Long-run Equilibrium Relationship Research Articles

Retail Interest Rate Differentials in the Eurozone: A Co-Integration Analysis Approach

Over the last decades, despite the remarkable progress toward the harmonization of banking regulation, interest rate differentials in the Eurozone remain large. In this context, rejecting the law of one price as a measure of financial integration, this paper applies the co-integration technique to investigate the presence of a long-run equilibrium relationship among retail interest rates. The data sample of the co-integration analysis conducted in this paper includes three (3) loan and two (2) deposit interest rates data sets from the 12 original Eurozone member countries for the time period 2000–2020, filling in that way the gap in the existing research by extending the application of this methodology to incorporate an updated database. The empirical findings of the paper provide evidence that in most of cases, there is a co-movement and a long-run equilibrium relationship between retail interest rates. On the basis of the co-integration approach, these findings are being perceived as a signal of retail banking market integration in the Eurozone.

Analysis of the Impact of Remittance Inflows on Economic Growth: Evidence from Nigeria

This study investigated the impact of remittances on economic growth of Nigeria using time series data from 1986 to 2018 by examining the long -run and short-run equilibrium relationship between remittances and economic growth. The study used unrestricted Vector Auto regression (VAR), granger causality, Auto regressive distributive lag (ARDL), impulse response function and variance decomposition. The result of ARDL bound test, indicates the existence of long-run equilibrium relationship between remittance inflows and economic growth in Nigeria. The impulse response function, as well as variance decomposition result shows the mixture of both positive and negative shocks from GDP per capita to remittance, household consumption expenditure, foreign direct investment and official development assistance based on the past and current values. The study found the existence of unidirectional causality running from GDP per capita to remittances and foreign direct investment. The study recommends that, government should expand and improve the financial sector and make the process of transfer of remittance much easier and less expensive. This will enable the economy to capture remittance inflows that comes in through informal channels which are usually difficult to capture officially, and also remittances inflows need to be invested into productive sector. This is because without such investment the inflows cannot play any significant role in the economy particularly households that do receive remittance.

Economic Analysis of the Determinants of Citrus Exports in South Africa Post the Era of Trade Liberalisation

The purpose of the study was to analyse the determinants of South African citrus exports post era of trade liberalisations using secondary data from 1996 to 2018. The Johansen Cointegration model was used to test the long-run relationship between the citrus export and the determinants in the post era of trade liberalisation and Ordinary Least Squares regression was used to determine the relationship between citrus export in South Africa and the selected determinants post the era of trade liberalisation. The results of the Johansen Cointegration model show the existence of a long-run equilibrium relationship between citrus exports and the determinants of South African citrus exports. The Ordinary Least Squares regression results provided evidence that citrus production and citrus world market prices are the major influencers of citrus export in South Africa. The Department of Agriculture and the Citrus Associations should make initiatives to ensure an increase in citrus production by promoting development programmes for the citrus producers.

Natural resources: A determining factor of geopolitical risk in Russia? Revisiting conflict-based perspective

Geopolitical risk has recently gained attention in the empirical literature as a significant factor influencing various economic sectors and financial indicators. The relationship between natural resource rents and Geopolitical risk (GPR) has been explored to some extent, focusing on how geopolitical risks affect natural resource rents. However, fluctuations in natural resource rents could also have feedback effects on Geopolitical risk. For this purpose, we analyzed the impact of disaggregated natural resources and GDP growth on the geopolitical risk of Russia by utilizing the data from 1988 to 2021. The bound cointegration test findings conclude that a long-run equilibrium relationship exists among the associated variables. Applying a long-run estimator, the Autoregressive Distributed Lag (ARDL) model results indicated that GDP and forest rents increase GPR. In contrast, oil rents, coal rents, and mineral rents have a decreasing effect on GPR. Moreover, the impacts of resource rents were found to be heterogeneous. The study suggests policies related to promoting economic diversification and addressing income inequality, sustainable forest management practices, and ensuring equitable distribution of benefits that can help reduce social and economic inequality, which may decrease geopolitical risk.

Green finance and ecological footprints: Natural resources perspective of China’s growing economy

Economies across the globe are targeting various economic and financial instruments to attain environmental sustainability. This study explores the influence of green finance on ecological footprints in the case of Chine throughout 1998Q1-2020Q4. Also, it analyze the role of renewable electricity output, natural resources, economic growth, and research and development in realizing ecological footprint. Using time series cointegration approach, the study validates the long-run equilibrium relationship between variables. Three long-run estimators have been used to attain coefficients for each variable. The results asserted that economic growth and natural resources are vital in increasing environmental pollution. However, green finance, research and development expenditure, and renewable electricity significantly reduce ecological footprints and strengthen environmental sustainability. The Granger causality test depicts the bidirectional causal connection between the variables, except for green finance. The results suggest the enhancement in green financing budget, research and development expenditure, and renewable electricity investment are imperative to ensure ecological sustainability.

Asymmetric price transmission and impulse responses from U.S. crude oil to jet fuel and diesel markets

Despite numerous studies on price interdependencies in petroleum markets, the exploration of price transmission from crude oil to jet fuel and diesel remains surprisingly limited. This knowledge gap is particularly remarkable given the increasing economic significance of these fuels and the emerging biojet and biodiesel industries. Filling this research gap, this study employs a nonlinear time series approach that considers unique features of these markets— ‘stickiness’ of firms' responses, asymmetric price adjustments, and the time-dependent responses to oil price shocks. This approach provides a much-needed understanding of long-term price relationships, short-term dynamic adjustments, and price response mechanisms to crude oil shocks in the context of jet fuel and diesel markets. Key results include: (1) both jet fuel and diesel have long-run equilibrium relationships with oil prices; (2) price adjustments of jet fuel and diesel are asymmetric, in opposite directions, due to distinct differences in industrial characteristics; (3) the responses of the two types of fuel prices to oil shocks show nonlinear dynamic paths, with different amplitudes and decay periods. The findings contribute to a better understanding of the current fuel industries, and provide insights into emerging biofuel markets, with implications for businesses and policymakers.

Tourism development influence on environmental quality: how renewable energy use and income matter?

Tourism is a significant economic growth and development source, but it relies heavily on the energy sector and contributes to carbon dioxide (CO2) emissions. This study examines how tourism growth, renewable energy, and real GDP affect CO2 emissions in the BRICS countries. The researchers used panel unit root, Pedroni, and Kao methods to test for a long-run equilibrium relationship among the variables. The results reveal that tourism growth harms CO2 emissions in the long run, with a 1% increase in tourism growth leading to a 0.05% decrease in CO2 emissions. Renewable energy usage also harms CO2 emissions, with a 1% increase in renewable energy leading to a 0.15% decrease in CO2 emissions in the long run. CO2 emissions and real GDP show a U-shaped relationship in the long run, supporting the environmental Kuznets curve hypothesis. This hypothesis suggests that CO2 emissions increase with economic growth at low-income levels but decrease with economic growth at high-income levels. Therefore, the study implies that tourism growth can significantly lower CO2 emissions by promoting renewable energy usage and economic development.

중국 FDI와 환율의 관계에 대한 실증연구

Purpose – Theoretically, exchange rate appreciation and exchange rate volatility may increase or decrease FDI inflows, and the results of empirical analyses are mixed. Given these inconsistent findings, this study aims to empirically investigate the effects of exchange rates and exchange rate volatility on FDI in China. Design/Methodology/Approach – To analyze the effects of exchange rate and exchange rate volatility on FDI, we first generate exchange rate volatility, monthly GDP data, and the difference between long-term interest rates in China and the U.S., and then set the time period of increased exchange rate volatility after 2012 as a dummy variable. We finally investigate the long run equilibrium and the short run dynamics by employing the time series ARDL model. Findings – The estimation results show that the FDI determination model exhibits a long-run equilibrium relationship. In the long and short runs, exchange rate appreciation, increased exchange rate volatility, and the interest rate differential between China and the U.S. inhibit FDI inflows to China. However, GDP growth promotes FDI inflows only in the long-run. Research Implications – By empirically investigating the effects of China's exchange rate and exchange rate volatility on FDI, we may evaluate whether the current reforms of the CNY exchange rate are all in the direction of stability and marketization.

MONETARY POLICY AND SMALL MEDIUM ENTERPRISES (SMEs) PERFORMANCE IN NIGERIA

The Small and Medium Enterprises (SMEs) have been known to play significant roles in promoting economic growth, employment generation and foreign exchange earnings among others, of both developed and developing economies. Monetary policy, on the other hand, actions and strategies employed by a central bank or monetary authority to control and regulate the money supply, interest rates, and credit conditions in an economy. This study therefore, examines how monetary policy affects the performance of SMEs in Nigeria based on the data covering the period from 1981–2020 using the Autoregressive Distributed Lag Model (ARDL). ARDL captures both long-run equilibrium relationships and short-term dynamics, allowing researchers to examine the interplay between variables over time. The study found that monetary policy has not been a potent tool for promoting the performance SMEs in Nigeria

Resources extraction and geopolitical risk: A novel perspective of World's biggest economies

During the last three decades, the issue of the nexus between natural resource extraction and economic growth is still unresolved. Due to conflicting evidence regarding natural resources' role in economic development and the absence of empirical assessment concerning geopolitical risk, this study examines the nexus between these variables in the World's largest economies from 1989 to 2021. This study used panel diagnostic tests to validate the non-normal distribution, slope heterogeneity, and cross-section dependence. Three cointegration estimators validate the long-run equilibrium relationship between the study variables. Using the non-parametric approach, this study found that natural resource extraction, geopolitical risk, and financial development boost these economies' economic growth and performance throughout quantiles. In contrast, the findings validate renewable energy consumption's adverse influence on economic growth across quantiles. The bootstrap quantile regression authenticates the empirical findings as a robust panel estimator. This study suggests efficient extraction and utilization of natural resources, improved financial sector, and reduced geopolitical risk to accelerate economic performance and growth. Also, this study recommends further investment in research and development to enhance renewable production and its efficient consumption.

How technological innovation and electricity consumption affect environmental quality? A road map towards achieving environmental sustainability.

Still the world witnessed an upturn in environmental degradation in spite of commitment to climate change across the nations. However, this study attempts to examine linkages among environmental degradation, technological innovation, and electricity consumption in India from 1981 to 2018 using time series data. To examine the long-run equilibrium relationship among the studied variables, we used robust econometric methods such as the autoregressive distributed lag (ARDL), fully modified ordinary least square (FMOLS), and dynamic ordinary least square (DOLS) methods. Furthermore, Granger causality also investigates through the vector error correction model (VECM) model, to assess inter-connotation among the underlying variables. From our empirical findings, urbanization, financial development, and technological innovation have a negative impact on carbon emissions, indicating long-term improvements in environmental quality. While economic development and electricity consumption are deteriorating environmental quality in India. The study's findings suggest that policymakers should prioritize renewable energy, which decreases environmental damage without impeding economic growth.

Domestic Borrowing and the Nigerian Economy: A Bayesian VAR Analysis

ABSTRACT: The Nigerian government has borrowed for more than three decades to fund the growing fiscal deficit based on a weak tax revenue base. After the repayment of the country's foreign loans in 2006, the borrowing structure has been dominated by domestic loans. Between 2006 and 2020, domestic borrowing has grown by more than 800 per cent. This study examines the effect of domestic borrowing on Nigeria's macroeconomic variables from 1975 to 1980. The variables examined against the effect of domestic borrowing include economic growth, financial development (broad money supply and credit to private sector), external borrowing, interest rate, inflation, industrial production, private investment, trade openness and population growth rate. The study utilised the Bayesian Vector Autoregressive (BVAR) model. The BVAR approach gives more realistic estimations than other VAR models as it considers prior information steady states during analysis. The study also adopts the Cholesky impulse response function and variance decomposition approach in the investigation. The study found a long-run equilibrium relationship between domestic borrowing and other macroeconomic variables. Also, domestic borrowing positively and significantly affected economic growth, industrial production and inflation. However, domestic borrowing negatively and significantly affects trade openness. Although the effect of domestic borrowing on the financial development variables (broad money supply and credit to the private sector) is negative, it is insignificant. The Bayesian VAR impulse response simulation demonstrates that the fiscal policy shock from domestic borrowing impacts the macroeconomic variables in line with the estimated regression results. As a follow-up, the variance decomposition results show that the decomposition of the shocks from government domestic borrowing is borne more by external borrowing, broad money supply and interest rate in the order of magnitude. The study recommends a restriction in monetary policy to benchmark and closely checkmate the aggressive spending from domestic borrowing. Also, the Nigerian government should improve investment in infrastructure to enhance private sector productivity and expand taxes revenue base to mitigate the reliance on borrowing as a source of funding for fiscal deficit. Furthermore, the country's productivity must be coordinated by the government to expand the sources of foreign exchange earnings to enhance stability in the country's external sector.

Effects of Health Factors on GDP Growth: Empirical Evidence from Saudi Arabia

The primary objectives of this study are to examine the presence of long-run equilibrium relationships and short-run dynamic relationships between health factors and GDP growth in Saudi Arabia over a specific time period. By utilizing an annual time series dataset from 1990 to 2019 obtained from the World Bank, the study focuses on four key health factors and employs the Johansen cointegration test and vector error correction model to estimate the relationship between these factors and GDP growth. The results indicate the existence of a long-run equilibrium relationship between the health factors and GDP growth; however, in the short term, the variables are found to be in a state of disequilibrium. Specifically, the study reveals that infant mortality, road traffic mortality, and healthcare expenditure exhibit a strong negative relationship with GDP growth, while the maternal mortality ratio displays a weak positive relationship. The findings of this research hold significant implications for policymakers who are striving to achieve sustainable GDP growth as outlined in Saudi Vision 2030. These findings suggest that policymakers can simultaneously promote higher GDP growth and reduce infant mortality, road traffic mortality, and healthcare expenditure. Although the maternal mortality ratio exhibits a relatively weak positive relationship with GDP, it is still crucial for policymakers to address this issue to enhance sustainable GDP growth, aligning with the objectives set forth in Saudi Vision 2030. Overall, this study bridges a research gap and provides valuable insights that can inform health and economic policies in Saudi Arabia.

Impact of the Islamic Modes of Finance on the Profitability of Islamic Banking Sector in Pakistan

The persistence of Islamic finance in any economy is arguably essential to address the economic needs of the society. The golden principles of Islam that is, profit and loss sharing, honesty, and doing business keeping in view the welfare of the people can play a vital role in alleviating poverty. The primary objective of the current study is to investigate empirically the impact of the Islamic modes of finance and their contribution in enhancing profitability. For this purpose, time series quarterly data ranging from 2014Q1-2020Q4 of the Islamic modes of finance (including Sukuk) wereused to find their impact on the profitability of the Islamic banking sector as measured by Return on Asset (ROA). The ARDL and bounds cointegration approach were used to examine the level relationship among the underlying variables. The results provided strong evidence of a long-run equilibrium relationship. The results also showed that Murabaha, Musharaka, Istisnaa, and Diminishing Partnership have a prominent positive and significant impact on ROA. However, the impact of Murabaha on profitability remains significantly higher as compared to the other modes of finance. The second most important determinant of profitability is Musharaka, followed by Istisnaa. The estimated value of error correction term showed a significant adjustment towards the long-run equilibrium. These findings may help the managers of Islamic banks in allocating funds to different modes and portfolios for optimal returns. They may also have a big impact on the ability of policymakers to create policies appropriate for interest-free windows and branches. Moreover, they would allow Islamic banks to retain their competitive edge and improve the quality of their services.

Environmental management through examining the technical factors of carbon emissions in South Asian economies

COP27 has provided a new direction in overcoming the issue of climate change. In the world of growing environmental degradation and climate change issues, the South Asian economies are playing a vital role in tackling these issues. Still, the literature focuses on industrialized economies while ignoring the newly emerging economies. This study evaluates the technological factors' influence on carbon emission in the four small South Asian economies (Sri Lanka, Bangladesh, Pakistan, and India) from 1989 to 2021. This study found the long-run equilibrium relationship between the variables using second-generation estimating tools. Employing the non-parametric and robust parametric approach, this study found that economic performance and development are substantial emissions drivers. In contrast, energy technology and tech innovation are the region's key environmental sustainability factors. Further, the study found that trade positively yet insignificantly impacts pollution. This study suggests further investment in energy technology and technological innovation to improve the production of energy-efficient products and services in these emerging economies.

Energy transition, geopolitical risk, and natural resources extraction: A novel perspective of energy transition and resources extraction

Recently, developed economies have been aiming for energy transition while investing in producing and implementing environmentally friendly energy resources. Numerous factors and indicators could affect the energy transition process. However, the USA, the most industrialized economy globally, still lacks comprehensive empirical evidence regarding those factors influencing energy transition. This study uses the extended dataset covering 1985–2021 and employs advanced time series estimation approaches. Johansen-Fisher and Bayer-Hanck cointegration tests support the presence of a long-run equilibrium relationship between the variables. Utilizing three long-run estimators, the results asserted that economic growth and renewable electricity output enhance energy transition in the country. However, natural resource extraction asymmetrically affects the energy transition, where mineral and oil rents are positively associated with the energy transition, while forest rents and coal rents adversely affect it. On the other hand, geopolitical risk is observed adversely affect energy transition, which is insignificant. This study suggests further increases in renewable energy production and consumption, efficient utilization of natural resources, and reduced geopolitical risk to improve energy transition.

Pooled mean group estimation of an energy-globalization-emissions nexus: Evidence from the selected South- and South-East Asian countries

Although globalization is widely credited for unprecedented global economic growth, it also bears responsibility for climate change. Today, the primary emphasis of contemporary research is to find ways that help to reduce climate change adversaries without compromising the globalization-led economic development agenda. Thus, this study takes the case of 12 emerging economies selected based on their emissions profile and vulnerability to climate change. Covering annual data from 1972 to 2018, this study accounts for globalization's economic, social, and political aspects and empirically tests their relationship with carbon footprints and energy demand in the panel countries. The results confirm the long-run equilibrium relationship among all the underlying variables and find that economic globalization significantly contributes to energy demand and carbon emissions. However, such an effect can be overcome through social globalization. Whereas political globalization reduces the energy demand but spurs carbon emissions. Our results rule out the ant-globalization narrative and support pro-globalization chronicles for sustainable development policy agenda in emerging economies. We suggest that the emerging countries that are mainly facing the decision dilemma to choose between sustainable economic growth and a sustainable environment, are better off if they equally integrate socially and politically with the global economy. Moreover, the model is checked for robustness using FMOLS and found validated. It warrants that the results are appropriate for policy control use.

국가 단일 탄소시장 통합 위한 중국 지역별 배출권 가격 동태 분석

As global pressure on carbon reduction has increased since the Paris Agreement, China, the world"s largest carbon emitter, is pushing to achieve its carbon net zero target by 2060. The emission trading scheme (ETS), China"s key policy tool for carbon reduction, operates in eight regional markets, and individual markets have their own reduction goals, market rules, and verification systems. In this study, the long-run equilibrium and causal relationship between regional ETS markets was analyzed through dynamic analysis of carbon permit prices in the three major markets (Hubei, Guangdong, and Shanghai) that account for 77% of China"s total emission permits. Results show that co-integration exists among the three major markets and Vector Error Correction Model (VECM) analysis indicates the existence of a partial short-run and long-run causal relationship between those markets. Since 2021, China has been promoting phased integration of regional ETS markets into a single national market. This study shows that the efficient market integration is promising.

Dynamic Causal Relationships among Imported Pulp and Waste Paper Prices

This study investigates the dynamic causal relationships among imported pulp prices (HwBKP, SwBKP) and waste paper prices (OCC, ONP). The Johansen cointegration test showed that there existed a long-run equilibrium relationship among four time series variables in this study. Results of the vector error correction model (VECM) indicated that the pulp and waste paper prices had their own error correction mechanisms that lead to convergence toward the long run equilibrium level or steady state. Furthermore, the Granger causality test revealed a bidirectional causal relationship between the pulp prices (HwBKP ⇔ SwBKP), a unidirectional causal relationship between the pulp and waste paper prices (HwBKP ⇒ ONP), and a unidirectional causal relationship between the waste paper prices (OCC ⇒ ONP). Moreover, the results of variance decomposition analysis revealed that the variance of HwBKP and OCC prices primarily reflected own shocks in both the short and long run.

The determinants of private savings in Turkey: The role of financial development

Purpose ― Over the past two decades since the 2000s, Turkey's private savings rates have decreased, which has become a concern for policymakers. In addition to considering the key determinants of private savings, this study primarily aims to quantify the linear and nonlinear impacts of financial development on private savings from 1980 to 2015. Method ― This study uses Autoregressive Distributed Lag (ARDL) procedure and the Fourier Toda-Yamamoto causality framework. Findings ― The main findings are as follows: 1) The ARDL bounds test supports the presence of a long-run equilibrium relationship between private savings and its determinants; 2) Financial development affects private savings nonlinearly in an inverted U-shaped pattern, and 3) No causality relationship is observed between private savings and financial development. Implication ― As financial development has an inverted U-shaped relationship with private savings, indicating that the complementary effect of financial development is replaced with a substitution effect after a certain threshold level, Turkish authorities should consider this evidence when tailoring policies regarding financial markets. Originality ― This study is the first to identify whether the relationship between private savings and financial development is linear or nonlinear in the context of an emerging economy in Turkey.