gas firms in Nigeria. The study recommended that: the policymakers should design a strategy toward reviewing the carbon emission taxes due to evidence of negative shock on the oil and gas firms; the petroleum profit tax should also be reviewed down in order to mitigate risks arising from their operation which affect their performance; the government should further increase the industrial pollution tax rate, this will deter industries from indiscriminate pollution of the environment, restore investor confident and stabilize stock market in Nigeria.

Effect of Foreign Direct Investment on Economic Growth: The Role of Natural Resources and Trade Openness in Ghana.

This study examined the determinants of foreign direct investment in Ghana over the period 1980 – 2017 to highlight the need for FDI to reduce our growing debt levels by reducing replacing public loans. To estimate the empirical model, the study controlled for exchange rate and inflation rate as measures of macroeconomic instability, as well as the growth rate of citizen’s income. The study employed time series analysis considering the nature the variables be annual series. Using the Augmented Dickey-Fuller (ADF) approach, the study tested for the presence of unit root adopted the Johansen Cointegration test for long run associations among the variables. The VAR and VECM models were finally estimated to achieve the objective of the study. Outcome indicated a positive relationship between natural resource availability and FDI inflows in the short-run and long-run in Ghana. Trade openness was also revealed to have a positive impact on FDI inflows in the country in both time periods. Measures of macroeconomic uncertainties such as exchange rate and inflation rate exert negative impacts on FDI inflows. Results of the study holds several policy implications including the need to achieve a sustainable economic outlook thus achieving and sustaining lower levels of inflation that will less deterrence to foreign investors. Also, the exchange rate needs to be managed in order to achieve an appreciation of the Ghana-Cedi against the US-dollar to encourage foreign direct investment and trade amongst Ghana’s trade partners. Again, further trade restrictions that are deemed unproductive can be reviewed to allow free trade, especially the Africa Continental Free Trade Area (AfCFTA).

Globalization and Economic Growth in Nepal A VECM Approach

This study explores globalization's political, social, and economic aspects and its impact on Nepal's economic growth between 1990 and 2020. The study employed sophisticated econometric techniques, first utilizing the Johansen Cointegration and VECM to assess causality among the variables under investigation and the Augmented Dickey-Fuller (ADF) and Phillips Perron (PP) tests to confirm the presence of unit root problems. The ADF and PP test findings showed that every variable is integrated at first difference. One cointegrating vector was found by the Johansen Cointegration test, indicating a significant long run association among the variables. The study discovered a one-way causality between economic growth and political and economic globalization in the short-run analysis. On the other hand, over time, there is a two-way causality between Nepal's economic growth and political and economic globalization while a one-way causal relationship exists between social globalization and economic growth. These results recommended that Nepal's economic growth immediately impacts how it integrates into the global economy in several sectors. Economic and political globalization influences and is influenced by Nepal's economic growth in the short term, indicating a reciprocal link. The study found that there is need for a balanced approach to globalization that fosters economic growth while reducing its negative repercussions. It also stresses how crucial it is for Nepal to actively participate in the political and economic spheres of the world.

Which Index is More Affected by CDS Premium and VIX Index: BIST-30 or Participation-30?

Purpose: This study aims at determining the existence and, if any, the extent of comparative effects of the CDS premium and the VIX index on the BIST-30 and the Participation-30 indices before and during the pandemic. Methodology: The study explores the relationships of the CDS premium and VIX index to the BIST-30 index and the Participation-30 index for two time periods, as pre-pandemic and pandemic. The date range is set as 02.01.2018-10.03.2020 for the pre-pandemic period and as 11.03.2020-31.12.2021 for the pandemic period. Following the Johansen cointegration and ARDL tests employed to detect the long run relationships between the variables, FMOLS regression tests were used to determine the effect sizes. Results: As a result of the cointegration tests, long-term cointegration relationships of both the BIST-30 and the Participation-30 indices with the variables of the CDS premiums and the VIX index were determined before and during the pandemic period. FMOLS regression results posited that the VIX index had greater effect on the Participation 30 index in both periods. Originality and Practical Implications: The fact that the literature review does not reveal the existence of any study providing the comparative effects of the CDS premiums and the VIX index on both the BIST-30 and Participation-30 indices contributes to the originality of this paper.

Examining the Impact of GDP on the Nepalese Stock Market: Insights from Co-integration and Granger Causality Tests

The stock market reflects the national and international economic health. It promotes investment opportunities and the economic growth of the nation. This study examined the long-run relationship between Gross Domestic Product (GDP) fluctuations and the Nepalese Stock Market Index (NEPSE) employing the econometric models. By using the quantitative analysis of data collected from June 2005 to December 2023, this research applied advanced models such as co-integration to explore long-term equilibrium, vectors auto-regression (VAR) to analyze the short-run impact, and Grangers’ causality tests for identifying cause and effect, and variance decomposition for the quantify the impact. Analyzing the unit root tests revealed that GDP growth rates and stock market indices are integrated at the second difference, leading to the application of the Johansen co-integration test. Results showed no evidence of long-term co-integration between GDP and NEPSE. As a result, a Vector Auto-Regression (VAR) model is employed to assess the short-term dynamics. The VAR analysis indicated that lagged values of NEPSE have a significant positive effect on current NEPSE values. Granger causality tests revealed that GDP has a significant causal impact on NEPSE, but NEPSE does not significantly influence GDP. Variance decomposition analysis further demonstrated that NEPSE’s own past values predominantly drove its oscillations, while GDP had minimal impact on the NEPSE.

Modeling Dynamic Correlation and Volatility of the Visegrad Group Fuel Markets

The paper focuses on investigating the correlation and volatility of fuel markets in four countries of the Visegrad region, namely Hungary, the Czech Republic, Poland, and Slovakia. The primary objective of the paper is to explore regional fuel markets and retail prices in these countries by employing VAR models and Johansen procedures to analyze the interrelationships between Visegrad fuel markets. Additionally, the paper uses multivariate dynamic conditional GARCH (DCC GARCH-M) models to examine the volatility and covariance of fuel prices in these nations. The results of the study indicate that there are no long-term connections between Visegrad gasoline prices. The performance of the domestic price is independent of other markets. The research also shows long-term relations of diesel prices only among some countries. Overall, the size of these relations is small and mostly statistically insignificant. These findings provide valuable insights into the fuel markets of the Visegrad countries and can be useful in formulating policies related to energy and fuel price regulation. Overall, the study contributes to the literature on fuel markets in the Visegrad region and provides policymakers and stakeholders with essential information necessary for making informed decisions.

Impact of Capital Expenditure on Economic Growth: A Study of Nepal

In countries like Nepal, government spending objectives range from promoting market-driven stability to intervening for alleviating suffering and preventing business loss, reflecting the tension between laissez-faire and interventionist approaches in economic development. The study explores government expenditure's role in Nepal's economic growth using econometric models like the Engle-Granger Cointegration Test and Error Correction Model. Recurrent, capital, and total expenditures are compared with GDP as indicators of Nepal's economic growth, showing significant positive relationships. The Unit Root Test indicates all variables becoming stationary after differencing once. The Johansen Test reveals 2 co-integrating equations, indicating enduring relationships among variables. Co-integrating Relation analysis demonstrates RE, CE, TE, and C's significant impact on GDP, with a low Durbin-Watson statistic suggesting possible autocorrelation. The Error Correction Term analysis highlights the significance of D(RE), D(CE), D(TE), and C, while ECT(-1) is significant at a 10% level. While the model explains a significant portion of GDP variation, additional factors must be considered for policymaking.

DOES THE SUKUK ISSUANCE IN TURKIYE IMPACT ON ECONOMIC GROWTH?

This study examines the impact of sukuk issued by participation banks and the state on economic growth in Türkiye. In this direction, econometric analysis was conducted between 2013Q1-2022Q4 using Johansen cointegration and VECM Granger causality tests. Our findings show that sukuk issuance and economic growth move together in the long run. Subsequently, according to the long-term coefficient results, the effect of sukuk issued by participation banks on economic growth was found to be positive and significant, while the sukuk issued by the state did not have a significant effect on economic growth. In addition, according to the Granger causality test results, it was determined that there is a one-way causality relationship from GDP to participation banks’ sukuk issuance. Our results show that the issuance of sukuk both contributes to and benefits from economic growth.

The Relationship between Macroeconomic Variable in Indonesia: Study of Economic Growth, Export, Import, Labor and Inflation

The objective of this study is to assess the potential for mutual relationships and co-integration among variables such as economic growth, exports, imports, labor, and inflation in Indonesia, using secondary time series data covering the period from 1985 to 2022. The approach applied in this research involves the use of Vector Autoregression (VAR), encompassing Granger Causality and Johansen Co-Integration Test. Subsequently, Vector Error Correction Model (VECM) estimation and forecast analysis are conducted using Impulse Response Function, Variance Error Decomposition, and Forecasting. The results of the Granger Causality test indicate that there is only a unidirectional relationship between economic growth to imports, while there is no significant unidirectional relationship from other variables. The results of the Johansen Co-Integration test suggest that these variables have long-term relationships or are co-integrated. Based on the forecasting results, the research can be applied over the period from 1985 to 2037.

Domestic Debt and Price Stability in Nigeria

The impact of domestic debt on price stability in Nigeria from 2008 to 2023 is being analyzed in the research. The study employed an ex post-facto research design. Data from the Central Bank of Nigeria's statistical bulletin 2023 and Debt Management Office reports 2023 were used, specifically quarterly time series data. The dependent variable of price stability was inflation rate, while the independent variables were banking sector debt and non-banking sector debt. The Johansen cointegration test estimation was used based on the unit root test result which shows that domestic debt had no cointegration with inflation rate in Nigeria. Based on regression analysis, it was found that the banking sector debt had a positive significant effect on inflation rate in Nigeria, while non-banking sector debt had a negative significant effect on inflation rate in Nigeria. Therefore, the study recommended that banking sector debt should be properly channeled to productive financing of working capital in the agricultural sector for seedlings and fertilizers that will enhance price stability by reducing food inflation. Government should give more priority to domestic debt through non-banking sector debts such as the Sukuk loans which are tied to capital projects like roads, rails, and many other infrastructural developments.

Foreign Aids and Sustainable Development in Nigeria: An Application of Dynamic Least Squares Approach

The impact of foreign aid in donor and recipient countries is largely unsettled amongst existing studies, as well as, literature. This is attributed to the various arguments for and against the benefits of foreign aid, as it relates to sustainable development. As such, the study examined the effect of foreign aids on sustainable development in Nigeria from 1986-2021. The study used Augmented Dickey Fuller (ADF) unit root test, Johansen Co-integration test, Dynamic Least Squares (DOLS) and Granger Causality test. The ADF result showed that sustainable development, foreign aids, exchange rate, inflation rate and trade openness were stationary at first level difference. Also Johansen co-integration test confirmed a long-run relationship between the variables. The DOLS result revealed that, foreign aid, exchange rate and trade openness were significant with each exhibiting a direct link with sustainable development at 5%; while, that of foreign aid was at 10%. This suggests that inflow of foreign aids in different forms is essential for resource conservation. Also, inflation rate showed an inverse and significant link with sustainable development at 5%. In addition, a bi-directional causality was established between foreign aid and sustainable development. The study concluded that foreign aids in different forms, exchange rates stability and high exportation that comply with environmental sustainability boost Nigeria's sustainable development growth, but spiral inflation worsens it. Thus, it is advised that government should declare an emergency over environmental issues in order to guarantee an increase in the flow of foreign aid into environmental sustainability.

OIL PRICES AND THEIR LONG-TERM RELATIONSHIP WITH MACROECONOMIC AND FINANCIAL INDICATORS

The objective of this paper is to find out whether there is a long-term relationship or in other words cointegration, between the prices of oil futures and the following factors: the consumer price index (CPI), the exchange rate of the USD to the EUR, the prices of gold, and the price of Bitcoin. This research was conducted using monthly data, extracted from both Refinitiv and Yahoo Finance, in the period 2014- 2022. In order to find the cointegrating relationship between the above mentioned variables, the Johansen test was used, after which, the Vector Error Correction Model (VECM) system was composed to formulate a set of equations that explain all the variables. The results of this research show that only one cointegrating relationship exists between the previously mentioned variables. Namely, in a state of long-term equilibrium, only the prices of gold have a statistically significant effect on oil prices.

EMERGING STOCK MARKET INTEGRATION: EVIDENCE FROM THE PRE- AND POST-FINANCIAL CRISIS OF 2007-2009

We investigate the interdependence between the US and seven emerging economy stock markets in Brazil, China, India, Malaysia, Mexico, Taiwan, and Thailand. Specifically, we examine how the 2007-2009 financial crisis influenced the dynamics of stock market integration between the US and seven emerging countries by analyzing the short-run and long-run effects of the crisis over pre-crisis (January 1995 to November 2007) and post-crisis (July 2009 to December 2018) periods. The results of Johansen co-integration tests confirm presence of co-integration in both sample periods. Short-run Vector Error Correction Model (VECM) results indicate a significant influence of the US market on the seven markets except for Brazilian and Chinese markets in the pre-crisis period. The pre-crisis long-run results demonstrate significant cointegrating relationships between the US market and the Indian, Malaysian, Mexican, and Thai markets. Only the Mexican market had the same cointegrating relationship with the US market in both periods. The insignificant pre-crisis period cointegrating relationships between the US and Brazilian, Chinese, and Taiwanese markets become significant post-crisis. Although the Indian stock market was cointegrated with the US market in the pre-crisis period, the relationship is insignificant post-crisis. Overall, our findings confirm that the US and seven emerging economy equity markets exhibit some degree of short-run and long-run cointegration. We also find that a negative shock such as a financial crisis may significantly change co-movements among the stock markets. We contribute to the existing literature on financial market integration by examining recent data around the global financial crisis.

The investigations of long and short-term relationships between macroeconomic variables and stock markets: Evidence from China and Pakistan

The motivation behind this research study is the pragmatic examination of associations existing between the stock markets of (SSE), (KSE-100) and macroeconomic variables (Balance of trade, Unemployment rate, Inflation rate, Broad supply of money, and Foreign direct investment) using the annually time series informational data set for the period cover from January 1995 to December 2019. The key objectives of this examination are to check the long and short-term association between the macroeconomic variables and both stock market returns by utilizing different methods and strategies. The results of the unit root test specified the primary series is not stationary at a level and becomes stationary in the first difference. On an annual basis through utilizing the Fisher combined Johansen co-integration test and Vector Error Correction (VCM) technique, it shows that both stock markets had a long-term equilibrium association with macro variables and short-run dis equilibrium adjusted at 6.78%. These findings are valuable for stock exchange editors, financial analysts, policymakers, shareholders, and investors as well as for the Government.

Price Behaviour and Market Integration Amongst the Major Potato Markets in India

Variation in potato output over time causes wide price fluctuations, subjecting its producers to a high-risk situation. Using a monthly wholesale price of potato from January 2012 to December 2020, the current study examined the price behaviour of major potato-producing and consuming markets. The study employed correlation analysis, the Johansen Co-integration Test, the Vector Error Correction Model, and Granger Causality Test. As determined by the seasonality index, farmers received higher-than-average prices between June and December. Johansen's co-integration result demonstrated that all the selected markets were well integrated in the long run. The Patna market had the fastest adjustment rate (80 per cent), followed by the Mumbai market. Most states had uni-directional price transmission, with Patna being the only state to establish a bidirectional flow of potato prices with the Kolkata market. The Delhi market was discovered to be the key market influencing the prices of all other markets.

The Impact of Foreign Direct Investment on Poverty Reduction: Evidence from Bangladesh

This study aims to identify the contribution of foreign direct investment on poverty reduction in Bangladesh with a data period of 32 years starting from FY 1991 to FY 2022 with annual observations in real term. Besides foreign direct investment, gross domestic product, government expenditure on education, employment, and trade openness are used as control variables. Per capita consumption is used as a proxy for poverty reduction. The study goes for Johansen Co-integration test and then Vector Error Correction Model rather than Ordinary Least Squares Regression to avoid any spurious result as indicated by Augmented Dickey-Fuller test. This study finds that FDI has significantly negative relationship while Employment has almost indifferent effect on poverty reduction in the long run. However, other control variables, i.e., GDP, Govt. Expenditure on education and Trade openness have long run positive relationship in this regard. The short run causality of FDI toward poverty reduction is also insignificant in Bangladesh.

THE NEXUS BETWEEN FOREIGN DIRECT INVESTMENT AND NOMINAL EXCHANGE RATE, REAL GDP, AND CAPITAL STOCK IN TANZANIA

Aim: The paper aims to examine the relationship between FDI and the nominal exchange rate, real GDP, and capital stock in Tanzania using quantitative research methods and an econometric analysis. The analysis aims to provide insights into the factors that affect FDI and contribute to the existing literature on the relationship between FDI and economic growth. Methods: This study examines the relationship between FDI inflow, real GDP, capital stock, and the normal exchange rate in Tanzania using a robust research methodology. The study employs STATA 15 software and Akaike’s Information Criteria (AIC), Schwarz Information Criteria (SC), Final Prediction Error (FPE), and the Hannan Quinn (HQ) Information Criteria. In addition, the autoregressive model, the Johansen co-integration test, and the Toda-Yamamoto Granger causality (modified WALD) test were employed to determine the optimal lag. Results: The results indicate a bidirectional relationship between the nominal exchange rate and FDI in Tanzania, with FDI inflows influencing the nominal exchange rate volatility and vice versa. Furthermore, the results indicate that real GDP, capital stock, and the nominal exchange rate exert a unidirectional influence on FDI influx in Tanzania. Conclusions: The nominal exchange rate and capital stock have positive and negative correlations with foreign direct investment. Like many other African economies, Tanzania remains vulnerable to external forces despite making significant strides in stabilizing the exchange rate. It is recommended that the Central Bank of Tanzania – along with those of other African nations with similar economic structures – maintain a stable nominal exchange rate level as an incentive for foreign investors in order to increase the inflow of foreign direct investment.

G20 Economic Growth Analysis Using VECM

This study analyzes the effect of Gross Fixed Capital Formation (GFCF), Imports, Exports, and Government Expenditure of selected G20 member countries on Gross Domestic Product (GDP) using historical data from 1981 to 2021. The detailed analysis aims to explore the relationship between short-term and long-term causality that begins with examining and testing the degree of integration, Unit Root Test, Johansen cointegration test, and causality test. The Vector Error Correction Model (VECM) test results with a 95% confidence interval show that Gross Fixed Capital Formation causes Australia’s and South Africa’s long-term GDPs to have reached a balance point. In addition, Government Spending also causes the European Union’s Gross Domestic Product to achieve a balance point. Imports affect the GDP of the United States, China, and South Africa towards a balance point, and exports affect the GDP of Australia, China, and South Africa. The test results using VECM also conclude that GDP, GFCF, exports, and imports affect GDP growth in the short term. However, on the contrary, on the Australian continent, only GDP, GFCF, and imports which in the previous year had an impact on Australia’s GDP in the short term—concluded that differences in government policies in each country in regulating the economy could affect the causal relationship between the independent variable and GDP in the short and long term.