Long-run Phenomenon Research Articles

IMPACT OF VOCATIONAL EDUCATION ON ECONOMIC GROWTH: AN ANALYSIS OF THE INDIAN ECONOMY

Vocational education can be seen as an important tool in leveraging India’s demographic dividend. Given the labor surplus in terms of the young population, it is important to examine how vocational education and training can serve as a critical driver of economic growth. This study aims at examining the impact of vocational education and training on economic growth in India, using the framework of the augmented Solow growth model by decomposing human capital into vocational education, along with primary, secondary and higher education. Using an ARDL model based on the annual data from 1990 to 1991 and 2019 to 2020, the study analyzes the short-run and long-run impact of vocational education. The results indicate that in the case of India, the impact of vocational education on economic growth is both a short-run and long-run phenomenon exhibiting a stable positive relation. Other control variables used in this study, such as Investment, Population, Openness and Inflation are found with a significant impact on economic growth. The study suggests that it is necessary to upgrade vocational education programs to create high-quality workers with a view to improving productivity and macroeconomic outcomes in India.

Tourism and financial development: evidence from nonlinear ARDL approach

ABSTRACT This paper investigates the nonlinear effect of financial development on tourism demand, using Japan and Germany as two cases. Two measures, such as liquid-liabilities and credit to the private sector by banks as a percentage of GDP, work as proxies for financial development. Using monthly data over the period 1994:1–2019:12 for Germany and 1996:1–2019:12 for Japan, we have estimated for each country a parsimonious tourism demand function that incorporates both measures of financial development. The findings from the nonlinear ARDL approach show that for each country, tourism demand, price of tourism, and financial development are cointegrated, and the nonlinearity of financial development is mainly a long-run phenomenon. In the long run, a positive change in the level of financial development will positively influence tourism demand and negatively affect it following a negative change. Each country's negative effect appears to be of a slightly smaller magnitude. This might be because Japan and Germany have a better reputation among tourists owing to their higher level of financial development and concomitant lower rate of crime, which in turn minimizes the negative effect of financial development on tourism demand.

Asymmetric Effects of Expected Oil Wealth on the Demand for Money in Nigeria

The paper investigates the asymmetric effects of expected oil wealth on the demand for money in Nigeria over the period 1986:Q1–2020:Q4, by using linear autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) approaches. The linear (ARDL) bounds testing approach shows that expected oil wealth has no significant effect both in the short and long run. However, when a NARDL model is applied, the effect of negative and positive expected oil wealth shocks on the demand for money is significant and unequal in the long run, with a higher long-term impact of negative shocks compared to positive shocks. This result highlights a long-run asymmetry in the transmission of expected oil wealth shocks. Expected oil wealth is thus rather a long-run phenomenon for the Nigerian money demand function.

Exports, Imports, and Economic Growth in South Asia: Evidence Using a Multivariate Time-series Framework

This paper examines the export-led growth hypothesis for the five largest economies of the South Asian region using a multivariate time-series framework. The South Asian countries present an interesting case study in view of their increasing outward orientation and adoption of export promotion policies as part of their growth strategies. A key feature of the study is the explicit incorporation of imports in the analysis to make allowance for their role in the export-economic growth relationship. While controlling for imports, the results indicate bi-directional causality between exports and output growth in Bangladesh, India, and Sri Lanka in the short-run. The study finds long-run equilibrium relationships among exports, imports, and output for Bangladesh and Pakistan. However, for India, Nepal, and Sri Lanka, no evidence of a long-run relationship among the relevant variables is found. These results are in contrast to some earlier work that found the export-led growth hypothesis to be a long-run phenomenon for all countries in the region.

Exploring the Asymmetrical Influence of Economic Growth, Oil Price, Consumer Price Index and Industrial Production on the Trade Deficit in China

The present study intends to scrutinize the asymmetrical influence of economic growth, industrial production, CPI (consumer price index) and oil price on the trade deficit for the People’s Republic of China’s economy. The Toda–Yamamoto causality, non-linear ARDL method, and quarterly data for 1995Q1 to 2021Q4 have been utilized to investigate the results. The estimated results confirm the uni-directional causality and presence of non-linear co-integration among variables under discussion. However, bound test analysis also reveals the long-run asymmetrical association among TD (trade deficit), IP (industrial production), oil price, and GDP growth, but not the CPI (consumer price index). Further, long-run asymmetrical outcomes highlight that a decrease (increase) in industrial production and an increase (decrease) in oil price and GDP growth rate increase (decrease) the trade deficit. Short-run asymmetrical outcomes reveal a similar trend to the long run, but the impact of all variables in the short run is insignificant, which means that linkages between the trade deficit and the explanatory variables are a long-run phenomenon in People’s Republic of China. Thus, in terms of policy, to reduce the trade deficit, it is necessary to focus on attaining standardized GDP growth, increasing industrial-sector production using advanced technology, and replacing oil-using energy sources with green technology (solar panels, wind farm energy).

The role of domestic and foreign economic uncertainties in determining the foreign exchange rates: an extended monetary approach

This study extends the monetary model of the exchange rate by incorporating news-based domestic and US economic policy uncertainties (EPUs). We consider 12 developed and developing economies and use monthly data covering 2000:M1 to 2017:M2. The extended monetary model is estimated by the panel quantile regression of Machado and Santos Silva (2019) and Pesaran (2006) common correlated effects within linear and nonlinear panel ARDL frameworks. The estimates illustrate the significant effects of EPUs on developed and developing economies. The ARDL models show that the impact of EPUs is mostly a long-run phenomenon. The Wald test statistics confirm asymmetric effects of EPUs at different quantiles. Moreover, the Wald statistics also support the asymmetric effects of increasing and decreasing EPUs. Overall, domestic, and foreign economic uncertainties significantly affect developed and developing economies’ exchange rates, at least in the long run. Therefore, economic uncertainty should be considered in determining the exchange rate. This extended model might be more appropriate in the post-Covid-19 era.

Evaluating the Effect of Digital Transformation on Improvement of Service Trade in West Africa

Digital revolution is instrumental to the wave of globalisation and transformation of the global economy. But the pace of digital transformation and service trade is low in the West African region. This article investigates the effect of digital transformation on the development of service trade in the region. This research captured digitisation in two standpoints: internet penetration rate and mobile subscription rate. The Im-Pesaran-Shin unit-root test affirms that the model is appropriate for panel autoregressive distributed lag estimation method. Adopting pool mean group estimator, the results attest for the existence of cointegrations in the model. The estimations reveal that the effect of digitisation on service trade is a long-run phenomenon. While the result is robust with export, it is not consistent with import. The long-run positive impact of digitisation on service export ranges from 0.087% to 0.159%, depending on the proxy for digitisation. The overall short-run effect is not statistically significant in export and not robust in import. It is reportedly consistent in some countries but not robust with some others. The region needs to rally in adopting and adapting to the new face of technology to improve service trade. JEL Codes: C23, F14, O33

Asymmetric and time-frequency spillovers among commodities using high-frequency data

In this study, we examine the asymmetric short- and long-run spillover among commodities using realized variances and realized semivariances calculated through 5-min trading data of commodity futures. In doing so, we apply time and frequency domain generalized error variance decomposition approaches and build a network of commodity connectedness. Our findings indicate low inter-group connectedness, distinct group clustering, and high intragroup network-based connectedness in realized volatilities of sample commodities. We find more pronounced inter- and intra-group volatility connectedness for negative realized volatilities than positive ones. Besides, we show that volatility connectedness is a long-run phenomenon. Additionally, the time-varying net directional spillover connectedness reveals that the bad volatility connectedness dictates the good volatility connectedness for the total sample as well as for various frequency domains, both in terms of magnitude and length of time. The implications for investors and policymakers are discussed.

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

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

THE STUDY OF RELATIONSHIP BETWEEN TOBIN’S Q AND US STOCK PERFORMANCE OF SELECTED FIRMS

The objective of study was to test the dynamic effects of changes in Tobin’Q on stock prices of selected 249 US public companies of different industry categories. Panel unit roots tests and cointegration tests are implemented. Next, DOLS and GMM models are estimated. Annual data for the 2004-2012 period are used for the above selected US companies. Panel unit root tests provide somewhat mixed evidence of non-stationarity of both variables. There is clear evidence of cointegration between the above variables. The negative coefficient of the error-correction term shows convergence toward long-run equilibrium, though at slow pace. The estimates also reveal shortrun net positive interactive feedback effects between the variables. Both DOLS and GMM estimates display similar picture of overvaluation of stocks in terms of upward movement in Tobin’s Q beyond 0-to-1 range. For most parts of the sample period, the US stock market was in declining mode due to heightening of economic uncertainties during the Great Recession and several years beyond. Tobin’s Q should be improved to boost stock prices. This is more of a long-run phenomenon. In the short run, both reinforce each other. The topic is unique and the existing literature on this topic is scant. Relatively new econometric techniques have been applied for estimation using panel data. The results are quite insightful, in our view.

ANALYZING THE ASYMMETRIC EFFECTS OF CRUDE OIL PRICE CHANGES ON CHINA’S PETROLEUM PRODUCT PRICES

As the world’s second-largest crude oil consumer, China depends on imports for approximately 60% and domestic production for approximately 40%, of its oil demand. Therefore, it is very interesting to assess the pass-through effects of both domestic and international crude oil prices to gasoline and diesel prices. After the short- and long-run investigations using the nonlinear autoregressive distributed lag (ARDL) methodology of Shin et al. [Shin, Y, BC Yu and M Greenwood-Nimmo (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework” Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, R Sickels and W Horrace (eds.), pp. 281–314. Springer.], we find overwhelming evidence supporting the asymmetric price transmission mechanism between crude oil prices and gasoline prices in both the short- and long-run. In the case of diesel prices, on the other hand, the asymmetry effects seem likely to be a long-run phenomenon.

AN EMPIRICAL ANALYSIS OF EDUCATION EXPENDITURE, HEALTH CARE EXPENDITURE AND ECONOMIC GROWTH IN MALAYSIA

ABSTRACT
 This paper aims to empirically analyze the relationship between the education expenditure, health care expenditure and economic growth in Malaysia over the period of 1980 to 2012. The main interest of this study will be to review and address the mixed results presented by past researches regarding the relationship between education and health care expenditure towards economic growth. The relationship between the variables will be empirically examined for both the short-run and long-run by employing the Johansen Co-integration Technique and Vector Error Correction Model (VECM). The existence of a long run relationship between public education spending, health care expenditure and economic growth was well indicated. It was therefore ascertained that the public spending on education and healthcare sectors are very much a long-run phenomenon as it only generates a return over an extended period of time.

Are There Spillovers from China on the Global Energy-Growth Nexus? Evidence from Four World Regions

This paper analyses China’s energy consumption and economic growth spillover effects on four world regions: (i) America (North and South); (ii) Europe and Central Asia; (iii) Asia Pacific; and (iv) Africa and the Middle East. An annual aggregated time series by world region, from 1970 to 2016, and an autoregressive distributed lag (ARDL) approach were used. The results are consistent with the feedback hypothesis in the short run. With regard to the long run, feedback is present in America and the Asia Pacific. In Europe and Central Asia and in Africa and the Middle East, the results are consistent with the conservation hypothesis. Additionally, China’s spillover effects on the world energy-growth nexus are essentially a long-run phenomenon, with impacts on Europe and Central Asia, Asia Pacific, and Africa and the Middle East. Accordingly, policy-makers should be aware that China’s policies may have impact around the world, which indirectly may cause a restriction in economic growth.

A Re-Evaluation of the Feldstein-Horioka Puzzle in the Eurozone

In this paper we re-evaluate the capital immobility hypothesis of Feldstein and Horioka (1980) for the case of the European Union and the Eurozone, based on long-run regressions. We employ the Long Run Derivative proposed by Fischer and Seater (1993) in order to examine capital mobility as a long-run phenomenon. In order to enhance the robustness of our results we also perform panel causality tests on our data as it is a common approach in this setting. Our empirical findings provide no evidence in favor of the capital immobility hypothesis. In fact, we reject capital immobility even before the creation of the European Union, the introduction of the Eurozone or the 2008 global financial crisis.

Job Polarization and Structural Change

We document that job polarization—contrary to the consensus— has started as early as the 1950s in the United States: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Given that polarization is a long-run phenomenon and closely linked to the shift from manufacturing to services, we propose a structural change driven explanation, where we explicitly model the sectoral choice of workers. Our simple model does remarkably well not only in matching the evolution of sectoral employment, but also of relative wages over the past 50 years. (JEL E24, J21, J22, J24, J31)

Dynamics of Tobin’s Q and US Stock Performance

To study the dynamic effects of changes in Tobin’s Q on stock prices of selected 249 US public companies of different industry categories. Panel unit roots tests and cointegration tests are implemented. Next, DOLS and GMM models are estimated. Annual data for the 2004-2012 period are used for the above selected US companies. Panel unit root tests provide somewhat mixed evidence of non-stationarity of both variables. There is clear evidence of cointegration between the above variables. The negative coefficient of the error-correction term shows convergence toward long-run equilibrium, though at slow pace. The estimates also reveal shortrun net positive interactive feedback effects between the variables. Both DOLS and GMM estimates display similar picture of overvaluation of stocks in terms of upward movement in Tobin’s Q beyond 0-to-1 range. For most parts of the sample period, the US stock market was in declining mode due to heightening of economic uncertainties during the Great Recession and several years beyond. Tobin’s Q should be improved to boost stock prices. This is more of a long-run phenomenon. In the short run, both reinforce each other. The topic is unique and the existing literature on this topic is scant. Relatively new econometric techniques have been applied for estimation using panel data. The results are quite insightful, in our view.

Local Economic Impacts of Coal Mining in the United States 1870 to 1970

This article expands upon the current “resource curse” literature by using newly collected county data, spanning over a century, to capture the short- and long-run effects of coal mining activity. It provides evidence that increased levels of coal production had positive net impacts on county-level population and manufacturing activity over an initial ten-year span, which become negative over the subsequent decades. The results provide evidence that any existence of a “resource curse” on local areas due to coal mining is a long-run phenomenon, and in the short run there are potential net benefits.

Stochastic Reputation Cycles

This paper studies a model of reputation-building in which the reputation of a firm is treated as capital stock that accumulates by past investments, depreciates when there is no investment, and has a persistent effect on future payoffs. The setting is a discrete-time discounted stochastic game between a long-run firm and a sequence of short run buyers where the firm's reputation is the state variable. Under a class of transition rules, if actions are taken frequently enough, there is a unique stationary Markov equilibrium, which is characterized by a reputation-building stage, a reputation-exploitation stage and a possible reputation-absorbing stage. For low levels of reputation, the firm randomizes between investing and not investing, and the buyers randomize between buying and not buying. The firm always has incentive to build reputation even if the stock reaches the lowest level. For high levels of reputation, the buyers buy with probability one and the firm exploits the reputation by not investing. Reputation moves cyclically between these two stages, so reputation is a long-run phenomenon. Under certain circumstances, there is an extra stage, a reputation-absorbing stage. If the firm's reputation is very low, the firm loses the incentive to invest, thus reputation eventually declines to the lowest level which is an absorbing state.

How Stable is the Savings-led Growth Hypothesis in Malaysia? The Bootstrap Simulation and Recursive Causality Tests

The purpose of this study is to empirically investigate the vindication of the savings-led growth hypothesis for the Malaysian economy with the long-run TYDL version of the Granger causality test—Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996). This study used the quarterly sample from 1970:Q1 to 2008:Q4. The recursive regression procedure will also incorporate into the TYDL causality test to measure the stability of the savings-led growth hypothesis in the long-run. Our empirical results support that the savings-led growth hypothesis is a long-run phenomenon and stable over time. Therefore, the Malaysian dataset supports the endogenous growth theory. JEL Classification: C22, E21, O16

Weather, salience of climate change and congressional voting

Abstract Climate change is a complex long-run phenomenon. The speed and severity with which it is occurring is difficult to observe, complicating the formation of beliefs for individuals. We use Google search intensity data as a proxy for the salience of climate change and examine how search patterns vary with unusual local weather. We find that searches for “climate change” and “global warming” increase with extreme temperatures and unusual lack of snow. Furthermore, we demonstrate that effects of abnormal weather extend beyond search behavior to observable action on environmental issues. We examine the voting records of members of the U.S. Congress from 2004 to 2011 and find that members are more likely to take a pro-environment stance on votes when their home state experiences unusual weather.