Nonlinear ARDL Approach Research Articles

Examining the asymmetric socioeconomic determinants of CO2 emissions in China: challenges and policy implications.

A better socioeconomic development is necessary for environmental sustainability. The current study scrutinizes the asymmetric socioeconomic factors of CO2 emissions in China by using the nonlinear ARDL approach. This study is based on annual data covering the period from 1980 to 2019. Results show that positive change in economic growth is the leading driver of CO2 growth, while a negative change in economic growth is offsetting CO2 emissions in China. Concurrently, positive and negative changes in energy consumption have adverse impacts on CO2 emissions in the long term, while negative shock has a small influence on CO2 emissions compared to the positive shock of energy. Positive years of schooling, shocks are found to be beneficial for fighting against CO2 emissions in China in the long run. The CO2 emissions are asymmetrically affected by the social and economic structure of China. Based on these empirical findings, thereby China should improve its socioeconomic development and standards of CO2 emissions.

Do Foreign Direct Investment and Trade Openness Influence Poverty in Pakistan? Evidence from NARDL Approach

Poverty is considered a complex and multifaceted phenomenon that can be subjected to various socio-economic factors. This study aims at assessing the potential asymmetric influence of foreign direct investment (FDI) and trade openness on poverty in Pakistan from 1972 to 2018 by employing the Non-linear Autoregressive-Distributed Lag (NARDL) approach. The asymmetric ARDL bound testing technique confirms the long-run association among the selected variables. Furthermore, we deploy three proxies (Gini index, headcount ratio, and household consumption expenditures) to measure poverty for more robust results. The findings demonstrate that positive shocks from foreign direct investment and trade openness work as effective measures by reducing the harmful effects of poverty. Conversely, the vicious circle of poverty becomes severe due to the negative shocks in foreign direct investment in the case of the Gini index and household expenditures consumption as a proxy of poverty and the negative shocks in trade openness in the case of household expenditures consumption as a proxy of poverty. Moreover, the findings also disclose that population growth and health expenditures help in ameliorating the deleterious repercussions of poverty. For policymakers having an interest in asymmetric nexus among foreign direct investment, trade openness, and poverty, this study suggests the apropos implications.

The USA–China trade policy uncertainty and inference for the major global south indexes

PurposeThe recent dynamics of trade policy, especially that is associated with the United States of America (USA) and China, has not only triggered policy adjustments in two economies, it has also implied an uncertainty spillover to other economies across the globe. Consequently, the current study attempts to examine the effect of uncertainties in the USA–China trade policies on stock market indexes. In addition, the cointegration evidence between the USA–China trade policy uncertainty index and of the leading Global South fragile quintet (Brazil, Indonesia, South Africa, India and Turkey) stock market indices is investigated.Design/methodology/approachMainly, the FMOLS and DOLS Granger causality analysis with cointegration coefficient estimators were employed for the dataset over the monthly data period of March 2003 and July 2019.FindingsAccordingly, the study found a long-term relationship between the USA–China Trade Policy Uncertainty index and the stock exchange indexes. In addition, a causal relationship was established from the change in the USA–China Trade Policy Uncertainty index to the change in the stock market indexes of almost all of the examined countries (Brazil, Indonesia, South Africa, India and Turkey). In addition, the nonlinear Autoregressive Distributed Lag approach further offers evidence of asymmetric relationship among the examined indicators.Originality/valueMoreover, this study contributed to the existing literature because it employed the indexes of BIST100, BOVESPA, BSE Sensex 30, IDX Composite and South Africa 40 in a novel approach. Thus, the study posited a useful policy guideline for associated economic uncertainties arising from the trade dispute, such as the case of the world’s two largest trading giants or partners (i.e. the USA and China).

Renewable and Non-Renewable Energy Consumption in BRICS: Assessing the Dynamic Linkage between Foreign Capital Inflows and Energy Consumption

This study attempt to fill the research gap by figuring out the dynamic effects of foreign capital inflows effect on renewable energy and non-renewable consumption by using the time series non-linear ARDL approach for BRICS from 1991 to 2019. Non-linear ARDL estimates show that positive change in foreign capital inflows has a positive effect on renewable consumption in Brazil, India, and South Africa in long run. Also, the negative change in foreign capital inflows exhibits negatively liked with renewable energy consumption in BRICS economies, except Russia in long run. We find that positive shock in foreign capital inflows tends to increase non-renewable energy consumption in BRICS except India in the long run. Finding suggests that negative change in foreign capital inflows has negative impacts on non-renewable energy consumption in India and Brazil, while the positive effect in only China in the long run.

Analysis of income inequality and environmental pollution in BRICS using fresh asymmetric approach.

With rapid economic growth, BRICS is facing enormous burdens of carbon emission and severe issues of income inequality. However, behind this economic success, the BRICS economies also face few thoughtful challenges to improve environmental quality by catching up the sustainable development goals. Consequently, the existing empirical research is concerned with the dynamic links between income inequality and CO2 emissions by using the novel nonlinear ARDL approach, but small attention has been paid to the BRICS in literature. Therefore, we observed that a negative and positive change in income inequality has positive effect on CO2 emissions in Russia and South Africa in the long run, although a positive change in income inequality has positive effects on CO2 emissions in Brazil, Russia, and China, while a negative change in income inequality has negative effect on CO2 emissions in India, Brazil, and Russia in the short run. Hence, the findings value specific attention from policymakers in BRICS economies.

The environmental issue facing asymmetric oil price shocks and renewable energy challenges: evidence from Tunisia

The present paper investigates the environmental issue in Tunisia when considering both renewable energy challenges and asymmetric oil prices shocks. The nonlinear ARDL (NARDL) approach to cointegration of Shin et al. (2014) in the presence of structural breaks is used to study the environmental Kuznets inverted U-curve in Tunisia over the period 1976-2014. The EKC hypothesis is found to be confirmed in Tunisia in the short and long terms. The nonlinear turning point is found to take place before the linear one suggesting that considering oil price asymmetrically allows accelerating the EKC assumption in Tunisia to reach the turning point more rapidly. Our finding reflects the necessity of an asymmetric energy price reform in Tunisia respecting the asymmetric nature itself of environmental and economic implications of oil price shocks. By switching from the linear to the nonlinear model, renewable energy consumption is found to exert almost the same and effective role as reducer of CO2 emissions. The energy transition process is found to be triggered in Tunisia but at a slow pace. Policy implications have been implemented in terms of environmental, social equity, and energy transition strategies. The issues raised are multidimensional including regulatory, institutional, financial, and governance reforms.

Asymmetric Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from Nonlinear ARDL Approach

This paper analyses the effects of real exchange rate on the trade balance in Cote d’Ivoire using times series from 1975 to 2017. Although many studies have investigated this issue, most of them assume that this relationship is symmetric. This paper relaxes this assumption employing the nonlinear autoregressive distributed lag (ARDL) model by Shin, Yu and Greenwood-Nimmo (2014). The results show that trade balance responds stronger to negative shocks in real exchange rate than to positive ones in the long-run, while the short-run response of trade balance is symmetric.

On the link between policy uncertainty and housing permits: asymmetric evidence from state-level data in the USA

Purpose The purpose of this study is to assess the symmetric and asymmetric impact of a measure of policy uncertainty on house permits issued in each state of the USA. Design/methodology/approach To assess the symmetric effects, the authors use Pesaran et al.’s (2001) linear autoregressive distributed lag (ARDL) approach to error-correction modeling. To assess the asymmetric effects, they rely upon Shin et al.’s (2014) nonlinear ARDL approach to error-correction modeling. Both approaches have the advantage of producing short-run and long-run effects in one step. Findings The authors find short-run symmetric effects of policy uncertainty on house permits issued in 22 states that lasted into the long run in three states only. However, the numbers were much higher when they estimated the possibility of asymmetric effects of policy uncertainty. Indeed, they found short-run asymmetric effects in 38 states and long-run asymmetric effects in 18 states. Originality/value Some previous studies assessed the effects of a measure of policy uncertainty on house prices. In this paper, the authors extend the same analysis to the supply side of the housing market by assessing the effects of policy uncertainty on house permits in each state of the USA.

Asymmetric and nonlinear dynamics in trade flows sustainability: Serbia and Romania

AbstractThe research examines the sustainability of trade flows for two European post-communist economies: Serbia and Romania. We analysed two nonlinear forms of the relationship between exports and imports that cannot be explained by frequently applied linear model specifications. Newly developed nonlinear autoregressive distributed lag approach revealed the asymmetric and nonlinear long-run equilibrium between Serbian exports and imports. Nonlinearity tests indicated and the SETAR model specification confirmed threshold nonlinearity form in the Serbian trade flows pattern. Serbian trade flows still approach its sustainable equilibrium but the development pattern is promising. The results for Romania revealed another nonlinear form of the relationship between exports and imports, indicating a dependent cointegration. The paper provides robust results and supports the hypothesis that the relationship between exports and imports can be nonlinear and symmetric.

Asymmetrical Exchange Rates Effect on Indonesia's Trade Balance in Tourism

The main objective of this research is to analyze the effect of depreciation and real exchange rate appreciation on Indonesia's tourism trade balance bilaterally against Australia, China, Japan, Malaysia, and Singapore. Such analysis on bilateral relations have never been studied for developing markets countries, namely Indonesia. This study uses a linear ARDL approach and a nonlinear ARDL approach with the dependent variable on the tourism trade balance and the real exchange rate as independent variables. Income, foreign direct investment (FDI), and natural disasters as control variables. The empirical results show that Chinese and Japanese tourists respond positively to the depreciation in the real currency rate of exchange, thereby increasing Indonesia's tourism trade balance. Nonlinear ARDL shows that the relation concerning the real rate of exchange plus the balance of trade is non-symmetrical with respect to China and Japan, while Australia, Malaysia, and Singapore are symmetrical. These results suggest that the government should formulate policies to increase tourist visits from China and Japan. Further empirical results also found a J-curve pattern in Indonesia-China and Indonesia-Japan.

Revisiting the Dynamics of the Fiscal Deficit and Inflation in India: the Nonlinear Autoregressive Distributed Lag Approach

The chronic government deficit (fiscal deficit) and increase in the price level (inflation) have become major concerns for economists and policymakers. While numerous studies have examined the twin problems of the fiscal deficit and inflation for both developed and developing economies, their results are inconclusive due to different estimation techniques, chosen time periods, selection of variables, etc. Therefore, we examined the fiscal deficit-inflation nexus in India for the period from 1980–81 to 2016–17 by employing the Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) approaches. The results of the ARDL approach found no evidence of linear relationship between fiscal deficit and inflation in the Indian context. Further, the empirical findings of the NARDL model confirmed the nonlinear relationship between fiscal deficit and inflation in the long run and no association between money supply and inflation, supporting the ideas of the Fiscal Theory of the Price Level (FTPL) in the case of India. FTPL postulates that public debt and taxation policies drive price level; monetary policy has an indirect role only. Therefore, fiscal policymakers should focus on reducing fiscal deficits. Simultaneously, the Reserve Bank of India (RBI) should regulate lending interest rate so that a mix of fiscal and monetary policies can be applied for controlling inflation in India.

U.S.-German commodity trade and the J-curve: New evidence from asymmetry analysis

Since the introduction of the nonlinear ARDL approach and asymmetric cointegration and error-correction modeling, old relations are receiving renewed attention, and the link between the trade balance and the exchange rate is no exception. We add to this new literature by using industry-level data from 59 2-digit industries that trade between the U.S. and Germany. We find that when the old approach of the linear model was used, the real dollar-euro rate had short-run effects in 17 industries that lasted into the long run in 26 industries. However, when the nonlinear model was estimated, we found short-run asymmetric effects of exchange rate changes in 49 industries, which lasted into long-run asymmetric effects in 28 industries. The J-curve effect was supported in a total of 18 industries.

Analyzing asymmetric impact of economic growth, energy use, FDI inflows, and oil prices on CO2 emissions through NARDL approach.

Even though numerous studies explore the impact of macroeconomic variables on carbon dioxide (CO2) emissions, only a few existing studies estimate the asymmetric impact and causality. By considering the significance of asymmetries, this study investigates the asymmetric impact of economic growth, energy use, and foreign direct investment inflows on CO2 emissions in India wherein oil prices are included as additional variable. The kinked exponential growth of these variables over the period 1986-2014 is also estimated. To this end, nonlinear autoregressive distributed lag (NARDL) model and asymmetric causality test are used. The results show that increase in economic growth would decrease CO2 emissions, while a reduction in economic growth would increase CO2 emissions which implies an inverted U-shaped link between economic growth and CO2 emissions. The positive and negative shocks in oil prices have a favorable and significant impact on CO2 emissions as well. Furthermore, the energy consumption with positive shock shows a positive and significant impact on CO2 emission. Besides, the findings of foreign direct investment inflows support the pollution heaven hypothesis. In light of these results, this study also suggested some policy implications and future research avenues in the concluding section.

Exchange rate volatility and Turkish–German commodity trade: an asymmetry analysis

PurposeThe purpose of this paper is to show that in some industries the linear model may not reveal any significance link between exchange rate volatility and trade flows but once nonlinear adjustment of exchange rate volatility is introduced, the nonlinear model reveals significant link.Design/methodology/approachThis paper uses the linear ARDL approach of Pesaran et al. (2001) and the nonlinear ARDL approach of Shin et al. (2014) to assess asymmetric effects of exchange rate volatility on trade flows between Germany and Turkey.FindingsThis paper consider the experiences of 75 2-digit industries that trade between Turkey and Germany. When the study assumed the effects of volatility to be symmetric, the study found short-run effects in 31 (30) Turkish (German) exporting industries that lasted into the long run in only 10 (13) Turkish (German) exporting industries. However, when the study assumed asymmetric effects and relied upon a nonlinear model, the study found short-run asymmetric effects of volatility on exports of 55 (56) Turkish (German) industries. Short-run asymmetric effects lasted into long-run asymmetric effects in 10 (25) Turkish (German) exporting industries. All in all, we found that almost 25% of trade is hurt by exchange rate volatility.Originality/valueThis is the first paper that assesses the possibility of asymmetric effects of exchange rate volatility on German–Turkish commodity trade.

Estimating a bilateral J‐curve between the UK and the Euro area: An asymmetric analysis

AbstractThe J‐curve outlines the path of movement in the trade balance after a currency is devalued or depreciated, deteriorating in the short run but improving in the long run. One study in this journal investigated the concept between the UK and each of its 10 large partners from the EU. The study found support for the J‐curve effect in the UK trade balance with Belgium, Germany, France, Italy and Netherlands. However, the findings were based on sign misinterpretation. If correctly interpreted, the findings actually support the inverse J‐curve, i.e., long‐run deterioration in the bilateral trade balances. The results were based on using the linear ARDL approach. We revisit the issue and use the Nonlinear ARDL approach. We find support for the asymmetric J‐curve effect in the bilateral trade balance between the UK and France, Greece, Portugal and Spain and an asymmetric inverse J‐curve in the case of Finland.

The nonlinear ARDL approach and productivity bias hypothesis: Evidence from 68 countries

In this paper, we test the Productivity Bias Hypothesis for each of the 68 countries for which we were able to collect data. When we used the linear ARDL approach, we found support for the hypothesis in 16 countries in the long run. However, when we used the nonlinear ARDL approach, we added 11 more countries to the list. Furthermore, the nonlinear approach supported the short-run asymmetric effects of productivity ratio in 47 countries that lasted into long run asymmetric effects in 29 countries in the sample. Seventeen additional countries were added to the list when both models were augmented with a few additional determinants of the real exchange rate.

The asymmetric effects of exchange rate volatility on US–Pakistan trade flows: new evidence from nonlinear ARDL approach

The asymmetric effects of exchange rate volatility on US–Pakistan trade flows: new evidence from nonlinear ARDL approach

The Farm-Retail Price Transmission in the Turkish Dairy Sector: Evidence from the Non-linear ARDL Approach

The Farm-Retail Price Transmission in the Turkish Dairy Sector: Evidence from the Non-linear ARDL Approach

Asymmetric impact of real exchange rate on inflation in Ethiopia: a non-linear ARDL approach

A surge in inflation for the last decade has been a top agenda of political and economic debate in Ethiopia. The monitory authority of the country has regularly devalued Ethiopian birr to stabilize the inflation and stimulate exports. Whether this has indeed stabilized inflation and increased export earnings is an issue of debate. This study investigates the asymmetric impact of real exchange rate on inflation for period 1982–2019. The non-linear ARDL bounds test is used to test the presence of long-run co-integrations. Long- and short-run estimations were done based on the non-linear ARDL error correction methodology. The result of the study indicated that the real exchange rate has asymmetric effects on inflation in short- and long-run. The imbalance in real exchange rate (depreciation and appreciation) causes a surge in inflation in the long-run. The policy implication of this study is that flexibility in exchange rate market should be planned to ensure price stability rather than following restrictive exchange rate policy.

Free-Market Exchange Rate And Rigidity Of Prices In Iran By Nonlinear ARDL Approach

Free-Market Exchange Rate And Rigidity Of Prices In Iran By Nonlinear ARDL Approach