Long-run Equilibrium Research Articles

Foreign Direct Investments and Economic Growth of an Emerging Economy: Implications for Nigeria (2009 – 2023)

The study used an ex-post facto research design to examine the relationship between economic growth (EGR) and foreign direct investment (FDI) in Nigeria from 2009 Q1 to 2023 Q4. Secondary data from the World Bank and the Central Bank of Nigeria were employed, with a regression model to explain the link between EGR and FDI. The model included variables such as net foreign direct investment (NFDI), exchange rate (EXCH), trade openness (TROPN), external reserves (EXRSV), and government debt (DEBT). The study utilized the Johansen Cointegration test, specifically the trace test, to determine the long-run relationships between the variables. Further, an error correction model (ECM) was used to assess short-run dynamics, including the speed of adjustment toward long-run equilibrium. Lastly, the study applied Fully Modified Ordinary Least Squares (FMOLS) to estimate the long-run relationships once cointegration was confirmed. The study found that net foreign direct investment (NFDI) has a statistically significant negative effect on economic growth (EGR) in Nigeria. The analysis revealed that a unit increase in NFDI results in a decrease of approximately 365.96 units in EGR. The p-value of 0.0033, which is below the 5% significance level, confirmed this negative relationship. The study therefore recommends that the Nigerian government strengthen institutional frameworks, promote sectoral diversification by attracting FDI into underdeveloped sectors, and invest in infrastructure and human capital development to foster a conducive business environment, enhance local linkages, and improve productivity for sustainable economic growth.

Effects of Global Value Chain Participation on Economic Growth and Carbon Emissions: A Panel VAR Analysis

This study explores the effects of forward and backward participation in Global Value Chains (GVCs) on economic growth and carbon emissions, using inter-country input-output (ICIO) data from 1995 to 2018. While prior research has either focused on bivariate relationships or failed to distinguish the distinct impacts of forward and backward GVC participation, this study makes a novel contribution by simultaneously analyzing these variables within a panel vector error correction model (VECM). This approach enables the isolation of directional GVC effects, incorporates long-run equilibrium relationships, and minimizes the potential for intervariable endogeneity. The study yields three key findings. First, we observe a positive long-run relationship between GVC participation and economic growth, irrespective of the direction of participation. Second, evidence of cointegration and dynamic causal relationships is found among GVC participation, economic growth, and carbon emissions. Third, we demonstrate that forward GVC participation has a negative causal effect on carbon emissions, while backward GVC participation is associated with positive causality. These results support the potential for sustainable economic development through GVC participation. Moreover, when countries are classified as environment-friendly or less environment-friendly, our findings indicate that sustainable growth is more achievable in environment-friendly countries.

Artificial intelligence’s (AI’s) role in enhancing tax revenue, institutional quality, and economic growth in selected BRICS-plus countries

Abstract The BRICS countries, comprising Brazil, Russia, India, China, and South Africa, aim to achieve United Nations Sustainable Development Goal 8, which emphasizes sustainable economic growth. This study adds to the empirical literature by examining the impact of tax revenue and institutional quality on economic growth, incorporating the role of artificial intelligence (AI) in selected BRICS-Plus countries (the above-mentioned five countries) from 2012 to 2022. Utilizing the innovative Cross-Sectional Augmented Autoregressive Distributed Lag estimation technique, the analysis reveals a long-run equilibrium relationship among the variables. The study employs a modified Cobb–Douglas production function for its theoretical framework. The results indicate bidirectional causality between tax revenue and AI, economic growth and institutional quality, as well as institutional quality and tax revenue. Based on these findings, the study recommends that BRICS governments and policymakers enhance the integration of AI into tax systems to promote growth in both the short and long terms. However, it also advises caution regarding the interaction between AI and institutional quality, which did not support economic growth. While the AI and tax revenue interaction shows promise for fostering growth, robust measures are necessary to mitigate potential negative effects from AI’s interaction with institutional quality. Consequently, the study advocates for the development of AI-friendly institutional policies in BRICS countries, considering the dynamic and rapidly evolving AI sector.

Examine the long run effect of corporate governance on Ghana SIC’s financial performance

This study examine the long run effect of corporate governance on Ghana SIC’s financial performance. The study employs the Autoregressive Distributed Lag (ARDL) technique to investigate the multifaceted relationship between corporate governance and the financial performance of SIC (Sampled Industrial Company). Using time-series data spanning from 2017 to 2021, the study examines both the long-term and short-term impacts of corporate governance on SIC's financial performance while considering the influence of a control variable, firm size. The dependent variables in this analysis are return on assets, while the independent variables encompass board size, board composition, and CEO tenure at SIC. The control variable utilized was firm size. To assess the hypotheses, regression analysis was conducted, resulting in the identification of long-run equilibrium relationships among the variables. In terms of the long-term effects, the study found board size and board composition do not exert significant influences on SIC's financial performance. Conversely, CEO tenure at SIC was found to have a statistically significant negative impact on financial performance in the long run. Moreover, when considering the control variable, firm size demonstrates a highly significant negative impact on return on assets at SIC in the long run. The findings of this study provide valuable insights into the complex interplay between corporate governance and financial performance, shedding light on the nuanced effects of board size, board composition, CEO tenure, and firm size on SIC's financial outcomes. The study recommend that, by prioritizing stability in CEO leadership, focusing on board effectiveness beyond composition, and actively managing the challenges associated with firm growth, SIC can enhance its financial performance and ensure sustained success in the long run.

Public capital investment spike events: the regional dimension in Greece

Deviating from the standard practice of linking public infrastructure and regional output expansion through a linear long-run equilibrium relationship, we consider the case where public investments follow a ‘bumpy’ path instead. According to the political business cycles theory, we argue that public infrastructure investments occur in a lumpy manner at the beginning of the electoral period, with reduced activity between spikes. In this framework, we propose a novel methodology applied in a different context to identify the role of investment spikes on the performance of Greek regions from 1995 to 2015. To the best of our knowledge, this is the first research focusing on the relationship between spikes in public investments and their impact on regional development. To address the research question, we utilize a difference-in-differences (Diff in Diff) model. However, it is important to note that this approach is susceptible to endogeneity concerns, particularly it might suffer from omitted variable bias, a form of endogeneity. The analysis shows a strong increase in regional labor productivity, peaking three years after the shock.

Remittance and Inflation Dynamics in Nepal: An Econometric Analysis

This empirical study investigates the remittance and inflation dynamics in the present context of Nepal. Major objective of the study is to find out the impact of remittance on inflation in Nepal. It also aims to find out the relationship between CPI and the independent variables- remittance, exchange rate, money supply and population. Data were obtained from the published source of world bank from 1993 to 2022. Augmented Dickey-Fuller unit root test was implied to test the stationary situation of the variables to remove the problem of spurious regression. After confirming some variables were integrated in I (0) and some are in I (1) order, ARDL model was applied to find out co-integration of the variables for long run relationship. Error corrections model was used after ARDL model that helps to show the speed of adjustment towards long-run equilibrium. Results show remittance and inflation are co-integrated and the coefficient of error correction term was negative and significant which indicates the long-run relationship. So remittance from foreign sectors should be used not only in consumption sectors that promotes inflation but it should be used in productive sectors too. This study will be helpful to policymakers whether remittance is causing inflation in the country.

Examining the Impact of Macroeconomic Variables on the NEPSE Index: VECM Approach

NEPSE plays a pivotal role in Nepal’s financial ecosystem, fostering economic growth, corporate development, and investment opportunities. The study of macroeconomic variables’ impact on the NEPSE Index is significant as it provides insights for investors and policymakers to make informed decisions, enhancing market efficiency and economic stability. This study examines the impact of macroeconomic variables on the NEPSE Index using secondary data from 1994 to 2023 and the VECM approach, revealing a long-run equilibrium among variables with significant influences from GDP, WTI, IR, and M2. The analysis highlights rapid adjustments towards equilibrium, negligible effects from lagged GDP and IR changes, and asymmetric causal relationships observed in Engle-Granger tests. The regression analysis shows moderate explanatory power with significant model fit indicators and reveals no residual autocorrelation or serial correlation, suggesting robustness in modeling the NEPSE Index dynamics. Recommendations include leveraging these findings for targeted policy interventions to enhance market stability and investor confidence.

Relationship Between Money Supply and Economic Growth of Nepal: VECM Approach

Several theories elucidate the correlation between money supply and gross domestic product (GDP). Money supply refers to the total amount of money in circulation within an economy, encompassing currency, printed notes, funds in deposit accounts, and other liquid assets. Assessing the valuation of money supply assists analysts and policymakers in formulating or adjusting monetary policies, whether to increase or decrease the money supply. This valuation is crucial as it directly influences the business cycle, thus impacting the overall economy. This study delves into the relationship between money supply and economic growth in Nepal from 1975 to 2021 using co-integration, VECM, and causality tests. ADF tests reveal non-stationarity at the level but stationarity at the first difference, affirming long-run equilibrium with a single error correction term. VECM analysis unveils a notable ECT coefficient (-1.095592, p-value: 0.0042), indicating adjustments from past year deviations at a rate of 0.42%. Short-term dynamics demonstrate varying significance levels, with money supply (M2) leading to GDP, GDP leading to private investment (PI), private consumption (PC) leading to GDP, money supply (M2) leading to private investment (PI), money supply (M2) leading to private consumption (PC), and private investment (PI) leading to private consumption (PC), all showing significant unidirectional causal relationships at the 5% level. The study proposes increasing the money supply as a means to attain higher and swifter economic growth in Nepal.

Industrial and service sectors’ growths: an empirical investigation of the effects on income inequality in Nigeria

This study empirically investigated the implications of industrial and service sectors’ growths on income inequality in Nigeria from 1985 to 2022, using data sourced from the Central Bank Nigeria Statistical Bulletin and the World Bank’s Development Indicators. The causal variables which include growth rates in the construction, manufacturing, mining and service sectors were regressed on Gini index as proxy for income inequality. The Autoregressive Distributed Lag (ARDL) estimation procedures were employed. The pre-diagnoses of Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root revealed I(1) and I(0) mixed orders of integrations and the ARDL bounds cointegration established a long-run equilibrium relationship among the variables. The estimated current period short-run ARDL results indicated that construction and service sub-sectors’ growth rates had positively significant influences on the level of income inequality in Nigeria, growth rate in the manufacturing sub-sector exerted negatively significant effect and that of mining sub-sector positively but insignificantly impressed on income inequality while the one year lagged short-run results established that all the regressors negatively and significantly influenced income inequality level in Nigeria. The long-run results revealed that while all the explanatory variables appeared positive, construction and manufacturing sub-sectors’ growth rates had insignificant effects on income inequality in Nigeria. These findings were validated by the applied post-diagnostic tests. The study concluded that the immediate past year’s growth rates of the industrial and service sectors significantly moderated income inequality in Nigeria during the sampled period. It is consequently recommended among others that government should encourage reinvestment of economic growth gains from the referred sectors to ensure employment driven growth performances for sustained curtailing of income inequality in Nigeria. Keywords: Industrial Sub-sector, Service Sub-sector, Sub-sectors’ Growths, Income Inequality, Autoregressive Distributed Lag (ARDL) Procedures, Nigeria.

War and Economic Growth: An Analysis Based on Extended Solow Model

ABSTRACT This paper presents an analysis of the dynamics of economic growth in war and post-war periods. For this purpose, we introduce an extended neoclassical model of economic growth with the civilian and military production sectors which is based on the Solow model. The war period is characterized by gradual transfer of capital and labor from the civilian sector to the military sector. The negative impact of war on capital stock and population is also examined. We find that war has only a transient effect on a long-run equilibrium. However, its short-run dynamics is determined by initial conditions imposed on the economy at the beginning of war and the characteristics of the war itself.

Price signals across onion markets in Tamil Nadu

This research investigates price volatility and market integration within select small onion markets across Tamil Nadu, India. Using monthly wholesale price data from the Dindigul, Chennai, Coimbatore, and Idukki markets for the period 2014 to 2023, the study employs an array of econometric methods to analyze price dynamics and market interconnections. The ARCHGARCH model analysis revealed high price volatility persistence in selected small onion markets with the Coimbatore market displaying the highest levels of volatility. The Augmented Dickey-Fuller test established stationarity within the price series, while cointegration tests indicated a long-term equilibrium relationship across the markets analyzed in Tamil Nadu. Further examination through the Granger causality test revealed that price movements in the Coimbatore market had a causal impact on the Dindigul market. Additionally, the markets in Coimbatore, Dindigul, and Chennai were shown to exert influence over the Idukki market in Kerala. The Vector Error Correction Model (VECM) analysis demonstrated that in response to disequilibrium across the Coimbatore, Chennai, Dindigul, and Idukki markets, short -run price adjustments occurred at rates of 41%, 45%, 46%, and 48%, respectively, working towards restoring long-run equilibrium. In the Dindigul market, price adjustments with a one-month lag had a notable influence on current prices within Coimbatore, Chennai, and Dindigul. These findings underscore the interconnected nature of small onion markets within the region and shed light on price behavior patterns. Insights derived from this study could inform policy measures aimed at stabilizing prices and enhancing market efficiency in the small onion markets.

The Effect of Climate Change on Agricultural Output in Ethiopia

Globally, the most pressing environmental issue at the moment is thought to be climate change. The resulting effect is a clear deterioration in both overall economic growth and agricultural output. The objective of the study was to look at how climate change might affect Ethiopian agricultural productivity in the short- and long-run between 1990 and 2023. An analysis of the short- and long-run effect of climate change on agricultural output was conducted using the ARDL cointegration approach. For the unit root test, the ADF test was employed. The results of the bound test exhibit that the real agricultural GDP, labour force, average annual rainfall, carbon dioxide emissions, average annual temperature, agricultural land and imports of fertilizer inputs have a stable long-run relationship. The estimated long-run model shows that the country's main component of GDP, agricultural output, is significantly impacted by climate change. The error correction term's coefficient is -0.783, indicating an annual adjustment of nearly 78.3% percent towards long-run equilibrium. The estimated coefficients of the short-run show that mean annual rainfall have a significant effect whereas the average temperature is an insignificant effect on output. Average temperature has a negative effect on agricultural output over the long run, whereas mean annual rainfall has positive effect. These are the two key variables of significance. According to the study, in order to lessen the effects of climate change, the government and other stakeholders should develop specific policies. They should also concentrate on technological innovation that prevents temperature increases from increasing output and the adoption of technology at both the macro and micro levels.

Impact of Fossil Fuel, Renewable Energy, and Public-Private Partnership Investments on Sustainable Growth and Carbon Emissions in Pakistan

This paper examines the longer-term and causal impact of public-private partnership (PPP) investment in energy and technological innovation on consumption-based carbon emissions in Pakistan during the period from 1990 to 2023. This analysis includes important covariates, such as international trade (exports and imports), economic growth (GDP), and renewable energy consumption, to explore the factors influencing Pakistan's carbon emissions. The theoretical lens for the study is based on the Environmental Kuznets Curve (EKC) theory, which posits that economic growth can initially lead to rising carbon emissions, but stronger long-term technological development and a transition towards renewable energy would turn the tide against environmental degradation. Moreover, Transition Theory emphasizes the importance of PPPs and technological innovation in transitioning Pakistan's energy system from fossil fuels to sustainable energy solutions. By employing advanced estimation techniques, including the Maki cointegration test (1996) that accounts for multiple structural breaks, the research shows that the variables in question are bound in a long-run equilibrium relationship. An export and consumption of renewable energy indicate significantly reduced consumption-based carbon emissions, while more imports, GDP, and (PPP) investment in non- renewable energy positively relates to increased emissions according to results for 182 countries. Overall, the study presents solid empirical proof that trade, technological changes, and a move toward renewable energy can help lower carbon emissions in Pakistan. The authors further recommend the establishment of policies to promote renewable energy investments via PPPs, foster technological progress in low-carbon technologies, implement carbon pricing instruments, such as taxes on energy-intensive goods, and harmonize trade policies to promote low-carbon exports"

Challenges for low-carbon economies in Latin America. Testing pollution haven hypothesis in developing countries

Our research investigates the determinants of CO₂ emissions in Latin American countries (LAC), focusing on the roles of renewable energy consumption (RENC), economic growth (GDP), foreign direct investment (FDI), urbanization (URB), and access to electricity (ACEL). Employing a panel ARDL model, we account for both short-run and long-run dynamics between CO₂ emissions and their determinants. In the long run, RENC demonstrates a significant negative impact on CO₂ emissions (-0.15). Higher-order terms of RENC reveal non-linear effects, with RENC² showing a positive coefficient (0.05) and RENC³ a negative coefficient (-0.006), indicating diminishing returns as renewable energy consumption increases. Economic growth is positively associated with CO₂ emissions (0.1), reflecting the trade-off between economic expansion and environmental sustainability. FDI has a small but significant negative impact on emissions (-0.0003), while ACEL also reduces emissions (-0.03). In the short run, CO₂ emissions adjust to long-run equilibrium at a rate of -0.04, with GDP exerting the strongest short-run influence. The Energy Kuznets Hypothesis for CO₂ emissions is found to be a monotonically decreasing function of RENC, implying that as RENC increases, CO₂ emissions consistently decrease, albeit at a slower rate. The error correction term (ECT) is negative and significant (-0.04), indicating that CO₂ emissions adjust towards the long-run equilibrium by about 4% each period. The Dumitrescu-Hurlin panel causality test confirms bidirectional causality between RENC and CO₂ emissions. Unidirectional causality is also observed from URB to CO₂ emissions and from CO₂ to ACEL. Variations in energy consumption profiles and stages of economic development across the region explain differing impacts of RENC and FDI on emissions, where some countries experience the pollution haven effect, while others benefit from the pollution halo.

Infrastructure Development And External Financing Nexus In Sub-Saharan Africa: Panel Vecm Analysis

Abstract Research background It is evident that relying solely on domestic financing cannot bridge the infrastructure gap in the Sub-Saharan African (SSA) region. Therefore, exploring alternative sources of financing becomes crucial to complement domestic efforts and address the infrastructure needs effectively. Purpose This study investigates the relationship between infrastructure development and external financing factors (foreign direct investment – FDI, private participation in infrastructure – PPI, and official development assistance – ODA) by considering the short- and long-run equilibrium and their causal direction. Research methodology These objectives are achieved by employing the panel vector error correction mechanism (PVECM), impulse response functions (IRF), variance decomposition analysis (VDCs), and VAR causality on a dataset covering 43 SSA countries from 2000 to 2021. Results The results reveal the presence of feedback causal relationships between infrastructure development and external financing factors, and PVECM results demonstrate that only private participation in infrastructure has a positive influence on infrastructure development both in the long and short-run, while ODA and FDI only influence infrastructure development in the long- run. Novelty The current study contributes to the existing literature by examining the impact of external financing factors on infrastructure development, with a specific focus on SSA, by considering the three major external financing factors (PPI, FDI, and ODA) as the determinants of infrastructure.

Pseudo-inclusiveness of Marginalised Section in Economic Growth of India

The study aimed to construct the index of inclusive development in India from 1985 to 2019 using Principal Component Analysis. The analysis revealed a slower initial trend in inclusiveness in India, followed by an observed increase. Additionally, the study examined the growth of the marginalized section using the inclusiveness index through regression analysis. A significant relationship was found between these two variables. However, the Engle-Granger Cointegration Test indicated no long-run equilibrium relationship between them. Finally, the Granger Causality Test suggested a unidirectional relationship from LNEXPMS to LNIDI.

Energy Price Impact on BRIC Stock Markets: A Granger Causality Analysis

Energy prices and the stock market are two of the crucial factors in the evolving landscape of global finance, particularly in major emerging economies. However, research on how energy price changes impact stock markets in BRIC countries remains limited, despite their diverse roles in global energy markets and economies. This study investigates the causal dynamics between energy prices and stock market performance in BRIC countries, aiming to uncover short-term fluctuations and long-run relationships in these major emerging economies. Utilizing daily data from 2013 to 2023, stationarity tests, cointegration analysis, and Granger causality tests are employed to examine these relationships. Key findings reveal weak evidence of a long-run equilibrium between energy prices and stock market indices, challenging previous assumptions about their cointegration. More significantly, the findings uncovered a strong unidirectional Granger causality from oil prices to all BRIC stock market indices, while gas prices show a more selective influence. Notably, no evidence of reverse causality from stock markets to energy prices was found, highlighting the exogenous nature of global energy prices in relation to BRIC stock markets. This study uniquely analyzes oil and gas price effects on BRIC stock markets, offering insights for investors and policymakers amid increasing commodity-financial market integration. Doi: 10.28991/ESJ-2024-08-06-015 Full Text: PDF

Do the daily listing prices of competitors affect long-run demand in the P2P accommodation market?

ABSTRACT This paper analyses whether peer-to-peer (P2P) listings are long-run substitutes for neighbouring P2P listings. To do this, we use a demand framework in which we link the P2P demand (occupancy rate of listings) with both own and competitors’ prices in a flexible multivariate time series fractionally cointegrated vector autoregressive (FCVAR) context. The empirical analysis is based on daily data from the Canary Islands P2P accommodation market from January 2016 to September 2021. Results indicate several aspects. First, there is a long-run equilibrium with one cointegration relation between occupancy rates and own and competitors’ prices. Second, own price elasticity of demand is negative and competitors’ price elasticity is positive, with the effect of competitors’ prices being larger (in absolute value) than that of own prices. Third, the estimated adjustment coefficients indicate that it is rather the occupancy rates and the competitors’ prices that react to deviations from the equilibrium while the effect adjustment of own prices is close to 0.

Impact of International Oil Price Shocks and Inflation on Bank Efficiency and Financial Stability: Evidence from Saudi Arabian Banking Sector

This study examines the short-run and long-run equilibrium relationship between the banking sector’s efficiency and stability and its endogenous and exogenous determinants, such as inflation and international oil price shocks in Saudi Arabia from 2004 to 2022. This study differentiates between the direct and indirect effects of international oil price changes on bank efficiency and stability and investigates how these changes can affect the banking sector through inflation. The first stage uses a panel Autoregressive Distributive Lag (ARDL). The empirical result confirms a long/short-run relationship between oil price shocks and the stability and efficiency of banks. In the long run, the relationship is statistically significant and positive, and it is negative in the short run. On the other hand, this study finds that oil price shocks directly affect the stability and efficiency of banks. In the second stage, this study uses a nonlinear ARD (NARD) to examine the short- and long-run asymmetric impacts of oil price shocks on the stability and efficiency of banks by decomposing the oil price index into positive and negative changes. The findings confirm an asymmetric relationship between oil prices and the stability and efficiency of banks in Saudi Arabia. In addition, a positive change in oil price can affect the stability and efficiency of banks more than a negative one. Overall, the findings highlight the need for policymakers in Saudi Arabia to be vigilant in addressing potential risks arising from oil price fluctuations and to adopt appropriate policy measures to maintain stability and efficiency in the banking sector.

Foreign Direct Investment and Growth in ECOWAS: An ARDL Panel Analysis

This study examines the impact of core macroeconomic indicators on growth across Sixteen (16) West African countries using the Pooled Mean Group (PMG) estimation technique within a Panel ARDL framework. The analysis covers variables such as Foreign Direct Investment (FDI), Gross Capital Formation, percentage of working population growth, access to electricity, and inflation. The findings reveal that the effects of FDI on growth were mixed. While FDI positively impacts real GDP growth in some countries such as Benin, Cabo Verde, and Mauritania, its effect was however, negative in others such as Nigeria and Gambia. Gross capital formation, on the other hand, consistently supports short-run growth across most countries, while inflation emerges as a destabilizing factor. The speed of adjustment toward long-run equilibrium varies significantly, with countries such as Guinea-Bissau and Nigeria correcting economic shocks faster than others. This study contributes to the literature on economic growth dynamics in Africa by showing the heterogeneous responses of these countries to similar macroeconomic factors. It validates the need for country-specific policies that focus on stabilizing inflation, optimizing domestic investment, and effectively leveraging foreign direct investment. Also, improvements in infrastructure and access to markets are crucial for facilitating long-term growth across the region. The study provides valuable insights for policymakers and stakeholders aiming to achieve sustainable growth in the ECOWAS region.