Lagrange Multiplier Unit Root Tests Research Articles

Does Renewable Energy Consumption Have an Effect on Health Expenditures? Example of EU Countries

Due to the harmful effects of traditional energy sources on the environment and health, the consumption of renewable energy sources has recently come to the fore on the world agenda. In order for national economies to maintain their existence, individuals must ensure their health and welfare. In this context, the priority duty of countries should be to protect public health and ensure its sustainability. There are many factors that determine a country's level of healthcare expenditures; environmental conditions are also one of them. The increase in greenhouse gas emissions resulting from the consumption of non-renewable energy sources can pose a great danger to human welfare and the environment. Environmental problems caused by greenhouse gas emissions negatively affect human health in many ways, such as affecting the nervous system, lungs, and causing respiratory diseases. In addition, environmental pollution resulting from greenhouse gas emissions increases health expenditures and causes a decrease in labor productivity. Considering these negative effects, increasing the use of wind, solar, geothermal, and other environmentally friendly energy sources, which are renewable energy sources, will contribute to environmental improvement by meeting the energy needs of countries. Recently, the increase in the resources allocated to health expenditures from the national income of countries has made the discussion of sustainability in the relevant field a current issue. In this respect, researching the factors affecting health expenditures will provide important information to policy makers. This study examines the health expenditures of renewable energy consumption in 13 EU countries (Belgium, Czech Republic, Denmark, Germany, Austria, Spain, Sweden, Italy, Portugal, Greece, Finland, France, and the Netherlands) selected considering data availability between 2000 and 2020 investigating in which direction it affects. In the study, countries with the highest consumption of renewable energy were selected. Since the sustainability of the recently increasing health expenditures is important, the variables of renewable energy consumption and economic growth were analyzed and the subject was limited. In this context, it is believed that the findings will provide important information to policy makers. The main motivation of the study is that there are limited studies on the relevant subject in the literature and panel cointegration and panel cointegration coefficient estimator tests are not used. Obtaining renewable energy consumption and health expenditure data from 2000 to 2020 constitutes the main limitation of the study. As analysis methods, Lagrange multiplier (LM) cointegration and Common Corelated Effect (CCE) cointegration estimator tests were used. Before the application of these tests, cross-sectional dependence and homogeneity were determined. Fourier LM unit root test was used in examining the unit root process. Then, cointegration test and cointegration coefficient estimators, which is the last stage of the application, were determined. According to the panel cointegration coefficient estimation results, in the general analysis conducted for 13 EU countries, the effect of renewable energy consumption on health expenditures is statistically significant at the 10% level. Accordingly, a 1% increase in renewable energy consumption decreases health expenditures by 0.197%. In country-specific studies, the effect of renewable energy consumption on health expenditures was statistically significant and negative in Denmark, Spain, Sweden, and Greece, reducing health expenditures by 0.132%, 0.111%, 1.288%, and 0.782%, respectively. The effect of GDP on health expenditures appears to be statistically significant at the 1% level. Accordingly, a 1% increase in income increases health expenses by 1.071%. In country-based analyses, the coefficients are statistically significant and positive in Germany, Austria, Belgium, Czech Republic, France, Spain, Sweden, Italy, Portugal, and Greece. These findings indicate that the increase in environmentally friendly, reusable energy consumption will have a positive impact on the environment, reduce health expenditures and contribute positively to the sustainability of health financing. In addition, it emphasizes that increases in GDP are reflected in health expenditures, thus increasing the quality of health.

What is the nature of responses of energy security to shocks in the E7 countries? Fresh evidence by applying unit root tests

ABSTRACT Energy security, characterized by equitable distribution of sustainable, acceptable and affordable energy sources, carries significant social, economic,\\ and environmental consequences. Achieving energy security is influenced by unanticipated shocks, such as oil price volatility, and policy decisions, including diversifying energy sources and developing green technologies. To gauge the efficiency of shocks and policies in altering energy security dynamics of E7 countries, the present study uses the Energy Security Risk Index (ESRI) as a proxy of energy security and employs panel Lagrange multiplier (LM) with smooth breaks and univariate LM unit root test with sharp breaks. In addition, both tests allow for cross-sectional dependence. Our findings reveal distinct dynamics across countries over the period 1980–2018. Specifically, Brazil, India, Indonesia and Turkey exhibit stationary behaviour in their ESRI, while China shows a unit root process. The stochastic properties of Mexico are inconclusive. Our results have important implications, which are discussed in detail.

PUBLIC HEALTH EXPENDITURE CONVERGENCE ACROSS INDIAN STATES: NEW EVIDENCE FROM LM AND RALS-LM TESTS

This study examines the total per capita health expenditure convergence across 25 Indian states by disaggregating total per capita health expenditure into revenue and capital health expenditure. This study uses the recent Lagrange Multiplier and Residual Augmented Least Squares-Lagrange Multiplier unit root and club convergence tests. Results of unit-root tests indicate the evidence of convergence for aggregate per capita health expenditure and its compositions. The speed of convergence of total per capita health expenditure is found to be approximately 0.15%. Results from sub-panels reveal that special-category states are converging. Based on the findings, it may be appropriate for the central government to design the equalizing transfer system and revisit poor states’ per capita health expenditure patterns.

On the persistence of shocks to global CO2 emissions: a historical data perspective (0 to 2014).

Anthropogenic emissions of carbon dioxide (CO2) are the most important greenhouse gas. However, until now, no research has investigated the persistence of global CO2 emissions over a very long period of time. This work aims to fill this gap by examining the persistence of shocks to global CO2 emissions with a dataset of more than 2000years. To this end, the study applies a battery of unit root tests by considering sharp and smooth structural shifts as well as the frequency domain properties of the series. Lee-Strazicich method results reveal that sharp break dates relate to the influenza pandemic of 1557 and the invention of the steam engine in 1712, and these historical events led to changes in the trend function of CO2 emissions. The findings of the Fourier Lagrange Multiplier and Fourier wavelet unit root tests illustrate that global CO2 emissions contain a unit root and do not exhibit mean-reverting behavior, thus external shocks have permanent effects on CO2 emissions. The results suggest that a reduction in global CO2 emissions is possible if effective environmental and energy policies established in international meetings such as Rio Conference, Kyoto Protocol Paris Agreement, and the United Nations Sustainable Development Summit are properly implemented.

The potential of material productivity alongside energy productivity in climate mitigation: Evidence from convergence tests in the EU28

This study argues that improvements in material productivity might pave the way for a substantial reduction in emissions when adopted alongside energy productivity policies. We, therefore, compare the convergence pattern of material productivity with that of energy productivity from the mitigation perspective. To this end, we apply (un)conditional β, stochastic and club convergence tests to energy and material productivity data for the EU28 countries. From the methodological perspective, (i) we employ both cross-section and panel data estimators to test (un)conditional β-convergence; (ii) to test stochastic convergence, we use the newly-developed transformed Lagrange Multiplier (LM) and Residual Augmented Least Squares LM (RALSLM) unit root tests allowing for structural breaks in data; (iii) for club convergence analysis, we use the log-t test and endogenous data-driven algorithm proposed by Phillips and Sul (PS) (2007). While the estimated parameters find conditional β-convergence in energy productivity, they do not produce convincing evidence for material productivity. The unit root test results show the existence of stochastic convergence in both variables. The club convergence results reveal that there are six and five clubs for energy and material productivity, respectively. This means that although multiple equilibria exist for both variables of interest, material productivity seems to display a more homogeneous structure compared to energy productivity. According to our findings, we conclude that material productivity seems to have a greater potential for further reductions in emissions once policies are directly targeted for efficient use of material, which can enable the EU to achieve to become carbon-neutral by 2050.

Are shocks to ecological balance permanent or temporary? Evidence from LM unit root tests

Ecological balance can be described as the difference between ecological footprint and biocapacity. It is an important indicator of sustainable and environmental development. In this regard, the current study aims to determine whether policies on ecological balance are effective in G7 and E7 countries, covering the period of 1961–2016. To this end, we use the Lagrange Multiplier (LM) unit root test, LM unit root test with structural breaks, and Fourier LM unit root test, as well as more powerful versions of these tests to investigate the stationarity of the ecological balance. We also examine the effectiveness of policies regarding ecological footprint and biocapacity. The empirical results obtained from both linear and non-linear unit root tests show that ecological balance is stationary in Germany, Italy, Japan, the US, China, India, Indonesia, Mexico, and Turkey, while it is non-stationary in the remaining five countries. However, the findings based on the structural break unit root tests suggest that ecological balance is stationary in more countries. Finally, the overall results indicate that shocks to the ecological balance in G7 countries have a more permanent effect than in E7 countries. Therefore, G7 countries can better apply environmental protection policies than E7 countries can in the long term. In Brazil, Canada, France, Russia, and the UK, environmental policies can be effectively implemented to regulate ecological balance.

Role of renewable energy and globalization on ecological footprint in the USA: implications for environmental sustainability.

The role of renewable energy and globalization on ecological footprint is investigated in the USA by controlling for the effects of financial development and real output using quarterly data from 1985:Q1 to 2014:Q4. We apply the minimum Lagrange multiplier unit root test, multiple structural break cointegration test, and autoregressive distributed lag (ARDL) estimation approach. The empirical evidence suggests that, in the long run, renewable energy and real output exert negative pressure on ecological footprint while financial development and globalization exert positive pressure on ecological footprint. The short-run results indicate that renewable energy, financial development, real output, and globalization are positively linked to ecological footprint. The vector error correction model Granger causality results, in the long run, divulge that ecological footprint, consumption of renewable energy, real output, and globalization Granger-cause financial development while ecological footprint, renewable energy, financial development, and globalization Granger-cause real output. The results also show that, in the short run, renewable energy and globalization cause ecological footprint and real output causes renewable energy, while renewable energy causes globalization. The finding also reveals that the causality between real output and globalization, as well as globalization and financial development, is bidirectional. Therefore, our findings provide insights for policymakers to consider consumption ofrenewable energyas a surest way to mitigate carbon dioxide emissions.

Enhancing sustainable electricity consumption in a large ecological reserve-based country: the role of democracy, ecological footprint, economic growth, and globalisation in Brazil.

The objective of this study is to investigate the role of democracy, ecological footprint, economic growth, and globalisation in enhancing sustainable electricity consumption in an ecological reserve-based country of Brazil over the period 1971-2014. To achieve this objective, the minimum Lagrange multiplier (LM) unit root and Bayer-Hanck combined cointegration tests are applied. The model is estimated using the fully modified ordinary least squares (FM-OLS) and dynamic ordinary least squares (DOLS) estimation procedures. The empirical results suggest that all the variables have a positive and significant effect on electricity consumption. This implies that increasing the level of these variables wouldstimulate electricity consumption. The long-run causality results indicate a one-way causality running from ecological footprint, democracy, and globalisation to electricity consumption. The results further discover that causality flows from ecological footprint, democracy, and globalisation to economic growth. In addition, a long-run bidirectional causal relationship between electricity consumption and economic growth is uncovered. In the short run, the result validates a bidirectional causality between ecological footprint and electricity consumption. More so, electricity consumption causes economic growth and democracy, whilst economic growth causes globalisation. The results are validated by the innovation accounting tests. The policy implication of the findings is that ecological-based conservation policies could have negative consequences on economic growth and electricity consumption because of a significant dependence of these two variables on the ecological footprint. Therefore, to guarantee sustainable electricity consumption, sufficient and sustainable green energy and optimum energy mix should be encouraged by the stakeholders.

Stochastic conditional convergence in per capita energy consumption in India

This study examines the stochastic conditional convergence of per capita energy consumption in India by considering the types of energy consumption as well as energy consumption at sectoral levels, covering the annual data from 1971 to 2017. To do so, this study applies the two-step Lagrange Multiplier (LM), and the three-step Residual Augmented Least Square LM (RALS-LM) unit root tests, which accommodate up to two endogenously determined structural breaks. Our results reveal the evidence of per capita energy convergence for various types of energy consumption in the presence of two endogenous breaks. Further, we disaggregate each type of energy consumption based on their use in different sectors. The results derived from LM and RALS-LM unit root tests again support the convergence, barring a few sectors. Our findings give an indication to the government of India for adjusting the types of energy consumption to reach the carbon emission target and increase efficiency for a few sectors where we find divergence.

Do shocks to electricity consumption revert to its equilibrium? Evidence from Indian states

This study investigates the stationary properties of electricity consumption at the aggregate and user-group levels (agricultural, industrial, commercial, domestic, and miscellaneous) for 18 Indian states over the period 1971-72 to 2015–16. Our analysis employs the two-step Lagrange Multiplier (LM) and the three-step Residual Augmented Least Square Lagrange Multiplier (RALS-LM) unit root tests. The results obtained suggest evidence of stationarity at aggregate and user groups in most states. The findings infer that shocks to electricity consumption in the Indian states have only a temporary effect. These results suggest that electricity demand can be modelled for forecasting and policymaking.

Do shocks have permanent or transitory effects on tourist inflow? An application of stationarity test with structural breaks: evidence reexamined for Gilgit-Baltistan, Pakistan

ABSTRACTDo shocks affect tourist inflows permanently or temporarily? To examine this question, we consider a region in Northern Pakistan, Gilgit-Baltistan, known for its natural and scenic beauty and with a history of huge tourist inflows, both domestic and international. The tourist arrivals from significant source markets are investigated using univariate and Lagrange Multiplier (LM) unit root tests with two structural breaks to examine if shocks to the time path of visitors’ inflow are permanent or transitory. According to the results, the univariate and LM unit root test with two breaks reject the unit root null for all major source markets. The findings suggest transistory effects rather than permanent effects of shocks on the growth path of tourist arrivals to Gilgit-Baltistan. This result further predicts the sustainability of the tourism sector in the region in the long run.

A reassessment of total factor productivity convergence: Evidence from cross-country analysis

This study revisits total factor productivity (TFP) convergence by employing the latest Lagrange multiplier and residual augmented least squares Lagrange multiplier unit root tests and Phillips and Sul panel club convergence technique. The study uses annual data for 44 developing and 29 developed countries covering the time-period 1970–2014. Our findings from these unit root tests support evidence of TFP convergence. Region-based results (Africa, Asia, and Latin America and the Caribbean) also confirm TFP convergence. Further, results derived from the Phillips and Sul test support evidence of TFP convergence, although the speed of convergence varies by region. The highest speed is noted in the Asia region, whereas, the lowest of speed productivity convergence is observed in the Africa region.

DOES TOTAL FACTOR PRODUCTIVITY CONVERGE AMONG ASEAN COUNTRIES?

This paper examines the productivity convergence of the five original Association ofSoutheast Asian Nations (ASEAN) countries, namely Indonesia, Malaysia, Philippines,Singapore, and Thailand (ASEAN-5), using annual data spanning the period 1968to 2014. Results from two-break Lagrange multiplier and residual augmented leastsquares Lagrange multiplier unit root tests reveal strong evidence of productivityconvergence in case of ASEAN-5. Further, the results based on Phillips–Sul panelclub convergence also reveal productivity convergence. To check the robustness ofour finding, we use an alternative measure of total factor productivity and still findevidence of convergence. We infer that such productivity improvements may helpASEAN countries to achieve a higher pace of economic growth.

Do shale gas and oil productions move in convergence? An investigation using unit root tests with structural breaks

This paper investigates the long-run trends of shale gas and shale oil productions by applying univariate and panel Lagrange Multiplier (LM), GARCH-based, and PANICCA unit root tests to discover the mean-reverting behaviors. We employ monthly data from January 2007 to December 2016 of shale gas withdrawals and shale oil productions in the U.S. The empirical results both on specific state/oil well and panel data show that most structural breaks emerge around 2007–2011, during which shale energy was massively produced in the U.S. and the global financial crisis and energy shock occurred. Our results also indicate that most external shocks are transitory and the trends soon converge, and that cross-state/well factors have greater potential as temporary shocks than the state-specific/well-particular components. For robust analysis, we conduct additional LM tests of natural gas and crude oil productions for a comparison with the unconventional shale energy. The unit root test of Narayan and Popp (2010) on shale gas and shale oil productions help us to find more stationary evidence. Overall, we present powerful findings of the mean-reversion property and propose critical implications for authorities and market participants.

Identifying macro-determinants of remittance flows to a developing country: The case of Uganda

ABSTRACTThis paper employs minimum Lagrange Multiplier (LM) unit root tests for endogenous structural breaks combined with ARCH and GARCH models to investigate how key macrovariables impact diaspora remittances. Since remittances can reverse-cause exchange rate movements and domestic income, we use changes in the world price of oil denominated in U.S. dollars to proxy movements in the Uganda shilling nominal effective exchange rate. To control for endogenous bias between remittances and income, we use rainfall shocks as proxies for income shocks in a non-oil-producing developing economy dominated by agricultural sector and its related activities. In addition, large movements in oil price and rainfall shocks typically cause large supply shocks that can significantly impact size of remittance inflows. We control for interest rate differential, political business cycles and seasonality. Results indicate that accounting for structural change in intercepts (levels) and slopes (trends) of key macroeconomic determinants of remittances around their major structural break points significantly increases their explanatory power. In particular, positive (negative) innovations in income and depreciation (appreciation) in the currency of a recipient developing country are negatively (positively) correlated with remittance inflows. These results are robust across different model specifications.

Panel LM unit root tests with level and trend shifts

This paper considers a Lagrange multiplier (LM) based panel unit root test that allows for heterogeneous structural breaks in both the intercepts and slopes of a series. We note that many popular time series variables are likely to exhibit changing means and/or trends over time. Given that the usual tests will depend on the nuisance parameters indicating the locations of the trend breaks, we adopt a transformation procedure that makes our new panel unit root tests invariant to the nuisance parameters. To illustrate the importance of the power gain provided by our test, we examine the convergence hypothesis using relative ratios of per capita health care expenditures in 20 OECD countries. Our results provide evidence that the convergence hypothesis is supported.

RIPPLE EFFECT IN REGIONAL HOUSING AND LAND MARKETS IN IRAN: IMPLICATIONS FOR PORTFOLIO DIVERSIFICATION

In recent years, real estate has become a very popular investment choice for Iranian investors due to several interrelated economic and political reasons. The purpose of this study is to find out how real estate investors can gain diversification benefits from investing within the real estate sector across provinces of Iran. We use semi-annual data from selected provinces of Iran over the period of 1993–2014 and apply univariate Lagrange multiplier unit root tests with one and two structural breaks to the ratio of the provincial to national house and residential land prices respectively. We find diversification benefit can be gained by investing in housing markets across provinces because house prices in half of the sample provinces tend to drift away from house prices in the rest of the country. In addition, our results show that it is difficult to create an adequately diversified portfolio in a residential land market because shocks to the residential land prices of provinces ripple out across the nation. These findings should be valuable to domestic and foreign investors who are interested in the Iranian real estate sector, especially after the lifting of several international economic sanctions.

Lagrange multiplier unit root test in the presence of a break in the innovation variance

ABSTRACTWe show that the Lagrange multiplier (LM) unit root test exhibits size distortions when a break in the innovation variance exists but is ignored. We develop a modified LM unit root test that is based on a generalized least-squares transformation of the original series. The asymptotic null distribution of the new modified LM unit root test is derived. Finite-sample simulation evidence shows that the modified LM unit root test maintains its size and has reasonable power against the trend stationary alternative.

Are fluctuations in electricity consumption per capita in Sub-Saharan Africa countries transitory or permanent?

This paper examines the random walk hypothesis for electricity consumption in sub-Saharan Africa countries over the period 1971–2013 by applying univariate and panel unit root tests. In addition to the first and second generation panel unit root tests, we apply the recent Lagrange Multiplier (LM) panel unit root test developed by Im, Lee and Tieslau, (2005). This test does not suffer from bias and spurious rejection because it allows for structural breaks in the intercept and slope. The empirical results of the LM unit root tests show that stationarity in electricity consumption is found in 11 of the 17 countries, which corroborates the findings of the first and second generation panel unit root tests. These results indicate that any shock to electricity consumption has a transitory impact for almost all sub-Saharan Africa countries implying that electricity demand will return to its time trend. Failure to reject the unit root hypothesis for the previous studies may be the result of a loss of power to allow for possible structural breaks.

An examination of convergence hypothesis for EU-15 countries

In this paper we investigate whether EU-15 countries experience convergence in per capita GDP levels with respect to the EU-15 average over the period 1950–2015. Nonlinear and nonlinear-asymmetric unit root tests as well as structural break Lagrange Multiplier (LM) unit root tests are employed. When nonlinear and nonlinear-asymmetric unit root tests are employed, five countries exhibit long-run or deterministic convergence with the EU-15 average. However, when endogenous structural break LM unit root tests are employed, nine countries exhibit stochastic convergence. Test results indicate that real per capita income levels of 11 EU countries converge towards the EU-15 average.