Long-run Bidirectional Causality Research Articles

Exports and economic growth: relationships and threshold analysis for the Southern Africa customs union

This study examines the short-run and long-run relationships between exports and economic growth in the Sothern Africa Customs Union (SACU), as well as the corresponding threshold level. The study used panel data covering the period 1980 to 2021 and employed the Autoregressive Distributed Lag (ARDL) Bounds to test for co-integration relationships, and the Generalized Least Squares (GLS) to determine the respective threshold level. Exports positively support economic growth both in the short-run and in the long-run in SACU. There is long-run bidirectional causality between exports and economic growth. The minimum threshold for exports is 59%. That is, exports only start contributing significantly to economic growth when they are above 59% of the Gross Domestic Product (GDP). SACU should put in place economic policies and regulations that are skewed towards the improvement of the competitiveness of its local products on the global market and also strategically consider export-oriented industrialization strategies. Efforts should also be channeled towards the implementation of bilateral and multilateral trade agreements and harnessing the synergic benefits through the adoption of deliberate value chain mechanisms and initiatives.

Nexus Between Foreign Direct Investment and Employment in Manufacturing and Services Sectors in Tunisia: An ARDL Approach

This study investigated both the cointegration and the causal nexus between foreign direct investment (FDI) and employment in the manufacturing and services sectors in Tunisia by employing the augmented autoregressive distributed lag (ARDL) bounds testing approach. Our findings confirm a long-run relationship among the examined variables. Causality results indicated both short-run and long-run bidirectional causality between FDI and employment in the services sectors as well as between employment in the manufacturing and the services sectors. However, there is a unidirectional causality between FDI and employment in manufacturing running from FDI to employment in Manufacturing. These results are of particular interest and offer new perspectives and insight for new policies toward promoting and diversifying foreign investment as a critical contributor to the manufacturing sector's productive capacity and by extension to its employment level.

Do environmental taxes affect energy consumption and energy intensity? An empirical analysis of OECD countries

The use of environmental taxes can encourage a shift toward eco-friendly choices. When used in conjunction with other policy tools available, environmental taxes can help bring about the adjustments needed in order to address our current environmental and climate challenges. Therefore the objective of this study was to examine the impact of environmental taxes on energy consumption and energy intensity using panel data covering the period 1995–2014 from 35 OECD countries. I employed environmental tax to total tax ratio, total energy consumption, and total energy intensity to estimate the relation between energy consumption and environmental taxes. Using the fully modified and dynamic OLS techniques and I showed that environmental taxes have a negative effect on energy consumption and energy intensity in the long run. Furthermore, using the Dumitrescu and Hurlin’s panel granger causality test I found a bi-directional long-run causality between environmental taxes and energy consumption and intensity. With regards to the disaggregated effect of environmental taxes, this study found that energy taxes (including CO2 taxes) have a larger effect on energy consumption and energy intensity than pollution and transport taxes. To test for the robustness and sensitivity of my model, I resorted to the total environmental tax to GDP ratio and employed both GMM and quantile regressions. Thus, I concluded that environmental taxes have a significant impact on energy consumption and energy intensity among OECD member countries.

Determinants of the investments: a case study of Côte d Ivoire

Purpose- Based on the importance of investments in supporting the economic growth in the country, the main objective of this study is to investigate the determinants of the investment in Cote d’Ivoire over the period 1980-2020. In order to achieve the objective, this study examines the interactive effect of external debt, communication infrastructures, imports and inflation on the investments in Cote d’Ivoire. Methodology- Annual time series data over the period 1980-2020 were employed in this study. The data are obtained from the World Bank. The ADF unit root test, Johansen cointegration test, OLS model, Granger causality test, and CUSUM test were applied to analyze the data. Ordinary Least Squares (OLS) model has been used in this study to estimate the coefficient of the variables, and it has been subjected to a number of statistical diagnostic tests, namely, the normality, serial correlation, and heteroscedasticity tests to ascertain its statistical adequacy. Findings- The ADF unit root test results indicated that all variables in the model are not stationary at the level but became stationary after first differencing. The Cointegration test pointed to a significant long-run relationship among the variables. Besides, the results of OLS model showed that investment is positively and significantly related with communication infrastructures, importing and inflation, but it is related negatively and insignificantly with external debt. Imports have the biggest effect on the investment. The Granger causality test shows that there are no short-run causality relationships between the variables. However, there are bidirectional long-run causality relationships between investment, external debt and importing, and unidirectional long-run causality relationships running from communication infrastructures and inflation to investment. Lastly, CUSUM test indicated that there are no structural changes in the model. Conclusion- The study therefore recommends that the government should use external debt more efficiently, reduce corruption, improve the infrastructure and create an attractive investment climate, as well as reducing most tariff and nontariff barriers, which will support the investment in the country.

The Main Determinants of the Government Expenditure: A Case Study of Côte D’ivoire

Abstract Based on the importance of government expenditure in supporting economic growth in the country, the main objective of this study is to investigate the determinants of government expenditure in Cote d’Ivoire over the period 1980-2020. To achieve the objective, this study examines the effect of external debt, national income, inflation, and population on government expenditure, by using the ADF unit root test, Johansen cointegration test, Granger causality test, and CUSUM test. Results from the Johansen cointegration test indicated that there are long-run relationships among the variables. Government expenditure is positively related to external debt, national income, and population, but it is negatively related to inflation. The population has the biggest effect on government expenditure. The Granger causality test shows that there is a unidirectional short-run causality relationship running from external debt to government expenditure, but there is no evidence of any short-run causality relationship between national income, inflation, population, and government expenditure. On the other hand, there are bidirectional long-run causality relationships between inflation, population, and government expenditure, and unidirectional long-run causality relationships running from external debt and national income to government expenditure in Côte d’Ivoire. Lastly, the CUSUM test indicated that there are no structural changes in the model. The study recommends that the government should use government expenditure more efficiently in improving the infrastructure and creating an attractive investment climate, as well as upgrading the quality of human capital by improving the education system, health services, and the standard of living.

How do financial inclusion and renewable energy collaborate with Environmental quality? Evidence for top ten countries in technological advancement.

The environmental situation of our planet is seriously degraded due to the massive spread of greenhouse gases. Several aspects can influence the quality of the environment. The present study debates the effect of financial inclusion (FI) and renewable energy consumption (REC) on the emissions of carbon dioxide (CO2) emissions of the top ten countries in technological advancement (TTCTA) over the period 2004-2019. Other deterministic factors are included in the empirical study such as real gross domestic product (GDP), non-renewable energy consumption (NREC), and technological advancement (ATECH) to check their influence on environmental indicators. PMG-ARDL approach, cointegration techniques, and Granger causality tests are applied for the empirics part. In the long run, the outcomes show that real GDP, REC, and technological advancement contribute to decreasing CO2 emissions, while NREC and FI contribute to increasing emissions levels. In the short run, only GDP and NREC significantly deteriorate the environmental quality. Granger shows a long-run bidirectional causality between CO2 emissions, economic growth, REC, NREC, and ATECH.

The dynamic interaction between circular economy and the environment: Evidence on EU countries.

This study examined the causal dynamics between circular economy (CE) and carbon dioxide (CO2) emissions in European Union (EU) countries. The selected CE indicators included the trade in recyclable raw materials (TRM) and the circular material use rate (CMR) in the secondary raw materials area, the generation of municipal waste per capita (GMWp) in the production and consumption area and the recycling rate of municipal waste (RMW) in the area of waste management. The coefficients of the panel cointegration equations showed that for every 1 percentage point increase in RMW, average CO2 emissions decreased by 0.5%, while for every 1 percentage point increase in GMWp and TRM, the average CO2 emissions increased by 0.263% and 0.101%, respectively. It also showed that the recycling volumes and recycling rate had a positive but very limited impact on the CMR. The panel vector error correction model result showed that there were long-run bidirectional causalities between CE indicators and carbon emissions, and the TRM had a short-run negative impact on waste generation. However, the short-run impact of CE indicators on carbon emissions was not significant, which may be because the European CE is still in its infancy. The finding suggests that policymakers should adopt multilateral policies such as reducing carbon emissions, improving the efficiency and productivity of resource management and waste recycling, and increasing investment and innovation in the secondary raw materials market to achieve resource decoupling and impact decoupling. The decoupling of these two types is a necessary condition for sustainable development.

The effect of technological innovation, FDI, and financial development on CO2 emission: evidence from the G8 countries.

The nexus of foreign direct investment and economic growth has been extensively investigated by the researchers of environmental economics; however, few studies have been conducted to find the impact of financial development and technological innovation in the backdrop of the environment. In the G8 countries (UK, USA, Canada, Germany, France, Italy Russia, Japan), the rapid increase in urbanization resulting from their speedy economic growth has brought about a huge increase in energy consumption that is in turn responsible for contemporary environmental degradation. This research intends to find the impact of technological innovation, financial development, foreign direct investment, energy use, and urbanization on carbon emission in G8 member countries, based on data from 1990 to 2019. The findings present strong cross-sectional dependence within the panel countries. According to the FMLOS estimator, a statistically significant long-run and negative association with CO2 has been found between foreign direct investment, financial development, and technological innovation in G8 countries. A long-run bidirectional causality has been found among economic growth, financial development, urbanization, trade openness, CO2 emission, and energy use; antithetically there is unidirectional causality between carbon emission and foreign direct investment. A quality foreign direct investment is the present demand for the development of industries, technological innovation, and financial development for G8 countries. Furthermore, urbanization plays a major role in environmental degradation, and more improved policies are needed for these countries.

The Nexus between Export Diversification and Foreign Direct Investment: Empirical Evidence from China

The transformation of the Chinese economy into a high-tech manufacturing hub spurred a heated debate among policymakers and academia. The large-scale market-friendly reforms have resulted in massive FDI inflows and high export diversification along with the extensive as well as intensive margins. By using the ARDL and VECM approaches, this paper revisits the theoretical and empirical connection between export diversification and FDI inflows in the framework of the Melitz model. The cointegration outcomes indicate a long-run relationship between export diversification and FDI, where the later has a diversifying effect on Chinese exports. The estimated coefficients show that export concentration has negatively related to FDI in China. Conversely, the results validate the presence of a positive spillover effect on export diversification. The reverse effect also holds, and the results indicate that export concentration has a negative effect on FDI or in other words, export diversification can attract foreign capital. It means that the diversifying capabilities of firms’ allure FDI inflows. Further, the granger causality analysis confirms the short- and long-run bidirectional causalities between the variables of interest. Overall, the results confirm the validity of the Melitz model and spillover theory. The inclusion of control variables is robust to our analysis. The study advocates several policy implications for the stakeholders.

Foreign Direct Investment and Tourism Development in Africa

This study examines the nexus between foreign direct investment (FDI) inflow and tourism development. Using annual data for 44 countries in Africa from 1995 to 2014, and three different specifications of panel autoregressive distributed lag model, the study investigates short-run and long-run dynamics between FDI and tourism development. The study finds a significant positive relationship and a bidirectional long-run causality between FDI inflows and tourism development. In addition, the results show a negative short-run relationship between exchange rate and tourism development. Furthermore, there is evidence that economic growth and political stability are important determinants of tourism development. A major policy implication for African countries is that creating a politically stable environment and sustaining a growing economy help attract FDI inflows to boost tourism development.

The drivers of financial development: Global evidence from internet and mobile usage

We study impact of internet and mobile usage on nine different indicators of financial development (FD), including depth, access, and efficiency of both, financial markets, and financial institutions, as well as overall financial development. We apply Granger causality and cointegration tests, PMG ARDL and PDOLS, and a two-step system GMM to a sample of 109 economies and two sub-samples (62 low- and middle-income economies (LMEs), 47 high-income economies (HIEs)) over the period of 1998–2017. The Granger causality tests show long-run bi-directional causality between internet/mobile usage and financial development. We find that internet usage has a significant negative impact on overall financial development, which could be attributed to a negative impact on financial institutions with all their three dimensions, depth, access, and efficiency. At the same time, internet has significant positive impact on financial markets with its three dimensions. Contrary to the opposing effects internet usage, mobile usage has a significant positive impact on all nine indices of financial development. The PMG ARDL and PDOLS estimations clarify that the positive impact of the internet is a short run effect, while the negative effect is a long-run one. The mobile usage impact is a long-run phenomenon. The estimations for two sub-samples show consistently positive impact of mobile phones in HIEs, whereas the results for LMEs are less robust.

AN INVESTIGATION OF THE CAUSAL RELATIONSHIP BETWEEN ENERGY CONSUMPTION AND ECONOMIC GROWTH: A CASE STUDY OF VIETNAM

This article investigates the causal links between economic growth and energy consumption in Vietnam by using Vietnam's updated data in the period of 1984-2016. The error correction mechanism (ECM) is employed to detect the causal relationship in the presence of co-integration between two variables. Applying Granger's causality test within an error-correction modeling technique, we find long-run bidirectional Granger causality between energy consumption and economic activities. The source of causation in the long-run is found by the significance of the error correction terms in both directions. In the short-run, the unidirectional Granger causality running from energy consumption to economic growth is also observed. The findings provide implications for energy development strategy to ensure the sustainable economic growth in the long term for Vietnam - a rapid developing country in ASEAN region.Keywords: Energy, Economic growth, Granger's causality test, ECM, Vietnam.JEL Classifications: O13, O53, Q43DOI: https://doi.org/10.32479/ijeep.9583

Municipal waste generation, R&D intensity, and economic growth nexus – A case of EU regions

The relationship between economic growth and waste generation is a major global concern. Previous studies provided no conclusive evidence as to the causality between these two concepts, which can be attributed to at least two problems. First, R&D intensity is increasingly recognized as being an important determinant of environmental quality. Second, the regional level is considered to be important for the implementation of waste management policies, as regions and municipalities, among others, are responsible for separate collection systems and for establishing and managing treatment facilities. Previous studies failed to reflect the heterogeneity of the regions, which may lead to biased results. To address these problems, the panel vector error correction model was employed to examine the Granger causality in EU regions. The results provide empirical support for the existence of short- and long-run bidirectional causality between waste generation and economic growth in EU regions. A bidirectional link among waste generation, heating energy, and R&D intensity was also observed. The policy implication is that traditional economic development policies are not enough to reduce waste generation in EU regions. Economic tools, such as charges and incentives, and eco-innovation policies should be introduced to promote the region’s shift towards a circular economy model.

Stock market performance and foreign exchange market in Egypt: does 25th January revolution matter?

PurposeThis paper examines the causal relationship between stock market performance and foreign exchange market in Egypt over the period 2009–2016. The study period is divided into two sub-periods: pre- and post-January 25th Egyptian revolution (ER). The reason is to examine how this revolution affects the causal relationship between the two markets' performance.Design/methodology/approachIn this study, the daily basis data are used to enable good and effective observation changes in the foreign exchange rate and stock market performance over time. Stock market indexes and stock market capitalization are used as proxies for stock market performance. Further, the Egyptian pound to US$ exchange rate is used as a measure for foreign exchange market performance. The study analysis is done in stages. The first is to check the variables' stationarity for the pre- and post-revaluation. The second is to examine the cointegration among the variables. The third is to run vector autoregression (VAR) estimates, after which VAR Granger causality tests are employed.FindingsThe results show that the data are not stationary at their levels but stationary in their first difference level while there is no cointegration in the long-run among the variables in both sub-periods. Further, findings indicate that, in the pre-January 25th revolution period, there is a significant causal relationship between the foreign exchange market and stock market indexes and a significant causal relationship between market capitalization (CAP) and exchange rate at the 1% level. However, in the post-January 25th revolution period, the study does not find a significant causal relationship between foreign exchange market and stock market indexes and capitalization.Research limitations/implicationsAs this study focuses on the causal relationship between foreign exchange and stock markets before and after the 25th January Revolution, other macroeconomic variables such as consumer price index, interest rate and GDP were excluded for the comparison purposes with other studies. Further research is suggested to include them in the analysis to find out its effect on the performance of stock market and foreign exchange market.Practical implicationsThe existence of long-run bidirectional causality means that portfolio managers and hedgers may have improved their understanding regarding the dynamic relationship between foreign exchange market and stock market performance as this may help them to plan and implement suitable hedging strategies to guard against currency risk in future crises or events. Investors, fund and portfolio managers and policymakers should give much attention to these event-specific interactions when they make capital budgeting decisions and implement regulation policies. Furthermore, our results may allow portfolio managers, investors and policymakers to assess the importance of informational efficiency for both markets.Originality/valueThis paper is an original contribution to the literature that concerns the causal relationship between stock market and foreign exchange market in the period of political instability and social unrest such as the January 25th Revolution in one of the emerging markets, namely Egypt.

Cointegration and causality: considering Iberian economic activity sectors to test the environmental Kuznets curve hypothesis

Few studies have attempted to study the environmental Kuznets curve (EKC) hypothesis at the individual sector level using more than one sector at once. This paper investigates the existence of the EKC hypothesis in the Iberian countries (Portugal and Spain) using thirteen economic activity sectors for each, analyzing each individual sector’s cointegration and causality relationships considering carbon dioxide (CO2) emissions, sector gross value added and energy consumption. The findings of this paper using the autoregressive distributed lag (ARDL) approach only validate cointegration in six Portuguese sectors and in five of the Spanish sectors. Results confirm both short- and long-run bi-directional and unidirectional causality between economic growth, energy consumption and CO2 emissions, using the error correction model (ECM) and Toda and Yamamoto’s causality approaches. Moreover, results for Portuguese and Spanish sectors indicate an inverted U-shaped relationship only for one sector each. In some sectors there was evidence of a U-shaped relationship and in others the EKC hypothesis could be verified but no statistical significance was obtained. The study has significant contributions for sector policy, including implications to curtail energy pollutants by implementing environmental friendly regulations to sustain economic development at the sector level in the Iberian market. It also allows inferences to be made about the existence of different behaviors in comparative terms for the same economic activity sectors of the individual countries.

The effects of FDI, technological innovation, and financial development on CO2 emissions: evidence from the BRICS countries.

The scholars of environmental economics have attempted the investigation of the impact of foreign direct investment-growth nexus, but they have missed the essential role played by technological innovation and financial development regarding the environmental costs. The notable economic growth and the consequent speedy process of urbanization in BRICS countries have brought about colossal escalation of energy needs leading to environmental degradation. The present study endeavors to explore the effect of foreign direct investment, technological innovation, and financial development on carbon emissions in BRICS member countries, with data from 1990 to 2017. The results verify a strong cross-sectional dependence within the panel countries. The Augmented Mean Group (AMG) estimator shows that foreign direct investment, technological innovation, and financial development in the BRICS countries possess a negative and statistically significant long-run association with CO2 emissions, while economic growth, trade openness, urbanization, and energy use are found to contribute statistically significant and positive with carbon emissions. The current study chose to employ the Dumitrescu and Hurlin panel causality test for examining the direction of causality. Findings reveal a bidirectional long-run causality running among financial development, economic growth, trade openness, urbanization, energy use, and CO2 emissions; on the contrary, unidirectional causality is found between foreign direct investment and carbon emissions. Consequently, for the BRICS member countries, the development of industries, financial institutions, and development of technological innovation are required to attract quality foreign direct investment. Moreover, urbanization contributes enormously to environmental degradation and necessitates urgent policy responses in these countries.

The nexus between renewable energy, economic growth, trade, urbanisation and environmental quality: A comparative study for Australia and Canada

Using a comparative approach, this study examines the nexus among renewable energy consumption, economic growth, trade, urbanisation and CO2 emissions for Australia and Canada for the period 1960–2015. The Autoregressive Distributed Lag (ARDL) bounds tests are used to explore the long-run relationships amongst the selected variables and the causal relationships are examined by the vector error correction model (VECM) Granger causality tests. The findings suggest that there is evidence of the long run relationships amongst the variables. The results in Australia indicate that in both the long run and short run, economic growth increases CO2 emissions, whereas in the short run, the trade and renewable energy consumptions decrease CO2 emissions. The VECM causality tests for Australia indicate that in the short-run, the economic growth, trade, and renewable energy consumption Granger cause CO2 emissions; whereas the long-run causal relationships are found among CO2 emissions, economic growth, trade and renewable energy consumption. In the case of Canada, the results show that in both the long run and short run, trade increases CO2 emissions, while in the long run the economic growth and urban population increase CO2 emissions. The VECM causality analyses show the long-run bidirectional causality among CO2 emissions, economic growth, and renewable energy consumption. In addition, the CO2 emissions tended to decrease in Australia but not in Canada after each country officially ratified the Kyoto Protocol in 2007 and 2002, respectively. Policy recommendations are made based on these findings.

Asymmetric causality between stock returns and usual hedges: An industry-level analysis

Assets such as gold, silver, government bonds are widely considered good hedges against adverse movements in the stock market. At times, market participants move between these markets in order to hedge against any immediate risks. The shifts from one market to another likely create a dynamic relationship between the stock market and other assets. We investigate short-run and long-run causality between the industry returns and the prices of the four assets: gold, silver, oil, and 10-year Treasury bonds. Using symmetric and asymmetric Granger causality, we try to identify different industries within the S&P500 that are caused by movement in the prices of these four assets. Although we were able to find short-run and long-run bidirectional causality between the four asset prices and share returns in many industries, our findings are industry-specific. We discover overwhelming and robust evidence of symmetric and asymmetric causality between 10-Year Treasury yield and returns of almost all 18 industries we considered.

ENERGY CONSUMPTION, ECONOMIC GROWTH AND ENVIRONMENTAL DEGRADATION IN 4 ASIAN COUNTRIES: MALAYSIA, MYANMAR, VIETNAM AND THAILAND

This paper examines dynamic causal relationships between pollutant emissions, energy consumption and output for a panel of 4 Asian (MMVT) countries over the period 1971-2005, except for Vietnam (1990-2005). In long-run equilibrium energy consumption has a positive and statistically significant impact on CO2 emissions. In the short term, changes in emissions are driven mostly by the error correction term and short term energy consumption shocks, as opposed to short term output shocks for each country. Short-term deviations from the long term equilibrium take from 0.77 years (Myanmar) to 4.84 years (Malaysia) to correct. The panel causality results indicate there are energy consumption–emissions bidirectional strong causality and energy consumption–output bidirectional long-run causality, along with unidirectional both strong and short-run causalities from emissions and energy consumption, respectively, to output. Overall, in order to reduce CO2 emissions and not to adversely affect economic growth, increasing energy supply investment and energy efficiency, and stepping up energy conservation policies to reduce unnecessary wastage of energy can be initiated for energy-dependent MMVT countries.

The Dynamic Nexus between GDP, Consumption and Exports of BRICS Countries: An ARDL Cointegration Analysis

The study empirically examines the consumption and export-led growth strategy of BRICS countries. The country-specific time series data have been used to examine the short and long-run impact between the gross domestic product (GDP), export and consumption from 1989 to 2016. The autoregressive distributed lag (ARDL) and error correction method are applied for the equilibrium-adjustment analysis. The ARDL bound test confirms the long-run cointegration between the variables of Brazil, Russia, India and China (BRIC) and fails to indicate any cointegration in South Africa series. Hence, the empirical evidence shows that both the strategies play a significant role in disequilibrium correction of BRIC countries whereas system analysis has been done in Brazil and Russia series. It implies that Brazil and Russian economic systems have bi-directional long-run causality. However, India and China series have uni-directional long-run causality from export and consumption to GDP whereas South Africa series has only short-run causality.