Johansen Maximum Likelihood Research Articles

Alternative Energy and CO2 Emission in China: Evidence from Bounds Testing and Vector Error Correction Model Approach

This empirical study investigates the dynamic interconnection between fossil fuel consumption, alternative energy consumption, economic growth and carbon emissions in China over the 1981 to 2020 time period within a multivariate framework. The long-term relationships between the sequences are determined through the application of the Autoregressive Distributed Lag (ARDL) bounds test and augmented by the Johansen maximum likelihood procedure. The causal relationships between the variables are tested with the Granger causality technique based on the Vector Error Correction Model (VECM). Empirical results reveal the existence of a statistically significant negative relationship between alternative energy consumption and carbon emissions in the long-term equilibrium. Furthermore, the VECM results demonstrate that both carbon emissions and fossil fuel consumption have unidirectional effects on economic growth. Additionally, the study highlights a short-term unidirectional causal relationship from economic growth to alternative energy consumption. These findings suggest that a reduction in fossil fuel consumption in the short run may indirectly impede the development of alternative energy. The study proposes that China should expedite the development of alternative energy and control the expansion of fossil fuel consumption to attain its carbon reduction target without hindering economic growth.

Equilibrium Real Exchange Rate and Misalignment: The Sierra Leone Perspective

This paper estimates the equilibrium real effective exchange rate and determine the level of exchange rate misalignment in Sierra Leone, for the period 1980 to 2018. The paper utilizes the behavioral equilibrium exchange rate methodology within the Johansen maximum likelihood framework to estimate the long run equilibrium real effective exchange rate. The unit root test result shows that all the variables are integrated of order one, whilst the cointegration test establishes the existence of one cointegrating vector as evidenced by both the Trace and Maximum Eigen Statistics. The normalized long run results reveal that openness, government expenditure and money supply were the most significant determinants of the real effective exchange rate in the long run. Furthermore, the findings reveal that the real effective exchange rate experienced sustained deviation from the long run equilibrium real effective exchange rate during the study period, with episodes of overvaluation and undervaluation. Specifically, the real effective exchange rate was overvalued by 3.69 percent during the period between 1980-1985; undervalued by 1.8 percent between 1986-1997, and overvalued by 0.9 percent between 1998-2004, Thus, the paper reveals episodes of misalignment of the real effective exchange rate. Based on these findings, the study recommends that, the monetary authorities should ensure stability of the exchange rate and maintain price stability, through sterilization of capital flows as well as contain money growth within the statutory limit.

Agricultural Output and Economic Growth Nexus in Ghana

This study explored the relationship between agricultural output and economic growth in Ghana from 1960 to 2016 using monthly data on the Gross Domestic Product (GDP), Gross Capital Formation (GCF), agriculture and inflation. Despite several agriculture-led economic growth programmes that have been implemented by successive governments, including the very recent “Planting for Food and Jobs” to create jobs and boost economic growth, the contribution of agriculture sector output to the Ghanaian economy has been on the decline. The estimation results from the Johansen Maximum Likelihood co-integration and the Vector Error Correction Model (VECM) support evidence of a long-run relationship between agricultural output and economic growth in Ghana. Specifically, the co-integration test reveals that agricultural output and economic growth were found to be moving together in the long run. The Granger causality test showed a unidirectional causal relationship running from agricultural value-added to economic growth but no causal flow from general economic growth to agriculture. This indicates that agriculture is still an engine of economic growth in Ghana and hence requires pro-poor policies to address the numerous challenges.

A Cointegration Analysis on Trade Behaviour in Selected ASEAN Countries Using Dynamic OLS and Johansen Maximum Likelihood Approaches

This paper aims to analyse the trade behaviour of four selected ASEAN countries (based on their export/import products) by using a co-integration analysis. The demand for exports and imports are estimated for the period before the currency crisis erupted ( 1963 -1995 ), using the dynamic OLS (DOLS) method. The Johansen Maximum Likelihood (JML) approach is also employed to compare the results obtained. The results show that foreign income has a significant impact on export demand, suggesting that foreign disturbance in the form of economic activities is likely to be transmitted to these countries. The Marshall Lerner conditions are easily met for the case of Malaysia and Thailand (DOLS and JML). For Indonesia and the Philippines, the sum of the price elasticities of exports and imports demands are less than unity, this can be explained by the J-curve, in which the currency depreciation will first worsen the trade balance before it improves and it takes time to affect the trade balance.

Does Global Financial Crisis Integrate the Regional Market in Asia More Strongly?

The aim of this paper is to analyze whether the worldwide financial crisis integrates the regional markets in Asia more strongly. Secondly, it is also to examine whether the integration of regional markets in Asia necessarily leads to a weak form of market efficiency. To examine this we have considered the different broad based and liquid stock indices such as the Sensex and BSE 100 from the Bombay Stock Exchange; the S&P CNX Nifty from the National Stock Exchange, representing India; the Hang Seng Index from the Hong Kong Stock Exchange, representing China; the Kuala Lumpur Composite Index (KLSE), Bursa Malaysia representing Malaysia; the Nikkei 225 from the Tokyo Stock Exchange representing Japan, and the Straits Times Index (STI) from the Singapore Exchange representing Singapore. The study considered the daily data spanning from 4th January 1994 to 2nd May 2012. The full sample period was split into three forms such as the whole sample, the Global financial crisis and the post global financial crisis. The short term interaction was studied by using Toda Yamamoto’s procedure of Granger’s Causality in VAR Block Exogenity form and the long run equilibrium relationship was tested by applying the Johansen Maximum Likelihood procedure. And so the paper explored the possible, integrating relationship at the volatility level among the regional stock indices by applying the ARCH school of models. Finally, the Random Walk Hypothesis was tested by employing the Chow-Denning (1993) and the Lo and Mackinlay (1988) multiple variance ratio test to examine the efficiency of the market. The major findings of the study indicated that the worldwide financial crisis integrates the regional markets in Asia more strongly in the short term from 2007 onwards. There is no long run equilibrium relationship among the regional stock markets. The study also found that the integration of the financial market does not necessarily contribute to market efficiency.

Determinants of Private Saving in Ethiopia: Johansen Co-Integration Approach

Saving has its own effect on economic growth and thus needs a more vigorous work being done about. In addition, in the pursuit of studying saving, the core point to be focused will be its determinants. Therefore, the main objective of this research is to empirically examine the main determinants of private saving in Ethiopia for the period ranging from 1971-2015 by using Johansen maximum likelihood co-integration approach. The result shows that level of real per capital income, inflation, urbanization ratio, bank branch and the dummy variable for political instability are significant variables to determine private saving of Ethiopia in the long run. Moreover, level of per capital income, urbanization ratio, bank branch and the dummy variable for political instability have significant positive effect on private saving of Ethiopia. However, inflation rate influencing private saving negatively and significantly. In addition, in the short run only level of per capital income, Urbanization ratio and bank branch at their difference are statistically significant in determining private saving. Gross domestic product per capital income and urbanization ratio have positive effect on private saving whereas Bank branch has negative effect on private saving of Ethiopia in the short run. Since the effects of a change in a given saving determinant are fully utilized both in the long term and short term, measures such as bank branch expansions and improving both the quality and the quantity of export have to be considered by the concerned authorities. Keywords: Private saving, Ethiopia, Johansen Co-integration, Long run equation and Error Correction Model DOI : 10.7176/JESD/10-5-03 Publication date :March 31 st 2019

Oil Consumption and Economic Growth in Nigeria: A Multivariate Cointegration Analysis

The paper seeks to examine the relationship between oil consumption and economic growth in Nigeria using the Johansen and Juselius Co-integration technique based on the Cobb-Douglas production function to construct three models by introducing three major sectors of oil consumption of Nigeria (Transport, Power and Industrial sector oil consumption) and how Nigerian's upward review oil price variable impact on GDP. ADF (1979) and Johansen Maximum Likelihood method of cointegration (1988) are used to test the order of integration, Long run and short run dynamics between variable respectively using annual data since 1970-2016. The study shows an evidence of the long run and dynamic relationship for all the variables except industrial oil consumption and oil price variables which has no short run impact on GDP. Also it was found that capital and labour are more important in affecting output growth compared to energy consumption Oil prices impacting real GDP negatively in long run but positively in short run. Prominent policy recommendation are, in order to sustain high economic growth in the long-run, the country needs to increase the efficiency of its workforce and expand its saving capacity to generate more capital and need to strengthen the effectiveness of energy generating agencies by ensuring periodic replacement of worn-out equipment in order to drastically curtail transmission power losses.

Natural Gas Consumption and Economic Growth in Pakistan: Production Function Approach

This study investigates the relationship between energy consumption and economic growth in case of Pakistan using annual data from 1977 to 2013. Using Johansen maximum likelihood approach to estimate the long-run relationship and Granger causality to check the direction of causality, the study finds that the long-run relationship between natural gas consumption and economic growth is positive and statistically significant. Furthermore, the Granger causality shows that there exists energy-led growth hypothesis in Pakistan as Granger causality runs from energy to economic growth. The policy implication is that uninterrupted availability of energy is essential and conservation strategies could be harmful for the economic growth.

Exchange rate pass-through to consumer prices in Ghana: is there asymmetry?

PurposeThe purpose of this paper is to reexamine the speed and magnitude of exchange rate pass-through (ERPT) to consumer prices in Ghana.Design/methodology/approachThe Johansen Maximum Likelihood approach is employed in the estimation of different models of symmetric and asymmetric ERPT. Specifically asymmetric ERPT models with respect to the direction and size of exchange rate changes are estimated.FindingsResults reveal that even though a depreciation in the nominal effective exchange rate will lead to an increase of consumer prices in the long-run, it is not statistically significant. Evidence also suggests a significant asymmetry with respect to direction and size of exchange rate changes. This indicates that the right ERPT model is an asymmetric model. Specifically ERPT is found to be incomplete but relatively higher in periods of depreciation than in periods of appreciation; that is 53 percent against 3 percent. ERPT is also higher during episodes of large changes (about 51 percent).Research limitations/implicationsIt would have been interesting to analyze the impact on consumer prices through changes in import prices. That approach was not adopted due to lack of consistent data on import prices in Ghana.Practical implicationsIt is imperative that the monetary authorities critically monitor exchange rate movements in order to be able to take swift policy action so as to counteract any inflationary pressures from the external sector. In particular, much attention should be paid to events and arrangements that could result in large depreciation of the exchange rate.Originality/valueWhile previous studies have assumed a symmetric ERPT model for Ghana, this paper is unique in that it investigates the most appropriate model for examining ERPT in Ghana whether symmetric or an asymmetric.

The Long-Run Relationship Between Foreign Aid And Labor Productivity In Sierra Leone

The Financing Gap Hypothesis (FGH) proposed that foreign aid is needed to fill a financing gap created by low savings in less developed countries (LDCs) relative to the large investments needed for promoting economic development and poverty alleviation. In the 1980s, using the failure of foreign aid to alleviate poverty in LDCs as evidence, a neoclassical counterrevolution in development economics rejected this hypothesis. In its stead, they pointed to poor governance and anti-market statist LDC policies, not inadequate financing, as for the causes of LDC poverty and underdevelopment. The ensuing debate generated a plethora of empirical studies of the aid-growth relationship, whose findings remain inconclusive. While unconditional aid-optimist studies found significantly positive aid-growth relationships, with or without good policies, conditional aidoptimists found aid positively impacting growth in only countries that have good policies. Meanwhile, aid-pessimist studies reported insignificant or significantly negative aid-growth relationships. However, this literature was mostly based on regression analysis of cross-sectional data. As such, they do not address individual country characteristics that impact the aid-growth relationship. Secondly, they assumed aid-exogeneity, although aid-endogeneity seems more plausible. This makes those regression findings susceptible to endogeneity bias. Thirdly, cross-sectional regression estimates provide a snapshot of the aid-growth relationship at a given point in time. However, economic growth and poverty alleviation are long-run phenomena, which require an understanding of the long-run equilibrium aid-growth relationship. Cointegration analysis estimates long-run equilibrium relationships. Hence, it is appropriate for studying the aid-growth relationship. It also addresses endogeneity bias by assuming that all variables are endogenous. Finally, unlike cross-sectional analysis, individual-country cointegration analysis addresses country-specific characteristics. Given the above advantages of cointegration analysis, this paper uses Johansen's maximum-likelihood (JML) cointegration procedure and three single-equation cointegration estimators to investigate the long-run relationship between labor productivity and foreign aid in Sierra Leone. All four estimators find a positive and significant long-run aid-growth relationship. They also find that total factor productivity (TFP) is the most dominant factor in explaining labor productivity in the country. Consequently, it recommends using aid to promote TFP growth.

An Empirical Analysis of Aggregate Import Demand Function for India

This paper examines the behaviour of Indian aggregate imports during the period 1980–81 to 2013–14. The stability of aggregate import demand function is examined using five types of cointegration tests including the ARDL bounds test. In order to estimate the long-run elasticities, we have applied three alternative fully efficient cointegrating regressions, autoregressive distributed lag (ARDL) model and Johansen maximum likelihood method. Our results reveal cointegration relationship between import demand, relative prices of import, domestic activity and foreign exchange reserves. Results evince that, in the long-run, the response of import demand to relative import prices is negative and less than unity, whereas it’s response to domestic activity/income is positive and more than unity. The foreign exchange reserve has a positive effect on imports.

Agricultural Output and Economic Growth in Nigeria

This paper examines the long run relationship between agricultural output and economic growth in Nigeria for the period 1981 to 2014 using time series data. Results from Johansen maximum likelihood co-integration approach and Vector error correction model support evidence of long run relationship between agricultural output and economic growth in Nigeria. Granger causality test also confirms the co-integration results indicating the existence of causality between agricultural output and economic growth in Nigeria. The nature of the causality however depends on the variable used to measure Agricultural output. The paper therefore recommends that the government should further strengthen agricultural policies in the area of funding, storage facilities, and market access to enhance agricultural production. Policy Strategies that will make agriculture more profitable and attractive, less laborious with improved technology should be adopted and promoted to attract investors and the youths back to agriculture.

Government Spending, Corruption and Output Growth in Nigeria

This study used the works of Barro(1990), Bakare(2011), and Dissou and Yakautsava (2011) to establish the relationship between government spending, corruption and output growth in Nigeria. It employed aggregated data from 1980 to 2011. Using the Johansen Maximum Likelihood procedure and error correction mechanism, the study showed that the estimates of money supply, capital formation, openness to trade and innovation system positively influenced output growth while unemployment and domestic debt affected output negatively. Public investment as a percentage of GDP and corruption influenced adversely output growth. The paper recommends that corruption tilts public spending away from growth enhancing projects and towards low and less productive ones.

A COINTEGRATION ANALYSIS OF AIR TRAVEL DEMAND: THE CASE OF INTERNATIONAL AIR TRAVEL DEMAND BETWEEN MOROCCO AND EUROPEAN UNION

Europe is the most important source of tourism for Morocco. The purpose of this paper is to investigate the short and long-run determinants of air travel demand from European Union to Morocco. In order to analyze the air travel demand, the authors used the relevant macroeconomic variables, such as the origin countries’ income, i.e. Europe and the real exchange rate between the origin and host country. Annual data from the two countries, covering the period 1970-2012, are used. The ADF unit root test was used to examine the degree of variables integration. The Johansen maximum likelihood procedure was used to determine the number of co-integrating vectors in the VAR model. An error correction model was estimated to explain the air travel demand determinants between Morocco and the EU both in short and long-run. The estimated error correction model provides strong evidence that European GDP, real exchange rate fluctuations and regulatory environment are the main factors affecting air travel demand in Morocco.

English

This study is designed to investigate the relationship between real income and both national and international tourism volume for Portugal. The study uses quarterly data and covers the period for 1995-2015. The stationary properties of the time series data are examined by using conventional and endogenous break unit root tests . The Johansen maximum likelihood cointegration and Toda-Yamamoto Granger causality tests are employed to search for a long-run relationship along with causality among the variables. The findings of the tests provide evidence for the existence of long-run cointegration relationship between arrivals at tourist accommodation establishments and real income. The causality results show that real income is caused by foreign tourist’s arrivals, and detect bilateral causality between domestic tourists and foreign tourists.

Empirical Analysis of Institutional Credit Supply and Agricultural Production with Special Reference to Jammu and Kashmir

This paper explores the relationship between institutional credit supply and agricultural development in Jammu & Kashmir (J&K). The study employed Multiple Loglinear Regression Model to determine the impact ofinstitutional credit supply on the agricultural production (based on the theoretical framework of Cobb-Douglas production function). Besides institutional credit other explanatory variables included in the study are: area under cultivated (CA), irrigation intensity (IR), consumption of fertilizers (FR), agricultural workers (LBR) and number of tractors used (NT). The study is based on the secondary data compiled from diverse sources over the period of 35 years (1975–2010). All the variables were tested for unit root in order to check the stationarity of the data by employing the Augmented Dickey-Fuller (ADF) and Phillip-Perron Unit Root Tests. Correspondingly, Johansen's Maximum Likelihood Estimation method for testing for cointegration applied to examine the long run relationship between the variables. The estimated results show that institutional credit has positive and significantimpact on agricultural production. As there is one percent increase in the flow of institutional credit the agriculturalproduction will increase by 0.27 percent. It was also found that after the financial sector reforms (1991) the flow of credit to agriculture has increased continuously as it rose from 10095 lakhs in 1991 to 126767 lakhs in 2010. The researcher concludes that, there is a need to enhance and monitor institutional credit supplied for agricultural purpose to efficiently attain the anticipated growth in the sector.

Investigating the Causal Relationship Between Stock Market and Aggregate Economic Performance of South Africa

Stock is one of the key securities traded in the capital markets and as such, has attracted the attention of researchers. While it is said to propel economic activities, empirical studies conducted on different countries present divergent outcomes. Thus, in this study we investigate the long-run and causal relationship between stock market and aggregate economic activities of South Africa using quarterly data from 1995Q1 to 2013Q4. We utilize the Augmented-Dickey Fuller (ADF) and Philips-Perron (PP)tests for unit root, the Johansen (1995) Maximum Likelihood cointegration technique and VEC Model. The study further employs Granger (1969) pair-wise causality test approach. It is noteworthy that the model variables have long-run relationship, but the causality test result suggests that non cause each other.

COINTEGRATION AND CAUSALITY BETWEEN TURKISH, IMPORTS AND GDP: A STRUCTURAL ANALYSIS

The aim of this paper is to reveal the relation between imports and growth rate in Turkey for the period between the first quarter of 1998 and last quarter of 2014. The touchstone in Turkish economy is the January 24 regulations of 1980. The import led growth strategy of the Turkish economy switched to export led growth strategy after this date. It is an indisputable fact that trade openness triggered to the economic growth progress of Turkey. Yet, the issue should be further investigated. It is being argued by both scholars and politicians that the high growth rates in the mentioned period is achieved by importing raw materials and intermediate goods, thus, growth in Turkish economy has to be accompanied by the increase in imports and thus increase in trade deficit and current account deficit. In the literature, the relations between GDP growth and exports are intensively investigated, however, the relation between the second component of international trade, imports, and GDP growth did not attract that much attention. The main objective of this study is to reveal the presence and direction of Granger causality between Turkish Imports and GDP. The model to be employed in Granger causality (i.e. VAR vs. VECM) depends on whether the variables under question are stationary and/or co integrated. In testing the unit roots, we have followed the Augmented Dickey-Fuller (Dickey and Fuller, 1979) test which eventually became the standard practice in unit root testing. Next, to find the number of co integrating vectors Johansen Maximum Likelihood (Johansen and Juselius, 1990) test is employed.

Government Spending , Corruption and Output Growth in Nigeria

This study used the works of Barro(1990), Bakare(2011), and Dissou and Yakautsava (2011) to establish the relationship between government spending, corruption and output growth in Nigeria. It employed aggregated data from 1980 to 2011. Using the Johansen Maximum Likelihood procedure and error correction mechanism, the study showed that the estimates of money supply, capital formation, openness to trade and innovation system positively influenced output growth while unemployment and domestic debt affected output negatively. Public investment as a percentage of GDP and corruption influenced adversely output growth. The paper recommends that corruption tilts public spending away from growth enhancing projects and towards low and less productive ones.

Determinants of Tax Revenue in Ethiopia (Johansen Co-Integration Approach)

Tax revenue in Ethiopia has been low throughout the study period (1974 to 2013). Tax revenue in Ethiopia was below the average of sub Saharan African countries. The main objective of this study is to empirically examine the major determinants of tax revenue in Ethiopia for the period ranging from 1975-2013, using Johansen maximum likelihood co-integration approach. The result revealed that in the long run real GDP per capita income, foreign aid and industrial value added share of GDP positively and significantly affect tax revenue. However, inflation exerted a negative and significant influence. Whereas, in the short run Real GDP per capita income and inflation have negative effect, whereas industrial Value added share of GDP has positive effect on tax revenue in Ethiopia. The sign of real gross domestic product per capita income is contrary to the priori expectation. Moreover, the coefficients of the lagged error correction term (ECM (-1)) is significant and negative as expected, which imply the existence of economic or government forces that restore the long run equilibrium from short run shocks. Finally, the study recommends measures such as a boost in per capita income growth, structural transformations, introduction of new tax bases and efficient utilization of foreign aid inflow have to be considered by the concerned bodies so as to bring efficient tax administration and enhance revenue growth. Moreover, the government shall give a due recognition to the development of the industrial sector.