Nonlinear ARDL Approach Research Articles

Impact of Investment in Tourism Infrastructure Development on Attracting International Visitors to Vietnam: A Nonlinear Panel ARDL Approach

Investment in tourism infrastructure development to make destinations and services increasingly attractive is considered a key measure to develop a country’s tourist destinations. This paper investigates the impact of investment in tourism infrastructure components on international visitor attraction using Vietnam data for the period 1995-2019. The results of analyzing panel data by the nonlinear Autoregressive Distributed Lag (ARDL) approach show that in the long-run, investing in the three components of tourism infrastructure, namely transport and communications infrastructure, the hotel and restaurant industry, and recreation facilities, has a strong and positive impact on international visitor attraction. In addition, different short-run impacts of the three tourism infrastructure components on the whole market and each major international visitor market are also found

The asymmetric responses of stock prices in US market

Machine learning and data analytics are so popular in making trading much more efficient by helping the investors to identify opportunities and reduce trading costs. Before applying suitable predictive modelling algorithms, it is crucial for investors or policymaker to understand the nature of the stock data properly. This paper investigates the dependency of macroeconomic factors against the stock markets in the United States using the nonlinear Autoregressive Distributed Lag (NARDL) approach. The analysis considered the Dow Jones Industrial Average Index, NASDAQ Composite Index, and S&P 500 Index. Macroeconomic factors in this country such as consumer price index, export, interest rates, money supply, real effective exchange rates, total reserves, and gold price are considered in this study. In the findings, the NARDL approach shows that the Dow Jones Industrial Average Index and S&P500 Index are having bi-directional positive asymmetric effects to each other in the short run. In short-run, increasing the consumer price index is found to have a negative effect on Dow Jones Industrial Average Index but with a positive effect on S&P500 Index. In conclusion, this study aids investors and other market participants in making a more efficient investment decision.

Money Demand Balances and Exchange Rate Policy in Pakistan: An ARDL and Non-ARDL Analysis

This paper investigates the impact of exchange rate on the money demand balances in Pakistan by applying linear and non-linear ARDL approach. The purpose of study is not only examining the impact of exchange rate and demand for money but also to analyze that whether demand for money in Pakistan is stable or not. For the estimation of money demand function yearly data are used from the 1972 to 2019. The findings of linear ARDL suggest that exchange rate and demand for money balances are positively related. Moreover, Non-linear ARDL exhibit that positive and negative shocks in exchange rate have mixed findings for money demand while asymmetric test shows that exchange rate has symmetric effects for money demand. Stability test suggest the stable money demand in Pakistan.

Does environment quality and public spending on environment promote life expectancy in China? Evidence from a nonlinear autoregressive distributed lag approach.

Environmental quality has become a growing concern for Chinese society since the last 2decades in China. The large contribution of different pollutants severely affected the environmental quality that untimely affects life expectancy in the country. In this backdrop, the present study investigates the impact of environmental quality and public spending on the environment for life expectancy in China using the period 1999Q1-2017Q4. We employ nonlinear autoregressive distributed lag model (ARDL) approach for the empirical assessment. The outcomes of the study reveal the existence of a long-run relationship between environmental quality, public spending on the environment and life expectancy in China. The empirical finding reported that life expectancy reacts differently in response to positive and negative shocks of environmental quality both in the long- and short-run. Environmental quality and spending on the environment increase the life expectancy, furthermore, population has a positive and significant association with life expectancy only in short run while in long run it does not affect. Hence, the government needs to roll out policies to enhance environmental quality and ensure adequate funding for environmental preservation, to achieve both longevity of society and sustainability of the eco-system.

Asymmetric oil price and Asian economies: A nonlinear ARDL approach

We study the asymmetric effects of oil price changes on the domestic output of the ASEAN-5 countries (Indonesia, Malaysia. Singapore, Philippines, and Thailand) plus Japan and Korea. Asymmetries are introduced by accumulating oil price increases separately from decreases using partial sum processes in a nonlinear ARDL framework. Utilizing annual data for the period 1973–2018, the results from the linear ARDL model suggest that oil price changes do not affect the domestic output of Indonesia, Korea, Singapore, and Thailand. However, the nonlinear ARDL model reveals that oil price changes asymmetrically affect the domestic output of all seven Asian countries in both the short-run and in the long-run. We observe an asymmetrically larger effect on output from rising oil prices than from falling prices, but effects vary across countries. Moreover, nonlinear causality tests confirm causality from oil price to output in all the countries.

Asymmetric price responses of the US pork retail prices to farm and wholesale price shocks: A nonlinear ARDL approach

The objective of this study is to assess asymmetric price transmission in magnitude and asymmetric price transmission in speed, between the farm-retail and wholesale-retail levels of the US pork supply chain. In doing so, it employs the recently developed Non-Linear Auto-Regressive Distributed Lag (NARDL) model. Data utilized are monthly observations for farm, wholesale and retail prices of the US pork supply chain for the period 1990–2018. The empirical findings indicate the presence of asymmetry in magnitude for the wholesale-retail pair and the presence of both asymmetry in speed and asymmetry in magnitude for the farm-retail pair. In the long-run, positive shocks in the farm prices and in the wholesale prices are transmitted to the retail level with greater intensity as compared to negative ones.

Analyzing nonlinear impact of economic growth drivers on CO2 emissions: Designing an SDG framework for India

Several Asian countries are facing challenges regarding the accomplishment of the objectives of Sustainable Development Goals (SDGs), and India is facing a similar situation. Following this, this study talks about designing an SDG framework for India, which can be used as a benchmark for other Asian countries. In this pursuit, this study looks into whether per capita income, energy use, trade openness, and oil price have any impact on CO2 emissions between 1980 and 2019. The nonlinear autoregressive distributed lag approach proves that the fluctuations in independent variables have an asymmetric long-term impact on CO2 emissions. The results reveal that the prevailing economic growth pattern in India is environmentally unsustainable, because of its dependence on fossil fuel-based energy consumption and imported crude oil. Import substitution has been identified as one of the first stepping stones to address this issue, and accordingly, a multipronged SDG framework has been designed based on the direct and extended version of the study outcomes. While the Central policy framework shows a way to address SDG 7, SDG 8, SDG 12, and SDG 13, the Tangential policy framework shows the way to sustain the Central policy framework by addressing SDG 4.

Do renewable energy and natural gas consumption mitigate CO2 emissions in the USA? New insights from NARDL approach.

This article attempts to explore the asymmetric impact of renewable energy and natural gas consumptions on CO2 emissions for the selected ten most populous states in the USA over the period from 1997 to 2017. For that purpose, the nonlinear autoregressive distributed lag (NARDL) estimation technique, developed by Shin et al. (2014), decomposes the consumption of renewable energy and natural gas into positive and negative changes. The cointegration test results indicate that renewable energy and natural gas consumptions have a long-run connection with CO2 emissions in the eight of states used in the study. Moreover, the results reveal that the long-run asymmetric impact of renewable energy and natural gas consumptions on CO2 emissions differs from state to state. Finally, the study provides several important policy suggestions, including reducing the CO2 emissions in the atmosphere.

Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach

Petroleum products constitute major share of Pakistan's imports. A change in crude oil prices affects energy prices and thus manufacturing and transportation cost. All these factors result in influencing the prices of goods and services which ultimately affect the welfare level of masses. Keeping in view, the market structure at international and local level, present study examines the pass-through effect of crude oil prices on food and non-food prices in Pakistan using nonlinear and asymmetric autoregressive distributive lag (NARDL) model and causality tests for 1990Q3 to 2019Q4 period. Results show that oil prices effect both food and non-food inflation, but effect is more pronounced in non-food inflation. It is also found that the impact is asymmetric, that is, effect is positive and significant only when oil price increase. Results of this study confirm the role of market power in commodity prices in Pakistan and call for effective regulatory policies.

The effect of economic uncertainty on narrow money demand and its stability in New Zealand: An empirical investigation

The main objective of this paper is to investigate whether economic uncertainty affects narrow money demand in New Zealand and whether the specified money-demand function remains stable over time. New Zealand adopted inflation-targeting in the early 1990s by discarding monetary-targeting or any other strategy of monetary policy for price stability on the grounds that instability in the narrow money-demand function might sever the relationship among money, output, prices, interest rates, and exchange rates, as the classical monetary theory suggests. This paper specifies an augmented money-demand function for an open economy that includes economic uncertainty and inflation volatility as two additional determinants of money demand. Quarterly data for New Zealand for the period 1995Q1–2017Q4 is used to determine whether these variables remain significant in an augmented money-demand function in this country. The empirical results, obtained by the autoregressive distributed lag (ARDL) approach to cointegration, suggest that there exists a cointegral relationship among variables in the specified model and that economic uncertainty negatively affects narrow money demand in New Zealand. Further, the empirical results, obtained by the non-linear ARDL (NARDL) approach, suggest that economic uncertainty affects narrow money demand asymmetrically. An increase in economic uncertainty lowers narrow money demand, while a decrease in economic uncertainty does not increase – and​ instead seems to decrease – narrow money demand. Unlike with economic uncertainty, an increase in inflation volatility, which represents inflation uncertainty, increases narrow money demand. Although it is not conclusively established in this paper, the effect of inflation uncertainty on narrow money-demand seems symmetric. The narrow money-demand function is found in this paper to have remained stable irrespective of whether the model is estimated by the ARDL or NARDL approach. This paper draws the conclusion that the abandonment of money in the formulation of monetary policy strategy, such as inflation-targeting in New Zealand, cannot be justified on the grounds of instability in the narrow money-demand function.

The Relationship between Inflation and Interest Rates in the UK: The Nonlinear ARDL Approach

Abstract This study reconsiders the Fisher effect for the UK from a different methodological perspective. To this aim, the nonlinear ARDL model recently developed by Shin et al. (2014), is applied over the periods of 1995M1-2008M9 and 2008M10-2018M1. This model decomposes the changes in original inflation series as two new series: increases and decreases in inflation rates. Hence, it enables us to examine the Fisher effect in terms of increases and decreases in inflation separately. The empirical findings support asymmetrically partial Fisher effects for the UK in the long-run only for the first period. Additionally, this study attempts to describe and introduce a different version of the partial effect concept for the first time for the UK.

Asymmetric CEO confidence and CSR: A nonlinear panel ARDL-PMG approach

The aim of this paper is to elucidate the relationship between managerial overconfidence/underconfidence and corporate social responsibility including the three ESG (environmental, social and governance) factors. Using an asymmetric nonstationary panel model, we detect the overconfidence (under confidence) component through positive (negative) overinvestment (underinvestment) changes. The Shin et al. (2014) nonlinear ARDL approach in panel form is used to construct our asymmetric panel ARDL-PMG model, and a sample of 68 large French companies over the period 2006-2016 is used. The asymmetric results first prove that a manager’s behavior seems to impact CSR only in the long term. Our asymmetric results also prove that CSR reacts positively to both managerial overconfidence and under-confidence shocks; Regardless of the personal traits of their manager, large companies have to be socially responsible. We then focus on the relationship between these two behavioral biases on each CSR dimension. We find a significant and negative impact of under confident leaders on the environmental dimension but a nonsignificant impact of overconfident leaders. For the governance dimension, we detect a positive effect of managerial overconfidence and managerial under confidence. However, we find a negative impact of overconfident and under confident leaders on the social dimension of CSR. According to these asymmetric findings, recommendations have been given in terms of the CSR strategy.

Asymmetric Effects of Exchange Rate on Monetary Policy in Emerging Countries: A Non-Linear ARDL Approach in Uganda

Many money demand studies have been carried out on Uganda, however, these studies perceive and incorporate exchange rate as a linear determinant of real money demand. Indeed, exchange rate may have asymmetric effects on real money demand; with exchange rate appreciation having different effects from exchange rate depreciation. Therefore, this is the first study to estimate exchange rate asymmetries in Uganda, for the period 2008Q3 and 2018Q4. The study uses both the linear ARDL and non-linear ARDL methodologies to accomplish its goal. This is also done by incorporating an economic uncertainty index, which is critical, especially in light of the novel global coronavirus pandemic, that has disrupted trade, movement and supply chains. The error correction terms of both models are negative and significant, with the one of the non-linear ARDL twice as much as that of the linear ARDL. Indeed, the study confirms the existence of exchange rate asymmetries on Uganda’s real money demand. In the linear ARDL model, exchange rate has a positive effect in the long run but a negative result in the short run. On one hand, the non-linear ARDL model reveals that an exchange rate depreciation of the Uganda Shillings negatively affects real money demand in the short run. On the other hand, an exchange rate appreciation positively effects real money demand. Notably, economic uncertainty has insignificant effects in both models, except for its lags in the non-linear model. The implication of these findings is that macro-economic policy management in Uganda should be cognizant of these asymmetric effects of exchange rate, for effective planning, policy and implementation.

Toward sustainable electricity consumption in Brazil: the role of economic growth, globalization and ecological footprint using a nonlinear ARDL approach

This study investigates nonlinear effects of economic growth, globalization and ecological footprint on sustainable electricity consumption in Brazil using monthly time-series data from 1971M:01 to 2014M:12 and a nonlinear ARDL model. The results show that the effects of economic growth, globalization and ecological footprint on electricity consumption are asymmetric. A positive shock to economic growth increases electricity consumption more than a negative shock of the same magnitude causes electricity consumption to decline. In the case of globalization, the effect of a negative shock is stronger. Furthermore, the long-term effects of positive and negative shocks to the ecological footprint are negative but statistically significant only in the case of a positive shock while in the short term, the increasing effect of a positive shock to the ecological footprint is stronger than the reducing effect of a negative shock of the same magnitude. These findings are validated when globalization is disaggregated to economic, political and social dimensions.

Asymmetric impact of oil price on trade balance in BRICS countries: Multiplier dynamic analysis

AbstractThis paper examines the impact of oil prices on the trade balance by incorporating wholesale prices and an industrial production proxy for economic activity as supporting variables for the BRICS countries. Quarter frequency data from 1992 to 2015 is used. Keeping in view the structural breaks and resulting asymmetries, long‐run and short‐run dynamic estimations are conducted using the nonlinear ARDL approach proposed by Shin, Yu, and Greenwood‐Nimmo. We find a positive and significant asymmetric relationship between oil prices and the trade balance in Brazil, India, China and South Africa. The asymmetries of wholesale prices also have a positive and significant effect on the trade balance in the cases of Russia, India and South Africa. The asymmetries of industrial production have a significant but negative impact on the trade balance for India and South Africa. These nonlinear and diverse relationships of oil prices, wholesale prices and economic activity with the trade balance are also confirmed by long‐run parameters for BRICS countries. This study opens some new insights for policy making.

Is the Relationship Between Government Spending and Private Consumption in Egypt Symmetric?

The aim of this study, using Egyptian data from 1970 to 2016, is to explore the relationship between government spending and private consumption spending and to understand whether the relationship between the two is symmetric. The study uses the autoregressive distributed lag (ARDL) approach to explore a cointegration relationship between the two variables, and the nonlinear autoregressive distributed lag (NARDL) approach to test the hypothesis of a symmetric relationship between the two variables. By applying the ARDL approach, the study concludes that the effect of government spending on consumption spending is not significant in the long term. By applying the NARDL approach, the study concludes that: the hypothesis of the presence of a symmetric relationship is not accepted, there is a crowding-out relationship from the positive shocks of government spending and the substitutability coefficient between the two types of spending is 0.8699. JEL Classification: E12, E21, F62, H50

Commodity terms of trade shocks and real effective exchange rate dynamics in Africa's commodity-exporting countries

Motivated by the absence of conclusive guidance from the current literature, this study revisits the effects of terms of trade shocks on real effective exchange rates (RER) across twenty-three primary commodity-exporting countries in Africa. To address the heterogeneity across primary commodities that may have plagued earlier studies, we employed a nonlinear panel ARDL approach to capture both the cross-section and time variations across primary commodities. Our analysis offers three main finding patterns. Firstly, we highlighted that the response of the RER to terms of trade shocks is asymmetric: the real appreciation is more pronounced for positive than negative shocks in terms of trade in the long-run while negative shocks in terms of trade cause the RER to depreciate in the short-run. Secondly, we found that the asymmetric responses of RER differ across commodity subgroups and seem to matter more for energy-exporting countries. Finally, we showed that energy and metal commodity-exporting subgroups are the most subject to real appreciation in the long run in comparison to countries exporting soft commodities such as agricultural and, food and beverage commodities. A fundamental policy corollary follows that there is a need to remediate the loss of the external competitiveness associated with real appreciation by coordinating monetary and fiscal policies to effectively absorb the huge additional foreign reserves and ensure an exchange rate equilibrium level, which will bring macroeconomic stability in primary commodity-exporting countries.

Does sub-sectoral FDI matter for trade in emerging economies? Evidence from nonlinear ARDL approach

Using sectoral as well as subsectoral FDI data, we explore the asymmetric effect of nonfinancial services FDI on trade in services for 24 emerging economies for the period 1999–2016. We employ the panel unit root tests and recently developed panel nonlinear autoregressive distributed lag (NARDL) model, to analyze the impacts of FDI in service and its sub-sectors on trade in services. Our results confirm the nonlinear asymmetric relationship between nonfinancial services FDI and trade in services. We find that FDI in financial services has positive and significant impacts on trade in services, which implies there exists a complementary relationship between FDI in financial services and trade in services. Concurrently, positive changes in nonfinancial services FDI have adverse effects on trade in services in the long run, which indicates the substitutability of same with trade in services. Our results also show the complementary relationship between nonfinancial services FDI and manufacturing trade.

The asymmetric effect of trade openness on economic growth in South Africa: a nonlinear ARDL approach

The untested hypothesis of a linear association between trade openness and economic growth in earlier studies may bring about incorrect inferences if indeed the association is nonlinear. This study uses the newly developed nonlinear autoregressive distributed lags (NARDL) framework to re-examine the link between trade openness and economic growth in South Africa over the period 1960–2016, highlighting the asymmetric effects of trade openness using an innovative proxy of trade openness proposed by Squalli and Wilson (World Econ 34(10):1745–1770, 2011). In contrast to previous studies, the new proxy is constructed to take into consideration both South Africa’s trade share of its GDP and its relative size of trade in relation to world trade in a specified period. Adopting this novel approach to capture openness permits the simultaneous testing of short- and long-run nonlinearities through positive and negative partial sum decompositions of trade openness. It also enables us to quantify the short- and long-run impacts of trade openness increases and decreases on economic growth from asymmetric dynamic multipliers. The results show that trade openness has short- and long-run asymmetric effects on economic growth. These results have important policy implications.

Nexus between Indian Economic Growth and Financial Development: A Non-Linear ARDL Approach

Nexus between Indian Economic Growth and Financial Development: A Non-Linear ARDL Approach