Low Growth Regime Research Articles

The Causal Relationship between Government Expenditure and Inflation in Nigeria: Smooth Transition Regression Approach

This paper revisits the nexus between government spending and inflation in Nigeria using a Smooth Transition Regression model (STR) to investigate both the linear and nonlinear effects of the former on the latter from 2000: 1 to 2023:6. The monthly data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin (2023) are used. The study reveals that linear approximation fails to adequately explain the non-linear effects of government spending on inflation, particularly in high-growth regimes financed by the central bank. It is suggested that in a low-growth regime where government spending is not financed by the central bank, avenue should be given to fiscal policy to stimulate and control inflation.

Us Monetary Policy is More Powerful in Low Economic Growth Regimes

Us Monetary Policy is More Powerful in Low Economic Growth Regimes

Origin of residual strain in heteroepitaxial films

Heterogeneous integration of diverse materials structures is critical to the scaling of electronic and photonic integrated circuits. For a model system of Ge-on-Si, we experimentally examine the roles of lattice misfit and thermal expansion misfit in determining the residual strain in as-grown and annealed heteroepitaxial films. We present data for Ge-on-Si growth from 400 to 730 °C followed by heat treatment from 500–900 °C. We show that strain fluctuations of 5.02% enable misfit dislocation formation, and we propose a comprehensive model for the conversion of compressive misfit strain to tensile elastic strain. The model is expressed in terms of three regimes: (1) misfit control for the low temperature growth regime at 400 °C; (2) point defect control via annealing in the point defect recovery regime at 500–650 °C; and (3) thermal expansion control for growth or anneal at T > 650 °C in the dislocation recovery regime. Growth from 400 to 730 °C exhibits near complete misfit strain relief by misfit dislocations leaving a consistent residual compressive strain of 0.09%. Growth at 400 °C followed by post growth heat treatment at 600 °C results in vertical threading dislocation density reduction via a point defect-mediated climb mechanism that gives minimal strain relief. Anneal above 650 °C promotes strain relief by dislocation glide. Temperature excursions at T > 730 °C followed by cooling to room temperature yield plastic strain in the Ge film that cannot be further relieved by thermal expansion misfit accommodation. Growth at 400–730 °C retains a residual compressive strain that represents the nucleation threshold for misfit dislocations.

Analyzing the Impact of Foreign Capital Inflows and Political Economy on Economic Growth: An Application of Regime Switching Model

The goal of this study is to use the Markov Regime Model (MSM) to evaluate the impact of three important FCIs and the political economy on Pakistan’s economic growth. The current research used quarterly data from 2000 to 2020. The empirical results demonstrate that dictatorship contributes favorably to the high and low growth regime of the economy, while election time contributes positively to the expansion period and adversely in recession times of the economy. Results confirmed that external debt has a strong negative influence on economic growth in both the high and low-growth regimes. Remittances, FDI, and growth, on the other hand, have a positive and substantial link with economic growth. This research suggested that effective fiscal and monetary policies, as well as a suitable political environment, should be provided so that foreign investors would be enticed to invest in Pakistan.

Environmental pollution and economic growth: Evidence of SO2 emissions and GDP in China.

This study explores the inherent linkage mechanism between environmental pollution and economic growth using a non-linear MS (M)-VAR (p) model. The results indicate that, first, the growth rates of China's gross domestic product (GDP) and SO2 emissions are in a state of significant inertia. Second, when the system was in a medium-growth regime, the growth rates of SO2 emissions and GDP had a positive correlation, characterized by lower probability and weaker durability. Third, when the system was in a high- or low-growth regime, their growth rates were negatively correlated, characterized by higher probability and stronger durability. Overall, economic growth increases environmental pollution emissions, which intensifies as well as inhibits economic growth. The correlation and sustainability of SO2 emissions and GDP are closely related to the regional status of the entire system. This study is helpful in analyzing the reasons for the nonlinear linkage mechanism between environmental pollution and economic growth.

Exports and imports in Turkey: A regime‐switching approach

AbstractIn this study, we apply Markov regime‐switching models to various foreign trade variables with the aim of characterising the behaviour of the growth of exports and imports in Turkey. The results indicate that the forecasting performance of the proposed Markov regime‐switching models is much better than that of the random walk benchmark except for the growth of import values. However, for the growth of export volumes, the proposed Markov regime‐switching model always outperforms the random walk benchmark. Furthermore, we investigate whether the growth regimes of exports and imports can be associated with the growth regimes of world trade volumes, world trade prices and industrial production by introducing a probability score and comparing the regime probabilities. The results indicate that world trade prices are more closely related to import values than they are to export values except for low growth regime of export values. In fact, low growth regime of export values is strongly associated with low growth regime of world trade prices. On the contrary, normal growth regime of export volumes is closely related to high growth regime of world trade volumes. Moreover, world trade volumes and industrial production are more closely related to import values and import volumes than they are to export values in all regimes. Actually, low growth regimes of import values and import volumes are strongly associated with low growth regime of industrial production.

Energy substitution in Africa: Cross-regional differentiation effects

Although Africa has immense non-renewable energy resources and an unexplored renewable energy potential, this region is relatively less studied with regard to energy substitution. Using a non-linear modeling through the PSTR technique in 43 countries during the period 2005–2021, this paper fills the existing gap, and also includes human capital and institutional factors to capture the characteristics of populations and governance in succeeding to energy substitution. The results support the existence of one transition or two regimes. The findings show that energy substitution is effective when economic growth reaches the optimal threshold of 7.23%. Only beyond this threshold, institutional quality and human capital facilitate transitioning towards green energy respectively by 0.414% and 0.524%. These results are unchanged regardless of the institutional quality or financial development indicators used. However, cross-regional differentiation effects are underlined between Eastern, Middle, and Western Africa on the one hand, and Northern and Southern Africa on the other. The first three regions show similar path, and improving the corruption perceptions index or anti-corruption measures are inefficient in the low-growth regime. In Northern and Southern Africa, human capital, once the full potential is reached in the third regime, becomes ineffective.

Revisiting the macroeconomic variables and economic growth nexus: A Markov regime-switching approach

Purpose ―Current paper assesses the impact of macroeconomic variables on Pakistan's economic growth. Method ― This study analyzed the data using the Markov Regime switching (MS) model using monthly data for 1981-2020. Firstly, BDS and CUSUM square tests were applied to detect the non-linearity of the model. Results ―The model is non-linear, so the Markov regime-switching model is used for analysis. Each regime's mean and variance are highly significant and show a high growth regime with high volatility and a low growth regime with low volatility. Furthermore, the results show that inflation, interest rate, and trade openness negatively impact while real effective exchange rates positively affect development in both regimes. The negative effect of interest rate, exchange rate, inflation, and trade openness become more pronounced in low growth regimes. Implication ― This study suggests that policymakers should consider the non-linear behaviour of macroeconomics. This will help to formulate better policies for the economy's economic growth. Originality ―The current research adds to the existing literature by identifying the non-linear effect of growth indicators on economic growth, which was previously neglected in the case of Pakistan.

Revisiting the determinants of Economic Growth: An Implication Regime Switching model in case of Pakistan

In the current study, relevant determinants of economic growth in Pakistan were examined from 1981 to 2020. The results of the BDS non-linearity test corroborate the non-linearity of the data, and the Markov regime-switching model is applied. In both regimes, the real effective exchange rate (RER), inflation (CPI), and potential output gap have a positive impact on economic growth, whereas openness has a negative impact. Furthermore, in high growth regimes, interest rates (CMR) have a positive relationship with economic growth, but in low growth regimes, they have a negative relationship. Based on the study's empirical findings, it is advised that policymakers examine the nonlinear nature of macroeconomics. This will aid in the formulation of better policiesfor economic growth. Further, it is recommended that policymakers take measures to reduce the heat of the economy through demand management policy. This policy may hurt other sectors of the economy negatively which does not contribute to heating the economy.

Exploring the nexus between human capital and environmental degradation: The case of EU countries

Human capital investments have a vital role in economic growth. Therefore the effects of human capital on the environment should be analyzed for sustainable economic growth. This paper contributes to the debate on the nexus between human capital and environmental degradation. Based on 21 EU countries’ panel data over the period 1994–2018, this study aims to analyze the relationship between human capital and environmental pollution in different financial development levels. We employed the panel smooth transition regression model (PSTR) to assess the nexus between the variables. According to the estimation results, human capital decreases carbon emissions in the low growth regime whereas increases in the high growth regime. Besides, human capital increases carbon emissions in both low regimes of financial development and human capital, and decreases in high regimes. The analysis indicated that as human capital improves, there will be more innovation to protect the environment, and thus there is less environmental degradation.

Regime-specific impact of financial reforms on economic growth in Pakistan

This study uses and proposes a new methodological approach to construct a financial liberalization index on the basis of the dynamic factor model technique. The resulting index is used to investigate the impact of the financial sector reforms in Pakistan on economic growth. Using the Markov regime-switching model over the period 1972–2015, the empirical results showed that the examined relationship is nonlinear, nonmonotonic, state-dependent, and better described by the two-state Markov switching model characterized by the high growth regime and low growth regime. Despite the positive impact of financial liberalization on economic growth in both the high and low growth regimes, financial liberalization relatively strongly affects real GDP growth in the high growth regime. The results further demonstrate that transition probabilities establish an inordinate episode of the low growth regime. Furthermore, the high growth regime is relatively short-lived than the low growth regime. Among the other variables, trade openness and physical capital stock have a positive impact on economic growth, while labor force and government expenditure exert a negative effect on economic growth. Several economic policies are proposed and discussed for better functioning of financial sector development in Pakistan.

Optimal monetary policy regime switches

An economy that switches between high and low growth regimes creates incentives for the monetary authority to change the parameters in its simple rule. As lower growth tends to produce lower real interest rates, the monetary authority has an incentive to increase the inflation target and increase the degree of inertia in setting rates in an attempt to keep the nominal rate away from the zero lower bound. An optimal simple rule therefore responds to permanently lower growth by slightly increasing both the inflation target and inertia; focusing solely on the inflation target ignores a key margin of adjustment. With repeated growth rate regime switches, an optimal simple rule that switches at the same time internalizes both the direct effects of growth regime change and the indirect expectation effects generated by switching in policy. The switching rule improves economic outcomes relative to a constant rule. A constant rule may be preferred if the monetary authority attempts a switching rule but implements the wrong rule with high enough frequency.

Does Financial Sector Promote Economic Growth in Pakistan? Empirical Evidences From Markov Switching Model

This study investigates the financial development–economic growth relationship in Pakistan over the period 1975–2017 using the Markov Switching methodology. The financial development index has been constructed using the principal component analysis. Unexpectedly, the empirical result shows that financial development contributing negatively to economic growth in the high and the low economic growth regimes in Pakistan. Moreover, the results indicate that labor force retards economic growth with a higher magnitude. A significant positive effect of gross fixed capital formation on economic growth is also observed. The results reveal that policymakers may revisit the financial development policies so that the financial sector may contribute positively to economic growth process in Pakistan. In this respect, more steps are needed to further liberalize the financial sector to enhance economic growth in Pakistan.

Optimal Monetary Policy Regime Switches

An economy that switches between high and low growth regimes creates incentives for the monetary authority to change its rule. As lower growth tends to produce lower real interest rates, the monetary authority has an incentive to increase the inflation target and increase the degree of inertia in setting rates in an attempt to keep the nominal rate away from the zero lower bound. An optimizing monetary authority therefore responds to permanently lower growth by slightly increasing both the inflation target and inertia; focusing solely on the inflation target ignores a key margin of adjustment. With repeated growth rate regime switches, an optimal monetary rule that switches at the same time internalizes both the direct effects of growth regime change and the indirect expectation effects generated by switching in policy. The switching rule improves economic outcomes relative to a constant rule. A constant rule may be preferred if the monetary authority attempts a switching rule but implements the wrong rule with high enough frequency.

Non-linear threshold effect of financial development on renewable energy consumption: evidence from panel smooth transition regression approach.

Financial development is identified as one of the significant factors that affect energy consumption and has been widely discussed in the literature. However, the association between financial development and renewable energy consumption is still at its earlier stage and is limitedly explored. Therefore, the purpose of this study is to examine the non-linear association between financial development and renewable energy consumption in the top renewable energy consumption countries. The study utilized the newly introduced econometric technique panel smooth transition regression (PSTR) model with two regimes on annual panel data consisted of years 1997-2017. The result confirmed that all the financial development indicators increase renewable energy consumption but affect renewable energy consumption differently. Moreover, the economic growth and industrial structure showed a positive and significant association in both regimes, whereas the population showed a negative relationship with renewable energy consumption in a low growth regime but the association becomes positive in high growth regimes. The study suggested several policies for the top renewable consumption countries.

Time-Varying Housing Market Fluctuations: Evidence from the U.S. Housing Market

AbstractThe objective of this paper is to investigate how the housing market and credit market factors contribute to US business and interest rate cycles in a time-varying transition probability modeling framework. The Markov switching results appear to exhibit periods of low-growth regime and highgrowth regime for both house and credit markets. The study also shows that the transition probabilities reflecting the regime switching behavior of business and interest rate cycles vary over time as functions of the house and credit market. We find that both the housing market and credit market contribute to whether the economy remains in a high-growth regime or moves into lowgrowth regime, and whether the interest rates remain in a low or high-growth regime. The results show that the housing market plays a leading role in affecting the time-varying probabilities between regimes for the business and interest rate cycles.

Mixed Ag: A Regime-Based Analysis of Multi-Asset Agriculture Portfolios

For some time now, the prospect that the world is entering a new epoch of elevated prices for agricultural commodities has been a focus of both policymakers concerned with the food security of their citizens and investors looking to benefit from a potential secular uptrend in the demand for food. Investors most commonly access agriculture in public markets through funds that invest in agricultural commodity futures or the common stock of companies that engage in agribusiness. In general, funds that invest in agricultural commodities are either dedicated equity or futures managers. However, there are potentially significant performance benefits to investing in agricultural commodities through a single multi-asset vehicle composed of both agricultural commodity futures and agribusiness stocks. To that end, in this article the author examines the performance of a multi-asset agriculture portfolio in periods of high and low economic growth and compares it with the performance of its individual equity and futures components, as well as the broader stock market and investment-grade bonds. The author finds that in terms of return generation, risk mitigation, and diversification potential relative to core stocks and bonds, the multi-asset agriculture strategy makes a compelling case for inclusion alongside traditional strategies within institutional investors’ portfolios. TOPICS:Portfolio management/multi-asset allocation, performance measurement Key Findings • Global population and economic development trends support an increase in demand for agricultural commodities in the coming years. • A dedicated multi-asset agricultural strategy composed of agribusiness stocks and agricultural commodity futures can serve as a diversifying strategy in portfolios containing broad exposure to stocks and investment-grade bonds in regimes of both high and low economic growth. • A multi-asset agricultural strategy is also found to produce an attractive upside/downside return profile relative to broad equity and its agricultural equity and futures components across high and low growth regimes. It also exhibits a significantly higher mean upside return relative to investment-grade bonds across both regimes.

The Impact of Thailand’s Openness on Bilateral Trade between Thailand and Japan: Copula-Based Markov Switching Seemingly Unrelated Regression Model

The purpose of this paper is to analyze the impact of trade openness and the factors based on the gravity model on the bilateral trade flows between Thailand and Japan. The factors consist of GDP, distance, trade openness, and exchange rate. Bilateral trade is composed of two flows: Thailand’s export flow to Japan, and Thailand’s import flow from Japan. The specified gravity equations are estimated by Copula-based Markov switching seemingly unrelated regression approach. The best-fitting model is chosen based on the lowest Akaike information criterion (AIC) and Bayesian information criterion (BIC). The Normal and Student’s t distributions are for Thailand’s export equation and Thailand’s import equation, respectively. The Student’s t copula is applied for joint distribution. Analyzing the bilateral trade flow is separated into two situations, namely the high and the low growth markets. Empirical results show that distance provides a positive effect on the export in a high growth regime, but a negative impact on the export in a low growth regime. As for Thailand’s import flow, all variables, but especially trade openness, provide strong evidence supporting significance for both regimes. For the GDPs of both Thailand and Japan, trade openness and the exchange rate increase import flow in a high growth market. Meanwhile, the exchange rate decreases import flow in a low growth market. The Markov Switching Probability Estimation notes that Thailand’s trading with Japan is mostly in the fast-growing market.

Financial development–economic growth nexus in Pakistan: new evidence from the Markov switching model

This paper investigates the impact of financial development on economic growth in Pakistan using the Markov Switching Model over the period 1980–2017. The results based on two-state Markov switching model confirm the Schumpeter’s view that finance spurs growth. The result reveals that financial development augments economic growth in both high and low economic growth regimes in Pakistan. However, the impact of financial development on economic growth is found to be relatively higher in the high-growth regime. This implies that economic growth responds differently to financial development in low-growth and high-growth regimes. Among the control variables, trade openness and government expenditures impact economic growth positively, while labour force exerts a negative impact on economic growth.

A Tale of Two Taxes: State-Dependency of Tax Policy

Previous literature provided mixed evidence regarding the effects of two major tax instruments, namely, labor income taxes and corporate taxes on economic growth. We hypothesize that the mixed evidence may be due to state-dependency of labor taxes. While corporate taxes retard economic growth by discouraging entrepreneurship in a linear fashion, the negative effect of labor taxes on growth may depend on the state of the economy, and may, thus, be non-linear. We provide a simple theoretical model which supports the latter hypothesis, and empirically test our predictions by using both statutory and average tax rates for a sample of 19 OECD countries over the 1981–2005 period. We also contribute to the literature by employing a newly developed Panel Smooth Transition (PSTR) model that controls for non-linearities in the tax structure-economic growth relationship. Our empirical findings suggest that while taxes on corporate income are distortionary for growth in both high- and low-growth regimes, taxes on labor income are harmful only during the high-growth regime.