Macroeconomic Determinants Research Articles

Unlocking Profitability: Exploring the Impact of Bank-Specific and Macroeconomic Determinants on Return on Equity in Commercial Banking Sector of Bangladesh

This study investigates the factors influencing Return on Equity (ROE) within the banking sector of Bangladesh by analyzing a comprehensive dataset spanning from the year 2011 to 2020. Utilizing a combination of econometric techniques, including the one-step difference GMM, Driscoll-Kraay estimator, and Panel-Corrected Standard Errors (PCSE) methods, this study analyzes the influence of various bank-specific and macroeconomic variables. The findings reveal a nuanced pattern of impact on ROE. Earnings Per Share (EPS), Capital Adequacy Ratio (CAR), and Bank Spread exhibit a significant positive influence on ROE, reflecting the importance of profitability, capital strength, and interest rate spreads. Conversely, asset size, operating cost-to-loans ratio, total equity-to-debt ratio, and inflation exert a significant negative impact on ROE, highlighting the challenges associated with growth, cost efficiency, leverage, and inflationary pressures. These findings provide a multifaceted perspective on the dynamics of ROE, offering valuable insights for banks and policymakers striving to optimize financial performance and stability in the ever-changing economic landscape.

Does democracy matter in banking performance? Exploring the linkage between democracy, economic freedom and banking performance in the European Union member states

AbstractLiterature on the effects of socio‐political factors and the quality of political‐economic institutions on banking performance is scarce and mixed. To contribute to this literature, this study analyzes whether democracy and economic freedom affect the banking sector in European Union member countries. We provide empirical evidence of the influence of democracy and economic freedom on banking performance using a sample of 27 countries from 2001 to 2020, and accounting‐based return on assets (ROA) and return on equity (ROE) as performance measures. A dynamic model (system GMM) was used to address issues such as heteroscedasticity, serial correlation, and endogeneity. These findings indicate that democracy is positively associated with banking performance, whereas economic freedom negatively affects it in the sample countries. Additionally, this study adds to the growing literature on the relationship between control variables (macroeconomic determinants, bank‐specific factors, or a country's legislative regime) and banking performance. This study is practically valuable for managers, investors, stakeholders, policymakers, and academicians.

The Macroeconomic Determinants of the Stock Market Index Performance: The Case of DAX Index

The Macroeconomic Determinants of the Stock Market Index Performance: The Case of DAX Index

Frontier markets sovereign risk: New evidence from spatial econometric models

This paper considers spatial linkages of bilateral trade, financial correlation, and bilateral distance to study the macroeconomic determinants of sovereign risk for frontier markets. It applies (Shi and Lee, 2017) dynamic spatial Durbin model with interactive fixed effects. Analysis confirms the existence of spillover effects stemming from the explanatory variables’ movement towards the Credit default swaps (CDSs) premium of itself and neighboring countries. Bilateral distance and trade are the most significant spatial linkages. All macroeconomics except reserves impact CDS spreads directly and through feedback effects. Spatial dependence strengthens during recessions. Findings suggest policymakers should account for regional contagion channels that transmit sovereign risk.

The Main Macroeconomic Determinants of Environmental Degradation in the Independent Turkic Republics and Türkiye: Panel Data Analysis

Precautions to prevent environmental degradation, which is important for the continuation of life, are among the most important issues to which all countries attach importance. For a sustainable environment, it is necessary to make both globally common and individual policy arrangements appropriate to the capabilities of each country. In the applied literature, there are very few studies on the main macroeconomic factors affecting environmental degradation in the independent Turkic Republics and Türkiye which have an ecological deficit despite their underground and aboveground natural resources. For this reason, panel data analyses were conducted for the independent Turkic Republics of Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan and Türkiye using annual data for the period 1996-2018, depending on data availability. In the analysis, ecological footprint, which represents environmental degradation, is considered as a dependent variable; GDP per capita, economic complexity index, non-renewable and renewable energy consumption, and trade openness are considered as independent variables. The results of the analyses show that the most important determinants of environmental footprint are GDP per capita, non-renewable energy consumption, and economic complexity index.

Determinants of income diversification: empirical evidence from Indian banks

PurposeThis study aims to explore the determinants (bank-specific, industry-specific and macroeconomic) of income diversification across interest income and non-interest income as well as for non-traditional income sources (non-interest income) from 2004–2005 to 2021–2022.Design/methodology/approachAn unbalanced data set comprising 110 Indian commercial banks with 1480 observations is sampled in this study. Because of the bounded nature of the dependent variables (proxies of income diversification), the panel Tobit regression model is used.FindingsThe findings reveal that income diversification is positively influenced by bank size, technological advancements, cost–income ratio, return on assets, market competition and inflation in the economy. However, the decision to diversify income sources is adversely impacted by the capital ratio, GDP and financial intermediation ratio. Moreover, factors such as asset quality (loan loss provisions) and liquidity ratio do not directly influence the diversification strategies in the Indian banking industry.Practical implicationsThe present study uses an extensive set of variables to provide insights into key factors for bank managers, regulators and policymakers to consider before developing diversification strategies.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the various bank-specific and macroeconomic determinants that affect income diversification in the Indian banking sector. The current study also investigates new variables such as technological advancements and a market concentration index for measuring competition, which have not been investigated in existing literature concerning bank income diversification in the Indian context.

The impact of macroeconomic and institutional environment on NPL of developing and developed countries

The study investigates what causes non-performing loans (NPLs) in developed and developing countries. To identify the relationship between bank-specific, macroeconomic determinants, and institutional environment non-performing loans on country-level panel data of Developing nations for the period extending from 2010 to 2020, the author used panel system GMM methodology. The long-held hypothesis that NPLs contribute to economic growth is tested using the Panel Granger causality test. Further panel cointegration tests were run to see whether the two variables have a long-term relationship. According to the study, loan defaults frequently happen at a lower rate during a rapid economic expansion, resulting in lower levels of non-performing loans. If there is a robust regulatory framework for systemic risk, a larger banking sector should be more stable than a smaller one. The current study also demonstrates the institutional environment’s importance in improving banks’ credit quality. In developing and developed countries, NPLs are significantly reduced when the institutional environment is improved.

Does financial market development really drive migrant remittances’ flow in Sub-Saharan Africa?

PurposeThe discussion on international migration has become a significant part of globalization and a topical issue in international relations, especially in developing economies which mostly relies on migrant remittances. The purpose of the study is to examine whether financial market development (equity market development and banking sector development) really drives migrant remittance flow in Sub-Saharan Africa (SSA).Design/methodology/approachThe study employs the dynamic heterogeneous panel data approach-the pool mean group (PMG) and the mean group (MG) techniques in analyzing the model based on data obtained from 27 SSA countries covering the period 2000–2020.FindingsThe findings of the study revealed that financial market development (equity market development and banking sector development) is a key driver of migrant remittances flows in the SSA region. In addition, the study revealed that the following macroeconomic variables such as real interest rate, unemployment rate, global growth, emigration, and economic growth are also determinants of migrant remittances flows in the SSA region.Originality/valueThe reviewed empirical literature revealed that several studies documents that the macroeconomic determinants of migrant remittances include inflation, GDP, interest rate, exchange rate, population growth, financial sector development and unemployment rate. Most of these studies fail to capture both equity market development and robust banking sector development (financial market development) as critical drivers of migrant remittances flow in SSA. Also, this study uses a robust measure of equity market development and banking sector development, unlike previous studies.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-05-2023-0361

An empirical investigation of macroeconomic determinants of public debt in Ghana

An empirical investigation of macroeconomic determinants of public debt in Ghana

What reduces unemployment rates in the Gulf Cooperation Council countries: growth, flexible labor markets, or social contract?

ABSTRACT In this research, we empirically examine the structural and macroeconomic determinants of unemployment rates in the Gulf Cooperation Council countries, distinguished by age and gender. We examine several hypotheses regarding the influence of long-run economic growth, labour market flexibility, and the social contract on unemployment rates. Using panel data for the period 2000–2020 and country and time fixed effects estimation methodology, empirical evidence shows that long-run growth reduces unemployment rates regardless of age and gender (except for female youth unemployment rate). Wage flexibility reduces most unemployment rates. Urbanization reduces total and male unemployment rates, while population density reduces total and female unemployment rates. In contrast to these determinants, linking pay to productivity, increases female, total youth, and male youth unemployment rates. Openness ratio increases total, total youth, male and male youth unemployment rates but not female and female youth unemployment rates. The paper has important policy implications for reducing unemployment rates in the Gulf Cooperation Council countries.

Nexus between Macroeconomic Factors and Economic Growth in Malaysia: An Autoregressive Distributed Lag Approach

This study digs into the complex relationship that exists between the development of GDP in Malaysia and major macroeconomic variables. It is of the utmost importance to gain an understanding of the elements that influence GDP development to reduce the risk of sociopolitical instability. Because nations are becoming more aware of the various elements that could potentially affect economic growth, this study was prompted to determine the precise mechanisms that are at play because of this awareness. This study employs the Autoregressive Distributed Lag (ARDL) methodology to yield robust statistical insights into the nexus between macroeconomic variables and economic growth in Malaysia. We have used quarterly data ranging from the initial quarter (Q1) of 2000 to the last quarter (Q4) of 2020 for our analysis. The findings of this study provide important insights into the dynamic links between GDP growth and the selected macroeconomic determinants. As a result, the findings provide policymakers, academics, and practitioners with significant information that can be used to design economic plans that are informed by relevant data. In addition, this study emphasizes the necessity for future research endeavors to go deeper into this topic, bringing attention to the requirement for new views and the active participation of new academics, politicians, and practitioners. This concerted effort is necessary to promote sustainable economic growth and stability in Malaysia and elsewhere.

Determinants of non-performing loans in conventional and Islamic banks: Emerging market evidence

This study examines the determinants of non-performing loans (NPLs) among macroeconomic and bank-specific factors for the Islamic and conventional banking sectors in Bangladesh. We implement a dynamic panel data model with a two-stage system GMM for the period 2010-2021. Among the bank-specific factors, this study finds that return on assets, return on equity, bank size, and inefficiency help to reduce NPLs. In contrast, gross loan growth, leverage, and capital adequacy ratios contribute to increasing NPLs. Among macroeconomic determinants, inflation, and GDP growth have a significant negative impact on NPLs. Moreover, unemployment and exchange rates are also found to be significant determinants of NPLs. At the bank level, growth in gross loans reduces NPLs in Islamic banks, while the opposite is true for conventional banks. Our findings have significant implications for depositors and regulators in making appropriate decisions.

Economic freedom, financial development and the determinants of fraud and scandal: The United Kingdom, 1900–2010

The paper argues that the incidence of financial fraud and scandals has systemic macro-economic determinants. While not denying organisation specific causes, short-run triggering events, and key players’ motivations, it shows that the extent of fraud and the number of financial scandals depend on the opportunities created by the financial system’s evolution. Using archival and quantitative evidence from the United Kingdom, it specifies aggregate changes in the incidence of fraud and scandal between 1900 and 2010. The evidence shows that economic freedom, including the degree of financial development, the availability of credit, the relative importance of the financial sector, international capital mobility and secrecy, and banking stability, contribute to the prevalence of fraud and scandal. Financial repression explains a generalised reduction in a 25-year period after the Second World War. Conversely, economic liberalisation from 1979 onwards has increased the incidence of fraud and financial scandal.

Determinants of market‐assessed sovereign default risk: Macroeconomic fundamentals or global shocks?

AbstractThis paper investigates the macroeconomic fundamentals that international investors consider crucial when assessing a country's default risk. Using panel data for 41 countries over the period 2002–2019, we find that the macroeconomic determinants of a sovereign credit default swap (CDS) are heterogeneous across developed and developing economies after controlling for potential endogeneity. While international investors consider government budget balance and inflation as crucial elements in the evaluation of the CDS of developed economies, more stress is placed on economic growth and foreign reserves in the assessment of the creditworthiness of developing economies. Furthermore, we document that better institutional quality reduces the sovereign default risk in both developed and developing economies. However, global shocks appear to have a strong impact in developing economies. The results remain robust to various specifications.

The Real Estate Market in Ghana: The Driving Factors and Housing Price.

Abstract
 The pricing of real estate houses in Ghana is a great concern to most Ghanaians. Numerous factors contribute to this. The purpose of this study was to discover the key variables influencing Ghanaian real estate pricing. Members of the Ghana Real Estate Developers Association (GREDA) were given a total of 196 sets of structured questionnaires. The members comprised of contractors, consultants, the client’s team, and others. Out of these questionnaires distributed, 130 completed questionnaires were returned. The results of the analysis showed the following as the main factors driving real estate prices: construction cost, financial market, structural features, government policies, macroeconomic determinants, and shifting population demography to be the major factors driving the pricing of real estate residential houses in Ghana. The value of R (the correlation coefficient of the regression analysis) was 0.846, indicating a very high positive correlation existing between the dependent and independent variables. This suggests that the two variables are moving in the same direction. The study concludes that population demographics, construction cost, structural feature, macroeconomic variables, government policy, and financial market explain 62.9 percent of the variability in the pricing of real estate residential dwellings in Ghana.

Economic Growth Model of Ecuador with Upper Middle Income to Explain and Predict Productivity during the Period 2000-2022

Economic growth is one of the most widely used measures of a country's macroeconomic performance, although it is not without its critics. There are strong arguments that per capita gross domestic product growth can reflect an important part of the success or failure of policies implemented in an economy. The objective, to analyse Ecuador's economic growth model with high average income to explain and predict productivity over the period 2000-2022. The materials and methods, this line of research addresses a hypothetical-deductive and descriptive level of inquiry, by developing aspects from the global perspective concerning economic theory and implicit models of classical growth; such as the model that describes the Cobb-Douglas production function, to explain and predict the temporal behaviour of Ecuador's economic development. The above, in order to establish a correlational analysis of the contributions of the macroeconomic determinants of productivity. The response variable to be measured has been the gross domestic product per capita (GDPpc ) with respect to the independent variables: Domestic Savings (S), Gross Fixed Capital Formation (FBKF), Government Final Consumption Expenditure (G), Exports (E) and as a control variable represented by Labor Force (L). A systematic documentary search was carried out through databases: Scielo, Scopus, Google Scholar and Science Direct, to support the present research with contributions with articles of temporal relevance within the last 5 years. In addition, it was based on annual secondary data extractions from official sources such as the Central Bank of Ecuador (BCE) and the World Bank (WB), according to the temporal coverage from 2000 to 2022. Results, 23 temporal observations were analysed to build an econometric model under the adaptation of a Cobb Douglas production function to explain and predict the behavior of elasticity in Ecuador's economic growth, which establishes that 99.81% of the total variability present in the data is explained by the model that includes variations in savings, gross fixed capital formation, labour force, government final consumption expenditure and exports in the analysed period. Conclusions, the imports variable is eliminated as it is not statistically significant, the resulting model complies with the basic assumptions and the corresponding economic validation in terms of the signs of the estimates for the determinants of economic growth in Ecuador.

Do the Same Determinants Affect Banks’ Profitability and Liquidity? Evidence from West Balkan Countries Using a Panel Data Regression Analysis

This study aims to determine whether the same bank-specific and macroeconomic determinants affect banks’ profitability and liquidity. To achieve the set goal, panel data regression analysis was applied with fixed effects or random effects depending on the results of the Hausman test, as explained in the Results. The research is based on the use of aggregate data on bank-specific and macroeconomic determinants of banks’ profitability and liquidity in West Balkan countries during the period from 2007 to 2022. The dependent variables in the study are ROA, ROE used as proxies for banks’ profitability, and banks’ liquid reserves to banks’ total assets as a proxy for banks’ liquidity. The findings confirm that the bank-specific and macroeconomic determinants affect both banks’ profitability and liquidity in the same direction, except for a few variables. The main contribution of this research is a comprehensive and parallel view of banks’ profitability and liquidity determinants that enables a guide for bank management to better understand the significance of bank-specific and macroeconomic determinants’ effects on their business. The obtained results can improve the balance between the two important principles of banking business.

Determinants of Liquidity Risk in the Countries of the European Economic Area

The paper documents cross-country variation in the relationship between the deposit insurance scheme and liquidity risk in banks and explores the banking sector specific and macroeconomic determinants that can explain the variation. There is a lack of articles exploring the phenomenon in Europe, authors studying the issue focus on the United States and other parts of the world, so it is difficult to apply their results to Europe. The results of their research are also ambiguous. Using data from 28 countries of the European Economic Area by means of panel regression calculated with the use of GLS estimator with random effects, I established that an increase in deposit insurance coverage reduces the risk of liquidity. The study provides new information to help evaluate deposit insurance schemes across EEA countries.

Relevancy and drivers of trade openness: a study of GIPSI countries

PurposeThe purpose of this research is to systematically scrutinize the influence of macroeconomic determinants on trade openness, through the lens of various trade theories, with a particular focus on the economies of the GIPSI countries – Greece, Ireland, Portugal, Spain and Italy.Design/methodology/approachThis study investigates the macroeconomic factors influencing trade openness in the GIPSI economies from 1995 to 2020. Methods include stepwise regression (SR) for model selection, Pedroni panel cointegration test and panel regression results. The analysis uses advanced panel regressions, including FMOLS, Panel OLS and FEM. The long-term dynamics were tested using Pedroni cointegration, while Granger causality testing was used to examine the causal direction between the trade openness ratio and trade determinant.FindingsThe results show both long-term and short-term relationships between trade openness and (1) foreign direct investment, (2) labor force participation rate, (3) trade reserves and (4) trade balance. The researchers also detected unidirectional and bidirectional causality relationships between trade openness and these four factors. The study also revealed that trade reserves (TR) emerge as the most influential determinant of trade openness, and per capita income does not exhibit economic significance concerning the trade openness of GIPSI economies.Research limitations/implicationsThis research is conducted within the context of the GIPSI nations (Greece, Ireland, Portugal, Spain and Italy). As such, the outcomes may not be universally applicable to other economic systems due to the distinct institutional settings and governance structures across different economic groups. Future investigations may explore the relationship between trade openness and its determinants by incorporating different variables.Originality/valueTo the best of the authors' knowledge, this is the first study investigating the theory that suggested trade drivers drive the trade openness of GIPSI countries context. By focusing on GIPSI countries, the study offers a unique perspective on the dynamics of trade openness in economies that have experienced financial crises and stringent austerity measures.

The role of multi-family properties in hedging pension liability risk: long-run evidence

PurposeUsing data spanning 145 years for Sweden, the authors investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth.Design/methodology/approachThe authors assess the risk-adjusted excess return that results from adding multi-family properties to a mixed-asset portfolio that aims to track wage growth. The authors also analyse the macroeconomic determinants of asset returns. Finally, the authors test whether a causal relationship exists between the growth rate of real wages and that of real net operating income.FindingsThe benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. The authors show that the net operating income acts as the transmission channel between wages and property returns.Practical implicationsThe paper assesses whether the growing interest of pension funds for multi-family properties is warranted in the context of a portfolio that aims to track wage growth.Originality/valueUsing long term data makes it possible to use a rolling windows approach and hence to consider multiple outcomes for an allocation strategy over a typical investment horizon. This permits to assess the dispersion of performance across several periods rather than just one as is commonly done in the literature. The results show that the conclusions that would be drawn from looking at the past two or three decades of data differ substantially from those for earlier time periods.