Long-run Determinants Research Articles

Long-run perspectives on [formula omitted] in OECD countries: An empirical analysis

The difference between the implicit nominal interest rate and the growth rate of nominal GDP is a key determinant of the dynamics and the sustainability of public debt. This paper studies the determinants of r-g in a panel of 17 OECD countries since the early 1980s. Whereas the focus of existing empirical studies is mainly on fiscal, monetary and financial factors behind the interest–growth difference, our approach and contribution are to highlight in particular the role of real long-run determinants, such as technical progress, employment growth, demographic change, and income inequality. This allows us to derive empirically based projections for r-g beyond the next five or ten years. Our baseline expectation is that r-g will stay below zero for the next two decades in most European countries that we study. An important policy implication is that the debt-carrying capacity of governments is substantially higher now than in the 1980s or 1990s. For the United States, however, our baseline projection of r-g is positive.

Panel Data Analysis in Identifying and Mapping Caused Factors of Financial Crises and Monetary Instability in Developing Countries

This study aims to reveal the extent of macroeconomic instability, which has the characteristics of a financial crisis and inflation. To test the hypothesis, researchers use fixed effects and random effects estimators to assess the presence of individual and temporal effects. Macroeconomic fundamentals, especially the risk of devaluation and a drop in economic activity can be seen as early warning signs of banks becoming less solvent. They also play a big role in explaining how deposits changed during the crisis. Our findings highlight the unique features of the convertible monetary regime, reinforcing the belief that debtors will enjoy permanent protection against devaluation risks. This perception encourages the dollarization of bank portfolios, thereby increasing the financial system's solvency risks. There is also evidence that the regulatory framework in this area is weak when it comes to the financial system's exposure to devaluation risks and public debt risks. This is especially true when it comes to an institutional framework that makes it hard for government funding to be changed into other currencies. We find that inflation is a very persistent process during periods of high inflation. However, with the decline in inflation after the implementation of the convertibility regime, its persistence reduced significantly. The results show that non-rational persistence is currently not very high, suggesting that the costs of designing the economy should not be either. We find that univariate models tend to perform better over very short horizons. The results suggest that there may be advantages to using a combination of different models, provided they are informative about the relationship between inflation and its short- and long-run determinants.

An Analysis of long-run determinants of housing prices: focusing on the sales price of Korean apartments

An Analysis of long-run determinants of housing prices: focusing on the sales price of Korean apartments

Long-Run Determinants of Inflation in Malaysia and Indonesia: Does Geopolitical risk matter?

This study attempts to investigate the determinants of inflation in Malaysia and Indonesia in the long run. By using macroeconomic variables that theoretically matter to manage inflation such as money supply and exchange rate, this study also includes geopolitical risk index as proxy of uncertainty to be investigated further as another determinant that may cause the increasing of inflation rate in Malaysia and Indonesia. The data covers the period 2014:M11 to 2023:M8. Autoregressive distributed lag (ARDL) approach is employed to determine the long-run relationship. The main findings in this study demonstrate that the money supply and geopolitical risk are among the determinants of inflation in Malaysia in the long run. Meanwhile contrary to that, only money supply determines inflation in Indonesia. The finding indicates that money supply and geopolitical risk matter to inflation management. Hence, this study suggests that monetary authorities must take an active role towards money supply and geopolitical risk issue.

An empirical re-investigation for verifying the pollution haven hypothesis concerning the foreign direct investment-carbon intensity nexus: Contextual evidence from BRICS

Since the BRICS countries make noteworthy contributions to global economic outputs and also account for around half of the total volume of carbon dioxide emitted worldwide, greening the economic growth processes and facilitating clean energy transition across these emerging nations have significant relevance at the global scale. Therefore, this study aims to assess the long-run determinants of carbon intensity levels of economic output and energy use in the context of the BRICS countries over the period spanning from 1998 to 2021. Specifically, this analysis is conceptualized to examine the non-linear carbon intensity-influencing impacts of incoming foreign direct investment through the lens of the widely-acclaimed pollution haven hypothesis, while controlling for other major macroeconomic factors. In this regard, advanced panel data estimators that are robust to negating issues related to cross-sectional dependence, heterogeneous slope coefficients, and endogeneity are utilized. In a nutshell, the results ultimately verify the pollution haven hypothesis by confirming the inverted U-shaped nexus between foreign direct investment inflows and carbon intensity levels of economic output. On the other hand, incoming foreign direct investment is found to monotonically increase, albeit at a decreasing rate, the carbon intensity levels of energy use. Besides, more renewable energy deployment and technological progress are identified as carbon intensity-inhibiting factors while institutional quality improvement, financial development, and international trade are responsible for amplifying carbon intensity levels, especially those related to economic output production. Hence, based on these findings, several policies are recommended for the BRICS countries to gradually green their economic growth processes and successfully undergo the clean energy transition so that their future carbon intensity levels can be contained to a large extent. These findings are expected to guide the BRICS nations in enhancing compliance with the pledges they made by signing the 2030 Sustainable Development Goals agenda of the United Nations.

Nurse migration: Long-run determinants and dynamics of flows in response to health and economic shocks

The COVID-19 pandemic has exacerbated the global shortage of nurses and doctors, highlighting the need for countries to aim for greater self-sufficiency in their health workforce rather than relying on foreign recruitment to meet excess demand. By using gravity models and taking advantage of rich data over the period 2001–2021, we examine the determinants of qualified nurse migration to OECD countries and investigate how macroeconomic imbalances impact nursing labour markets across time and place. We find evidence that economic recession in origin countries can lead to an increased loss of medical personnel, which could worsen the nurse deficit there. Source countries are particularly vulnerable to a nurse deficit if a recession is followed by a health shock that increases the demand for healthcare. However, a health shock temporarily reduces the number of nurses leaving and hence decreases the number of incoming nurses in destination countries. Recessions in destination countries reduce the number of arriving nurses there. Our study also captures the role of place in nurse migration by investigating heterogeneity in nurse migration across the main geographic source regions worldwide.

Contributions of Investment and Employment to the Agricultural GDP Growth in Egypt: An ARDL Approach

This paper explores the impact of investment and employment on Egypt’s agricultural growth during the period 1991 to 2021 using annual time series data. We use the ARDL approach to examine the long-run and short-run relationships among agricultural investment, agricultural employment and agricultural GDP. The results reveal that the variables of interest are bound together in the long run. The long-run relationship and the error correction model are estimated. The accompanying equilibrium correction proves that long-run linkages exist in a meaningful way. Results show that agricultural investment and agricultural employment are major short- and long-run determinants of the agricultural GDP. In the long run, every 1% increase in agricultural employment (AEMP) results in an increase in the agricultural GDP (AGDP) of 3.73%, while every 1% increase in agricultural investment (AINV) improves the AGDP by 0.43%. In the short run, 26% of all disequilibrium-causing motions are adjusted for in a single session. Therefore, it takes 3.85 years for the Egyptian agricultural GDP to achieve the transition from a short-term disequilibrium situation to a long-term equilibrium. Thus, decision makers should increase the rates of investment in the agricultural sector, in parallel to the development of the agricultural labor force in Egypt. Moreover, the increased allocation of public investments and the injection of private investments are highly recommended. In addition, the Egyptian agricultural sector needs improvements regarding human capital development and agricultural training. Finally, the government must initiate comprehensive farmer support services, bolstered farm/non-farm links and the promotion of rural SMEs to serve as the foundation for agricultural and rural development.

Market development of Islamic banking in Pakistan and its economic impact

Purpose This study aims to examine the dynamics of the market development of Islamic banking in Pakistan. This study investigates how shocks to the economy in the form of changes in benchmark rate and exchange rate and internal factors such as efficiency, profitability and asset quality affect the development of Islamic banking. The study also evaluates the impact of Islamic banking on the real economy in the macro perspective and society at large in terms of inclusiveness, competitiveness and fairness. Design/methodology/approach Autoregressive distributed lagged model method is used for analysing the short-run and long-run determinants of market development of Islamic banking and the economic impact of Islamic banking on the real economy. Findings Profitability and exchange rate have a positive effect on market development of Islamic banking while higher inefficiency and interbank rate have a negative effect. On the other hand, financing intensity and profitability in Islamic banking positively affect the large-scale manufacturing sector. Practical implications Stable profits, high asset quality, efficiency and rising import demand with low policy rate environment complement Islamic banking growth. Moreover, the economic assessment shows that Islamic banks have been able to achieve the financial inclusion of those who want to avoid Riba, but they need concerted efforts to improve competitiveness and distinction with regard to distributional impact. Originality/value To the best of the authors’ knowledge, this is the first study in Pakistan to evaluate determinants of market development of Islamic banking taking 16-year quarterly data and assessing the economic effects of Islamic banking on inclusiveness, competitiveness and fairness.

Income Inequality, Income Growth and Government Redistribution in Malaysia: What Do We Know in the Long Run?

Malaysia has a good track record of reducing income inequality, especially between ethnic groups. In recent years, increasing attention has been paid to national inequality – notably by targeting the bottom 40% income group while sustaining growth with inclusivity. This paper uses the latest cointegration technique, namely, the augmented autoregressive distributed lag (A-ARDL) to examine the long-run determinants of income inequality in Malaysia. The long-run results suggest that income inequality is negatively driven by real GDP per capita and government redistribution of income. The findings provide some possible policy implications that could reduce income inequality in the long run, in particular, through the enhancement of the quality and skills of the workforce, and the government’s benevolent role by using redistributive instruments such as progressive income tax and cash transfers to low-income groups.

Which are the long-run determinants of US outward FDI? Evidence using large long-memory panels

This paper analyzes the long-run determinants of US outward FDI (OFDI) stock, focusing mainly on the Euro Area (EA) for the period 1985–2019. We consider a sample of 54 developed and emerging host countries representing over 70% of the total US OFDI stock. We aim to capture different determinants by country groups zooming in on the European Union (EU). We implement a Dynamic Common Correlated Effects Pooled Mean Group (DCCEPMG) estimator for this aim. Our econometric approach is especially suited for analyzing integrated economic areas as it allows us to deal with cross-section dependence (CSD), non-stationarity, structural breaks, and slope homogeneity usually present in large panel data. Our main results suggest that horizontal (HFDI) and vertical (VFDI) strategies coexist for all country groups. However, as we move towards more homogeneous groups, the results show the greater importance of VFDI. Additionally, we find that some variables have a common long-run effect on US OFDI, especially for smaller and more homogeneous groups.

Short- and long-run determinants of the price behavior of US clean energy stocks: A dynamic ARDL simulations approach

This paper aims to identify factors that drive US clean-energy stock price movements in the short and long term, using a wide range of variables representing the carbon emission market, non-green financial assets, non-renewable commodities, macroeconomic fundamentals, investor attention and sentiment, and global stress and uncertainty. The empirical investigation is carried out in the context of the elastic-net regularization (ENET) approach and dynamic simulations of the autoregressive distributed lag (DYNARDL) model, with proper consideration to the potential presence of structural changes. From among 26 candidate variables, the ENET selects the clean technology market, public attention to clean energy, oil, and gold as the primary factors contributing the most to the behavior of clean-energy stock prices. The estimation results of the DYNARDL model suggest that the clean technology market and oil are vital determinants in the short and long run, while public attention and gold tend to affect clean-energy stock prices only in the short run. Furthermore, the respective magnitudes of influence of the four variables are larger in the short term than in the long term. Our findings offer practical implications for socially responsible investors and policymakers.

Food import demand with structural breaks, economic embargo and the COVID-19 pandemic in a wealthy, highly import-dependent country

PurposeQatar, a wealthy country with an open economy has limited arable land. To meet its domestic food demand, the country heavily relies on food imports. Additionally, the over three year-long economic embargo enforced by regional neighbors and the covariate shock of the COVID-19 pandemic have demonstrated the country's vulnerability to food insecurity and potential for structural breaks in macroeconomic data. The purpose of this paper is to examine short- and long-run determinants of Qatar's imports of aggregate food, meats, dairy and cereals in the presence of structural breaks.Design/methodology/approachThe authors use 24 years of food imports, gross domestic product (GDP) and consumer price index (CPI) data obtained from Qatar's Planning and Statistics Authority. They use the autoregressive distributed lag (ARDL) cointegration framework and Chambers and Pope's exact nonlinear aggregation approach.FindingsUnit root tests in the presence of structural breaks reveal a mixture of I (1) and I (0) variables for which standard cointegration techniques do not apply. The authors found evidence of a significant long-run relationship between structural changes and food imports in Qatar. Impulse response functions indicate full adjustments within three-quarters of a year in the event of an exogenous shock to imports.Research limitations/implicationsAn exogenous shock of one standard deviation on this variable would reduce Qatar's food imports by about 2.5% during the first period but recover after the third period.Originality/valueThe failure of past aggregate food demand studies to go beyond standard unit root testing creates considerable doubt about the accuracy of their elasticity estimates. The authors avoid that to provide more credible findings.

Short- and Long-Run Determinants of the Price Behavior of Us Clean Energy Stocks: A Dynamic Ardl Simulations Approach

Short- and Long-Run Determinants of the Price Behavior of Us Clean Energy Stocks: A Dynamic Ardl Simulations Approach

Does Environmental Quality Drive Health Spending? A Cross-Country Analysis

The paper aims at empirically investigating the long-run explanatory power of environmental quality and energy intensity towards aggregate health spending volumes for a set of 108 countries. The significance of CO2-related pollution and energy intensity levels as long-run determinants of health spending is well-evident, as proven from modern pooled data econometric procedures applied. Keeping in view the previous research on the subject, the sample set of countries is disaggregated into four distinct groups by following the World Bank’s country classification scheme i.e. low-income, lower-middle income, upper- middle income, and high-income countries. The hypothesized relationship between health spending, environmental pollution and energy intensity is empirically verified by employing the residual based (Pedroni cointegration test) and maximum likelihood based (Fisher- Johansen panel cointegration) test of co-integration. The obtained result reveal that plausible inter-relationship between carbon-related emissions and the consequent rise in health spending is found to be existing more prominently for upper-middle and high-income countries, relative to low- and lower-middle income countries, where the proposed relationships are found to be existing at less substantial levels. For the former set of countries, the series bears a positive and statistically significant coefficient value of 1.14 and 0.05, respectively. Energy intensity on the other hand turns out to be even more important long-run determinant of health expenditure. For upper-middle- and high-income country groups, the series bears a negative coefficient value of 0.20 and 0.22, respectively, with high degree of statistical significance. The negative coefficient value of energy intensity series implies that managing the levels of energy intensity up to optimal levels may contribute positively to reducing the growing volumes of public and private health spending.

Bank-specific capital requirements: Short and long-run determinants

This paper studies the determinants of the Pillar 2 capital requirements (P2R) of banks directly supervised by the ECB between 2016 and 2021. Drawing on the ECB's Supervisory Review and Evaluation Process (SREP) to identify the list of potential drivers of P2R, we estimate the impact on P2R by employing a method that separates long-run from short-run determinants. Our results suggest that in (i) the long-run, the P2R is mostly driven by credit risk, funding risk, and governance, whereas (ii) profitability and market risk seem to be the main short-run determinants of P2R. Furthermore, we find evidence that suggests the supervisor incorporates proportionality in the P2R decisions. Effectively, our sensitivity analyses show considerable differences in the long-run determinants of P2R according to the level of capital, size, and access to market funding of supervised entities.

The macro determinants of the drop in Pakistan’s long run GDP growth

This paper attempts to address the long-run determinants of trend GDP growth in Pakistan for years 1973 till 2017. The theoretical framework chosen has been the Keynesian general equilibrium framework of aggregate demand, decomposed into the macro aggregates of consumption, investment, government expenditures, exports and imports (Keynes, 1937). The analytical strategy we have used is to establish first whether there has been a discrete drop in GDP growth at any particular break date. Establishing a break date allows us to define two periods of GDP growth, a higher growth period, followed by a lower growth period. The determinants of GDP growth can then be established, by looking for correlated changes in their behavior between the two time periods. Our findings suggest that high GDP growth in the first phase, pre-1992, is explained by high investment growth. Paired with a Marginal Propensity to Consume in this phase which is low. Making this high GDP growth phase investment led. Low GDP growth in the second phase, post-1992, is now explained by low investment growth. Paired with a Marginal Propensity to Consume, in this phase which is higher. Making this phase consumption-led.

The long-run determinants of redistribution: evidence from a panel of 47 countries in 1967–2014

The long-run determinants of redistribution: evidence from a panel of 47 countries in 1967–2014

Strengthening Nigeria’s Weak Economy; Does Agricultural Exports Really Matter? Evidence from Cotton Seed Exports

Following recent weakness in Nigeria’s economy, this paper examines how to possibly strengthen the weak economy through agricultural exports particularly cotton seed exports. The paper combines data on yearly cotton seed exports in Nigeria over 46 years (1970-2015) with data on the determinants to examine the relevant variables. Co-integration approach was used in analyzing the data to examine the presence of a co-integrating relationship between the variables in the short and long run. There are two main results from the study. First, the export of cotton seed in Nigeria within the study period was low and fluctuating apart from the 70s when it was high and stable. Second, there was Co-integration relationship between cotton seed export and macroeconomic factors during the study period in Nigeria as it indicated that producers’ price, exchange rate and output are long-run determinants of cotton seed exports. The results therefore indicate that commitments to policies and programmes that can favourdeterminants of cotton seeds exports in Nigeria are calls certainly in the right direction to strengthen its weak economy. These include the provision of export incentives such as removal of stamp duties from export trade, provision of explicit export bonuses, aligning producer price with export price as well as encouraging private sector inclusion through the provision of an enabling environment for the private sector to flourish and get involved in the strengthening of the weak economy. The paper has contributed to agricultural development policy implications connected with agricultural export programs for the government, investors, exporters and farmers in Nigeria.

From Fossil Energy to Renewable Energy: Why is Circular Economy Needed in the Energy Transition?

For decades, renewable energy consumption has been presented as the ultimate solution to reduce pollutant gas emissions. However, their production, marketing, and, above all, consumption are not entirely climate neutral, so society needs new practices, such as circular energy, to achieve a more efficient energy transition (Khan et al., 2021a; Khan et al., 2021d). This study aims at exploring the effects of energy intensity, renewable energy consumption and forestation on CO2 emissions for developed and developing countries. Owing to cross-country income disparity, the data were categorized into four distinct groups: lower, lower-middle, upper-middle, and high-income over the period of 1980–2018. The Pedroni and Fisher-Johnson estimators of pooled data are employed for determining the plausible presence of a long-run co-integrating relationship between model variables. For all four country groups, Pedroni cointegration testing results reveal a significant long-run association between CO2 emission and its determinants. However, the Fisher-Johansen estimator yield mixed results, with low- and lower-middle income country groups outperforming the other two groups. However, the magnitude of this long-run association is less substantial, particularly in case of renewable energy consumption and forestation. For all country groups, energy intensity turns out to be the most influential long-run determinant of CO2 emissions, holding a positive coefficient value ranging from 0.30 to 1.31. Renewable energy consumption is the second most important long-run determinant of CO2 emissions. In case of forestation, the series imparts (statistically) significant long-run effects only for lower-middle-income countries. The overall results back the idea of curtailing the existing levels of energy intensity and encouraging the exploration and the use of renewable energy sources as a policy tool against controlling the prevalent situation of carbon-based emissions in our subject group of countries.

Short-run and long-run determinants of bitcoin returns: transnational evidence

PurposeBitcoin has emerged as a phenomenal asset earning abnormal profits. However, the factors with predictability power over its price are not widely studied. Therefore, this study aims to explore the factors that determine bitcoin prices. The analysis explores the determinants belonging to four categories – macro economic, financial, technical and fundamental factors.Design/methodology/approachThe study employs random effects regression on the panel data of five countries. Then Granger causality test is applied on the time series of all the variables. Lastly, diagnostic tests are conducted to confirm the findings to be robust and reliable.FindingsThe findings suggest that oil price, bitcoin supply, trading volume and market capitalization significantly impact the price of bitcoin in the long run. In short run, bitcoin returns are only caused by oil price and market capitalization. Interestingly, bitcoin returns influence its attractiveness to investors, market capitalization, S&P 500 returns and trading volume, in the short run.Practical implicationsThe technical analysis is found to be redundant in the short run. In the long run, technical as well as fundamental analysis are useful. The bitcoin is found to be a good diversification tool as it has no linkages with the stock markets and gold market. It is also an inflationary hedger owing its limited supply.Originality/valueThe studies on cryptocurrency market have not conducted the analysis across countries. This study captures the cross-sectional effects along with time effects. The study also includes 17 variables belonging to four categories.