Long-run Causality Research Articles

Foreign capital and growth nexus revisited: empirical evidence from South Asian countries

This paper examines the effectiveness of foreign capital in the form of FDI, remittances, and foreign aid in improving economic growth prospects in the South-Asian region. A sample of 8South Asian countries for the period 1990–2017 is being considered for this study. The study uses various econometrics tools such as the Johansen-Fisher Panel cointegration test, Panel FMOLS, and PDOLS to ascertain the long-run and short-run dynamics among the variables under consideration. We found that the long-run and short-run relationship exists among foreign aid, economic growth with other macroeconomic variables. Further, using the Granger causality framework, we found that unidirectional causality exists between foreign aid to economic growth, FDI inflows to economic growth, and there is no short-run causality between remittances and economic growth. On the other hand, we confirmed that the existence of long-run causality between foreign aid to economic growth and FDI to economic growth.

Behavioral entrepreneurship for achieving the sustainable development goals

This paper extends prior studies on sustainable entrepreneurship by proving how the impact of entrepreneurial activity on achieving sustainable development depends on the behaviors and motivations of entrepreneurs. More precisely, we examine the influence of opportunity and necessity driven entrepreneurs on the economic, social, and environmental dimensions of sustainable development, which are constructed based on the 17 sustainable development goals (SDGs). Using data for twenty developing countries, we find from the long-run estimates that opportunity entrepreneurship has a positive impact on the three dimensions of sustainable development, whereas necessity entrepreneurship has a negative effect on the environmental sustainability dimension. We also find from the short and long-run causality analyses that opportunity-driven entrepreneurs granger cause the three dimensions in the short and long-run, whereas necessity-driven entrepreneurs do not have any effect on these dimensions. Finally, the authors make some suggestions for further research in this area.

Analysing poverty-growth-inequality linkage in lower and lower-middle income countries in Africa

This research's primary purpose was to examine the poverty-growth-inequality linkage to ascertain the existence and direction of causality using data from lower and lower-middle-income countries in Africa. The result shows that while inequality is positively related to poverty, the effect of growth is negative. The short-run analysis also shows that growth had an insignificant negative relationship with poverty, while inequality had a significant positive relationship. The result also shows a long-run causality in growth and inequality given the significance of the error term while there is no long-run causality in poverty. The result shows that while growth is widening inequality, the inequality gaps created also help increase growth. The findings imply that policies towards reducing inequality in lower and lower-income countries are imperative for poverty reduction.

Crude Oil Price, Interest Rate and Unemployment Nexus in Nigeria: An Application of Toda and Yamamoto Long-Run Causality Procedure

This study aims to examine the relationship between crude oil price, interest rate and theunemployment rate in Nigeria using times series data for the 1991-2019 periods. Thestationarity property of the series was examined using Augmented Dickey and Fuller(1979) and Elliot, Rothenberg and Stock’s (1996) unit root test. The outcomes ofAugmented Dickey and Fuller indicated a mixture of an order of integration among theseries while Elliot et al.’s (1996) unit root test revealed that all the series are stationary atthe first difference and therefore are said to integrate of order one. The Toda andYamamoto long-run granger causality indicated that one-way causality exists flowingfrom crude oil price to unemployment rate, unemployment rate to interest rate, populationgrowth to the unemployment rate, crude oil price to interest rate and population growthto interest rate alongside two-way causality flowing from population growth to crude oilprice. Therefore, based on the empirical outcomes we recommended that labour will serveas an efficient substituting factor of production for energy and capital in the case of theNigerian economy and Nigerian government should develop both industrial and noncrude oil sectors to create employment opportunities for the unemployed teemingpopulation as well as increasing the country’s export.

The Nexus of Government Spending, Price, Output, and Money in the ECOWAS Sub-Region: Evidence from Panel ARDL and Causality Approach

Abstract The question of how macroeconomic variables dynamically interact is very crucial in any broad-based economic integration aiming at expanding economic growth and living standard in any human society. This study examined the nexus of government spending, price, output, and money in the ECOWAS sub-region using panel ARDL and causality approach. Data covering the period (1981–2019) were collected mainly from the latest version of the World Development Indicators. The result showed a positive relationship between government spending with GDP, import, exchange rate, unemployment rate, and population growth rate but a negative relationship between government spending with inflation, money supply, export, and interest rate. The result further showed short-run unidirectional causality running from government spending to inflation, money supply to inflation as well as money supply to GDP. Short-run bi-directional causality existed between GDP and inflation but none between government spending and GDP nor between government spending and money supply. The result of long-run Granger causality test showed bi-directional causality between government spending with inflation, government spending, and money supply; GDP and inflation; and GDP and money supply. Unidirectional causality ran from GDP to government spending; and money supply to inflation. The overall implication of this study established that an increase in government spending lowered inflation and raised the living standard of people in the ECOWAS sub-region in the long run. The study therefore concluded that any rise in import, unemployment rate, exchange rate, and population growth rate would raise government spending growth rate in the short run; and an increase in government spending would shrink inflation and boost economic growth and living standard in the long run.

Tourism and Renewable Energy in South Asia: A Panel Study

Purpose - The distinct linkage between tourism and energy has received significant attention due to the recent momentum towards green tourism and environmental sustainability. Given the present growth trajectory of the tourism industry, we examine the selected South Asian countries' tourismrenewable energy nexus. Design - We obtain data (1995 to 2018) from the World Bank (2018) and the BP Statistical Review of World Energy (2018). Methodology - Second generation cointegration tests were conducted to verify the cointegrating relationship. DCCE and ARDL-PMG methods were used for long-run estimation. DumitrescuHurlin panel causality test was conducted to check long-run causalities. Finally, Variance Decomposition analysis was used to assess the effect of tourism on REs in the future Findings - Tourism and renewable energy consumption are positively associated in the long-run. Unidirectional causalities are observed from tourism to renewable energy uses at both the aggregate and disaggregate levels. Furthermore, tourism can significantly explain the predicted variation in the use of different renewable energies for the next 15 years. Originality - To our knowledge, this is the first study conducted to analyse the relationship between tourism and renewable energy consumption at both aggregate and disaggregated levels in South Asia. We also propose tourism-friendly renewable energy policies that may be key for continuing sustainable tourism development in the selected South Asian countries.

Economic Globalization and Financial Development: Empirical Evidence from India and Sri Lanka

The paper examines the nexus between economic globalization, financial development and institutional reform in India and Sri Lanka during the period 1990–2017. Using the panel ARDL method, the study finds the long-run relationship between financial development, economic globalization, and institutional reforms. From the short-run equation, the study finds the negative and statistically significant impact of economic globalization on financial development in India whereas Sri Lanka has a positive impact of institutional quality on financial development. Then, the study finds no short-run causality between financial development, economic globalization and institutional reforms. However, the study finds bi-direction strong causality between economic globalization and financial development. Further, the study finds uni-directional strong causality from institutional quality to financial development and economic globalization. Moreover, there is an existence of long-run causality between financial development, economic globalization and institutional quality. For the robustness of the results, the study considers the financial market as a proxy for financial development. Then, the study applies the panel ARDL test and find the consistency in the results. The policymakers in India and Sri Lanka should focus on institutional reforms so that it can reap the benefit of economic globalization. In turn, the quality of institutional reforms can thereby lead to financial development.

Examining the Impact of Coronavirus on Stock Markets: Investigating the Cointegration and Transmission of Shocks between China and World Largest Stock Markets

This study's focal point is to access the financial aspects of coronavirus on China and the world's largest stock markets by analysing the cointegration and the transmission of shocks from the Chinese stock market to the whole world. This study employs unit root test, Johansen cointegration test, vector error correction model, Granger causality test, variance decomposition and impulse response function test, to find the long-run and short-run relationship and transmission of shocks for the period from January 2012 to March 2020. Findings of the study observe the long-run relationship between stock markets. The short-run results reveal that the previous day's stock prices of Hong Kong and the US stock market show a positive relationship with China stock market. Granger causality results show only unidirectional long-run causality running from the UK, Hong Kong and Japan. Short-run causality results indicate the bidirectional causality among China and other major stock markets.

The effect of remittance on energy consumption: Panel cointegration and dynamic causality analysis for South Asian countries

This paper examines the effect of remittance income on energy consumption and the economy between 1976 and 2019 in the four highest remittance recipient nations of South Asia. The detailed analysis explores long-run and directional relationships utilizing stationary tests, the panel cointegration test, dynamic ordinary least square (DOLS), fully modified ordinary least square (FMOLS), and Granger causality tests using a Vector Error Correction Model (VECM). The study reveals the presence of long-run relationships among remittances, energy consumption, GDP and urbanization. Cointegrating regression identifies that remittance income, economic growth and urbanization individually have a positive and significant effect on energy consumption in the long-run. Results showed that a 1% increase in remittance income results in a 0.045% increase in energy consumption. Among nations analyzed, this effect was found to be strongly dominant in case of Bangladesh and Pakistan. The statistically significant and negative coefficient of the error correction term confirms long-run causality from remittance, GDP, and urbanization toward energy consumption. Variance decomposition analysis demonstrated that energy usage is heavily impacted by remittance inflows among studied variables. Policy implications of this study suggest that higher remittance inflows will increase energy consumption in South Asian countries, engendering positive economic growth and sustainable development.

Regime dependent causality relationship between energy consumption and GDP growth: evidence from OECD countries

ABSTRACT This study empirically investigates the energy consumption-GDP growth nexus for the period from 1971 to 2016 for 26 OECD countries. The prevailing studies in the literature use limited econometric methodologies, which may wrongly model the underlying relationship and lead to misleading policy conclusions. Our study utilizes the newest econometric methods to reveal the nonlinear relationships in the long-run. Furthermore, to capture the asymmetric behaviour of regime changes, four residual-based nonlinear cointegration tests are implemented. Finally, a two-regime TAR type of panel threshold VECM model (PTVAR) is estimated for testing the presence of nonlinear short- and long-run causality. Our findings indicate a state-dependent causality between energy consumption and GDP growth.

The Impact of Macroeconomic Variables on Financial Market Performance in Egypt: An Empirical Analysis for the period (1980-2018)

The impact of macroeconomic variables on the financial market performance has been a hot topic for decades. Thus, this study focused on investigating the effect of oil price on the financial market performance and used a Vector Error Correction Model estimation technique on Egypt data from 1980 to 2018. the results revealed the long-run causality between the independent variables towards the dependent variable. Still, in the short-run, only Inflation and interest rates have causality effects on financial market performance. Also, the exchange rate and oil price do not have causality running to financial market performance. The results also emphasized that the short-run and long-run causality effects should be considered guidelines for policymakers to avoid misleading macroeconomic strategies in future strategic planning. The speed of adjustment reported from estimating the VECM is (-9.5%). Also, the model was found stable from using both the CUSUM and CUSUMQ statistics

The Effects of COVID-19 Spread on Oil Markets: The Case of the Top 10 Producing Countries

This paper attempts to investigate the effects of Coronavirus spread on oil companies. Coronavirus spread has been measured by cumulative cases, new cases, cumulative deaths and new deaths, on daily basis from March 15, 2020, to August 31, 2020. This has been applied to the top 10 oil companies in the world in terms of production. Using panel data analysis according ARDL technique, the study has investigated the short-run relationship between Coronavirus spread and abnormal return of oil companies. Besides, it has tested the long-run relationship and causality. Results support the short-run negative response of oil market to the spread of Coronavirus measured by cumulative and new cases and deaths, during the whole period. During March and April, oil markets seems to be sensitive to cumulative cases and deaths, while during May, it tends to be sensitive to new cases. Results do not support any negative effects during June, July and August.

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.

Government Expenditure and Regional Economic Growth: The Direction of Causality

This study examines the link between government expenditure and regional economic growth, over the period 2013 to 2017. Gross County Product per capita growth is used as indicator of regional economic growth. This study used Error Correction Model and Engle and Granger framework two step procedure to investigate the long-run and short-run equilibrium relationship between expenditure and regional growth. The analysis reveals that expenditure and regional growth are co-integrated and, hence a long-run equilibrium relationship exist between them. Non-devolved expenditure is found to be significant in determining regional growth and growth significantly affect non-devolved in short-run. Further, short-run uni-directional causality was detected between capital, recurrent expenditures and growth. This study argues that expansionary government expenditure accelerates regional economic growth in long-run. The absence of a long-run causality moving from growth to components of expenditure implies that economic growth macroeconomic policies can be implemented without adversely affecting the size of government expenditure.

The impact of renewable energy, trade, economic growth on CO2 emissions in China

ABSTRACT This study examines the linkage of per capita carbon dioxide (CO2) emissions, real GDP, renewable and non-renewable energy use and trade (exports and imports) in China covering 1965–2016. Long-run estimates present the invalidation of inverted U-shaped hypothetical environmental Kuznets curve (EKC) in three models based on the equations of import, export, and trade openness (% of trade in GDP), respectively. Long-run Granger causalities exist in the equations of emissions, real GDP, and non-renewable energy, respectively. Non-renewable energy conservation policy not only affects economic activity, but also influences CO2 emissions. The effect of renewable energy policy on CO2 emissions reduction is a long-term process.

Air pollutants, economic growth and public health: implications for sustainable development in OECD countries.

The rapid economic growth over recent years and the resulting environmental pollution in OECD countries are a serious concern for the health of the general public. A comprehensive analysis of environmental pollutants, economic growth, and public health is done using data from 28 OECD economies from 2002 to 2018. Panel fully modified least squares and the panel vector error correction model are used. The results show that there is long-run causality from renewable energy and carbon dioxide (CO2) emissions to healthcare spending. Renewable energy and healthcare spending are positively and significantly related. It is concluded that investment in renewable energy leads to a reduction in air pollution, improvements in healthcare, and the promotion of economic growth.

Relationship between Treasury bill rate and NEPSE index in Nepal

This study has examined the relationship between 91-days Treasury bill rate and NEPSE Index with the use of annual time series data taken from Mid-July1994 to Mid-July 2018 in the context of Nepal. Time series are stationary at first differenced and they are co integrated in order 1, i.e., I (1). Error Correction Model (ECM) confirms the long-run causality from 91-days Treasury bill rate (INT) to NEPSE Index (IND) at 5 percent level and long-run causality from IND to INT at 10 percent level. This bi-directional causality implies that the interest rate policy of Nepal Rastra Bank considerably influences in the stock market performances in long-run as well as the investors’ decisions in choices between stock market and bank deposits. This finding justifies the theoretical underpinning of impact of cost of capital in business investment decisions and demand for and supply of securities in capital markets. However, Wald statistics for joint short-term coefficients of variables under the interest does not support for shortruncausality between them. This finding justifies the theoretical underpinning that low cost of capital crucially linked to create the demand for and supply of securities through business investment opportunities. Higher interest rate, in other hand, not only discourage the businesses to use credit but also stimulate investors to switch to bank deposits causing decline in stock prices.

The Long-Run Effects of Trade Openness on Carbon Emissions in Sub-Saharan African Countries

Using a panel cointegration model developed based on the data extracted from the World Bank indicators, this study quantified the relationship between carbon emissions, energy consumption, economic growth, and trade openness in sub-Saharan African countries. It discovered from our analysis that there exists a long-run causality association amongst CO2 emissions, energy consumption, economic growth, and trade openness. The study noted the existence of the Environmental Kuznets Curve (EKC) in the panel using the square term for trade openness; it was found to have a negative impact, thus trade in the long run will somewhat decrease the environmental pollution in this region. The study results imply that there should be stringent policies and rigorous enforcement in sub-Saharan African to ensure sustainable growth without associative environmental issues.

Energy-output nexus in Bangladesh: A two-sector model analysis

The relationship between energy and output is one of the key issues in economic literature. Existing empirical studies have mainly used the neoclassical one-sector aggregate production function to examine the energy-output nexus and revealed inconclusive results. To address this issue, in this paper, we develop a two-sector model differentiating the energy sector from the conventional production sector to study the energy-output linkage for the Bangladesh economy. Using the annual data from 1985 to 2018, we conduct several unit root tests and reveal that our variables are stationary at their first difference. We further use the Johansen-Juselius cointegration and the Autoregressive Distributed Lag (ARDL) bounds tests and find that the variables are cointegrated in the long-run. By using three robust estimators (Dynamic Ordinary Least Squares (DOLS), Fully Modified OLS (FMOLS), and Dynamic ARDL), we reveal that a 1% increase in energy can increase the output by 0.06–0.10% in the long-run. We also run the Granger causality test and Vector Error Correction Model (VECM) to check the long-run and short-run causality. Our results find a unidirectional causality running from energy to output in the long-run but not in the short-run. We recommend that a reliable supply of energy needs to be ensured for future sustainable development in Bangladesh.

Do Long-Run Disasters Promote Human Capital in China? -The Impact of 500 Years of Natural Disasters on County-Level Human-Capital Accumulation.

Is there a relationship between the frequency of regional natural disasters and long-term human-capital accumulation? This article investigates the long-run causality between natural calamities and human-capital accumulation with macro and micro data. Empirical cross-county analysis demonstrates that higher frequencies of natural calamities are correlated with higher rates of human-capital accumulation. Specifically, on the basis of empirical data of the fifth census in 2000 and China’s Labor-Force Dynamics Survey in 2012, this paper exploits the two databases to infer that the high disaster frequency in the years of 1500–2000 was likely to increase regional human-capital accumulation on district level. High natural-calamity frequency reduces the expected rate of returning to physical capital, which also serves to increase human-capital. Thus, experiencing with natural disasters would influence human’s preference to human-capital investment instead of physical capital.