Pairwise Causality Research Articles

Foreign Direct Investment and the Effect on a Developing Economy

This study examined the effect of foreign direct investment on a developing economy. The study employed multiple regression models to estimate the relationship that exists between sectorial inflow of foreign direct investment and Nigeria economic growth. Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The findings of the result reveal that foreign direct investment in the agricultural sector have positive but no significant effect, foreign direct investment in the manufacturing sector have positive and significant effect, foreign direct investment in the mining and querying sector have negative but no significant effect, foreign direct investment in the transport and communication sector have positive and significant effect while foreign direct investment in the oil and gas sector have positive and significant effect on Nigeria real gross domestic products. The study concludes that the oil and gas sector have the greatest impact on Nigeria economic growth followed by manufacturing, agricultural, transport and communication sectors while mining and quarrying reduces gross domestic product. Nigerian policy makers should design sectoral policy reforms with the intention of creating an enabling business environment, improve infrastructure, address issues of insecurity in the north and south that hinder foreign direct investment in mining and quarrying sectors. Furthermore, there is the need to strengthen policy cohesion with regards to foreign direct investments to ensure that mining and quarrying sectors perform as well as the oil and gas sector.

Impact of Government Expenditure on Economic Growth In Sub-Saharan Africa: A Validity of Wagner’s Law

The study investigated the impact of government expenditure on economic growth with special inclination to testing the Wagner’s law in Sub Saharan Africa between 1986 and 2018. Adopting the Panel first generation tests as well as the Panel Auto Regressive Distributed Lag (ARDL) and Pairwise Causality techniques, it was revealed that government expenditure causes economic growth rendering the Wagner’s law is invalid in the Sub-Saharan region. Also, it was further discovered that capital and recurrent expenditure exert negative effect on economic growth while total expenditure has positive effect on economic growth in the region. Therefore, based on the negativity of capital and recurrent expenditure, it is recommended that capital and recurrent expenditure must be monitored effectively to ensure that its increase will not exert any negative effect on economic growth while stringent measures as well as checks and balances must be adopted to curb corruption in Sub-Saharan Africa to ensure that funds are used exclusively for their intended purposes especially those pertaining to capital projects.

Long and Short-Run Relationship Between Agricultural and Industrial Sectors’ Growth in Ethiopian Economy: Application of the Co-Integration and Error Correction Model (ECM)

The objective of this paper was to examine an equilibrium long run relationship and short impact of agricultural sector on the industrial sector and to determine the direction of causality in Ethiopia's economy using annual time series data ranging from 1991-2015 obtained from the World Development Indicators (WDI) database. The time was related to the implementation of the Ethiopian agricultural led industrialization (ADLI) strategy policy to food security and poverty reduction objectives of the country. The Johansen Co-integration test result showed that the data were co-integrated of the ordered one. The Johansen’s co-integration tests, both trace and max-trace statistical tests was significant at 1% critical values indicated that there was a strong long-run equilibrium relationship between agricultural and industrial sectors. The Johansen restricted normalized equations error correction model (ECM) indicated that agricultural has long run positive significant impact on industrial sector but not vice versa. Marginal analysis result indicated that increases agricultural by one percent, being other factors held constant, the industrial sector output increase by 3.39% due to economic multiplier effect. Granger pairwise causality test revealed that there exists unidirectional causality from industry to agriculture sector. In the long-run growth come from agriculture to industry and in the short run agricultural growth is caused by industry. Therefore, ADLI economic growth strategy should strengthened the sectors forward and backward linkages to bring balance and rapid sectorial growth that support the entire economic growth of the country. Keywords :ADLI, Co-Integration, Ethiopia, Industry, Integration, VECM. DOI: 10.7176/JESD/12-1-02 Publication date: January 31 st 2021

The Nexus Between Internal Investment and Economic Growth in Kenya

Countries with a high investment GDP ratio benefit from better, competitive products and services. Which increases capital stock for production, more employment, and income; in turn reducing social and income disparities. The Kenyan government envisaged a sustained economic growth of 10% by investing in priority sectors; to become an industrialized middle-income country by the year 2030; though un-achieved to date. To examine the nexus between internal investments and economic growth, the study used annual time-series observations from the years 1996 to 2017; where internal investments are from the government; private domestic; and public-private partnership; and exogenous variables were rates of real interest; social discount; commercial lending interest; and the country risk premium on lending for investment decisions. The inference used stationarity; cointegration; significance; causality; variance decomposition of forecast error; and impulse response function. Stationarity tests suited the ARDL model which also supports small size observations. Findings were; a significant and positive influence on economic growth from lags of real GDP, government, private domestic, except public-private partnership investments. Anticipation for growth lies with; significant pairwise causality (real GDP with public investment); significant block exogeneity (public investment); endogeneity (real GDP), and exogeneity (public investment) influence; and short-run private domestic investment recovery. Keywords: ARDL, Economic Growth, Public Investment, Private Domestic Investment, Public-Private Partnership Investment, Investment Decisions.

The Short and Long Run Determinants of Foreign Direct Investment in Nigeria

What determines foreign direct investment inflows has been a subject of controversy among scholars. As a result of the highlighted gap discussed in this study, the short and long run determinants of foreign direct investment and their effects on foreign direct investment inflow in Nigeria was investigated from 1986 to 2018. Data were analyzed with Augmented Dickey-Fuller and Phillips Perron unit root test, Autoregressive Distributed Lag and Pairwise Granger Causality techniques. Evidence of long run dynamic equilibrium relationship was established between foreign direct investment and its determinants. The short and long run coefficients revealed that government capital expenditure and inflation impede the inflow of foreign direct investment both in the short and long run while exchange rates serve as a bane to foreign direct investment in the long run. However, gross domestic product and trade openness were found to stimulate the inflow of foreign direct investment in the short and long run. The Pairwise causality result revealed that government capital expenditure, exchange rate and trade openness had independent causality with foreign direct investment while gross domestic product and inflation rate had unidirectional causality with foreign direct investment. Thus, the government should allocate more funds for the provision of enabling and investment enhancing the environment to promote foreign direct investment inflow. The study added value to previous studies by estimating the short and long run determinants of foreign direct investment using the more dynamic and robust technique of Autoregressive Distributed Lag developed by Peseran and Shin (1999).

Deposit Money Bank Policy and Private Sector Funding: A Multi-Dimensional Study from Nigeria

This study empirically examined the effect of deposit money banks policy on private sector funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises was used as dependent variables while liquidity ratio and loan to deposit ratio was used as independent variables. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that deposit money banks policy explains 40.8 percent variation on credit to core private sector, 28.1 percent and 58.9 percent of the variation in credit to core private sector and credit to small and medium scale enterprises sector. The study conclude that deposit money banks policy has no significant relationship with credit to private sector and credit to core private sector but has significant relation with credit to small and medium scale enterprises sector. From the findings, the study recommends compliance to deposit money banks policies; this will enhance effective financial intermediation and increase funding of the private sector. There is also need for the regulatory authorities to harmonize the various deposit money banks policies with the objective of enhancing private sector funding. There is need to decentralize the operation of the deposit money banks in the urban cities. Policies should be formulated to extend the operation of the deposit money banks to the rural communities, this will enable the institutions to mobilize much deposit and increase credit to the private sector.

Test of Monetary Approach to Balance of Payments in West Africa Monetary Zone

This research tested the monetary approach to Balance of Payment in developing countries of West Africa in order to affirm whether the specified relationship in the approach depicts correctly the actual behaviour of the economies. Time series and cross-sectional data that ranges from 1970 – 2016 were used. The empirical results of the fixed effect model established a significant positive relationship between net domestic credit, interest rate and exports; an insignificant positive relationship between capital movements, imports, income and the dependent variable. Exchange rate, however, had a significant negative relationship with the net foreign assets, while inflation had an insignificant but negative relationship with net foreign assets. The pairwise causality tests indicated a unidirectional relationship between exchange rate, net domestic credit and net foreign assets while the other variables move independently and cannot granger cause net foreign assets. Hence, the study concludes that the Polak model is valid in the West Africa Monetary Zone despite the fact that they are no more operating a fixed exchange rate system. The study suggests that the attention of the monetary authorities and the governments should not only be on decreasing the money supply in the economy, since an increase in net domestic credits has a positive impact on the net foreign assets provided it is channeled towards domestic production.

Money Supply and Private Sector Funding in Nigeria: A Multi-Variant Study

This study examined the effect of money supply on private sector funding in Nigeria. The purpose of the study was to examine the extent to which monetary policy affect private sector funding in Nigeria. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1985-2018. Credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector was used as dependent variables while narrow money supply, broad money supply, large money supply, private sector demand deposit was used as independent variables. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings revealed that money supply explains 82.1 percent variation on credit to core private sector, 85.2 percent and 23.4 percent of the variation in credit to private sector and credit to small and medium scale enterprises sector. The study conclude that money supply has significant relationship with credit to private sector, credit to core private sector and credit to small and medium scale enterprises sector. From the findings, the study recommends that Central Bank of Nigeria should induce the variations of the amount of money changes through the nominal interest rates. That the monetary authorities should ensure adequate quantity of money supply that positively affect private sector funding in Nigeria.

An Analysis of Price Disparity: Peninsular Malaysia and Sabah

This study examines the price differences between Peninsular Malaysia and Sabah from 2004 using quantitative and qualitative methods. For quantitative research, we employ disaggregate monthly consumer price indices for nine types of goods and services. Based on the Johansen co-integration test, the results reveal that the long-run relationship only exists for transport group. The findings using Granger pair-wise causality test indicated that the prices in Peninsular Malaysia do not determined the price in Sabah. Qualitative research was further conducted via interviews with stakeholders of shipping providers, port authority, government and special interest group show that the price disparity between Peninsular Malaysia and Sabah occurred due to trade imbalance, sluggish economic activities, poor accessibility between port and retailers, insufficient infrastructure and technical facilities and political sentiment.

NEXUS BETWEEN GENDER INEQUALITY IN EDUCATION AND ECONOMIC GROWTH IN PAKISTAN

Pakistan’s women educational attainment has been the lowest in the entire South Asia; with women and girls continuing to suffer discrimination in the field of education. This study is designed to examine the linkage between gender disparity in education and Pakistan economic success, using annual secondary data to date range 1980 to 2019. Also the study checked the variables integration order by using Dickey-Fuller and Philip-Peron tests apart from utilizing the ARDL bound test technique for long-run co-integration relationship while the direction of causality were tested by using Granger causality. The analyses reflect that a strong adverse influence on growth was the result to be yielded from gender educational disparity in Pakistan. This finding is based on the empirical interpretation such as women educational attainment at primary and secondary levels, government expenditures on education, total secondary education and male secondary education significantly contribute to growth. However, the associations of population growth, total labor force, male education at primary level and total primary education with growth being significantly negative. This study also found long run pair-wise causality from male and female secondary school attainment separately, male primary education, total primary and total secondary education to economic success.

Inflation cycle synchronization in ASEAN countries

We investigate the pairwise causality of inflation rates across time and frequencies, inflation cycle synchronization and network structure of causality between five ASEAN countries: Indonesia, Malaysia, The Philippines, Singapore, and Thailand. We draw our empirical results and conclusions by implementing dynamic conditional correlations (DCCs), a wavelet measure of cohesion for inflation cycle evolution assessment, and the spillover network index model of Diebold and Yilmaz [1,2]. We find evidence of time-dependent variation in the strength of co-movement between inflation cycles across countries. Positive network causality between inflation cycles and inflation integration across the ASEAN countries are identified. The lead–lag properties of economic indicators are observed to depend on the cycle’s periodicity. The inflation synchronization is particularly pronounced in Thailand.

Verifying Tourism-Led Growth Hypothesis (TLGH) in Ethiopia: Time series analysis

Tourism-led growth hypothesis argues that international tourism is a source of economic advancement through generating foreign currency, creating employment opportunities, stimulating greater investments in infrastructure and inspiring the development of other economic sectors that ultimately improved the living standard of the citizens of a country. Knowing the importance of tourism sector, Ethiopia has taken this sector as a strategy to achieve its short and long run economic objectives. Therefore, the principal objective of this study is to validate the Tourism-Led growth hypothesis (TLGH) in Ethiopia over the annual period 1991-2018. To attain the envisaged objective, the standard Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests were applied to check the stationarity of each series. To scrutinize the long run relationship between tourism and economic growth, ARDL bound test of cointegration was applied. In addition, pairwise Granger causality test was used to identify the direction of causality between tourism receipt and economic growth. The empirical findings confirm the existence of long run relationship between tourism receipt, economic growth and other control variables. The results of the pairwise Granger causality also predicted unidirectional causality running from tourism receipt to economic growth in long run. This validates the tourism-led growth hypothesis for Ethiopia. Hence, policy makers should focus on promoting and development of the untapped tourism industry of the country to augment economic growth in Ethiopia. Keywords : Tourism, economic growth, cointegration, pairwise causality DOI : 10.7176/JTHS/45-01 Publication date: December 31 st 2019

Verifying Tourism-Led Growth Hypothesis (TLGH) in Ethiopia: Time Series Analysis

Tourism-led growth hypothesis argues that international tourism is a source of economic advancement through generating foreign currency, creating employment opportunities, stimulating greater investments in infrastructure and inspiring the development of other economic sectors that ultimately improved the living standard of the citizens of a country. Knowing the importance of tourism sector, Ethiopia has taken this sector as a strategy to achieve its short and long run economic objectives. Therefore, the principal objective of this study is to validate the Tourism-Led growth hypothesis (TLGH) in Ethiopia over the annual period 1991-2018. To attain the envisaged objective, the standard Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests were applied to check the stationarity of each series. To scrutinize the long run relationship between tourism and economic growth, ARDL bound test of cointegration was applied. In addition, pairwise Granger causality test was used to identify the direction of causality between tourism receipt and economic growth. The empirical findings confirm the existence of long run relationship between tourism receipt, economic growth and other control variables. The results of the pairwise Granger causality also predicted unidirectional causality running from tourism receipt to economic growth in long run. This validates the tourism-led growth hypothesis for Ethiopia. Hence, policy makers should focus on promoting and development of the untapped tourism industry of the country to augment economic growth in Ethiopia. Keywords : Tourism, economic growth, cointegration, pairwise causality DOI : 10.7176/JTHS/45-01 Publication date: December 31 st 2019

Domestic Factors That Affect The Price of Styrene Butadiene Latex in Indonesia

This paper investigates or examines the causal links between price of styrene butadiene latex (SBL) and other domestic variables such as supply, demand, Herfindahl Hirschman Index (HHI), price of styrene, and price of butadiene during the period of 1995–2017 on the monthly basis.. Results from Augmented Dickey Fuller (ADF) or unit root test showed that the stationary state of the whole variables is of first difference (I). The Granger pairwise causality test revealed a bidirectional causality of SBL with BTD(Butadiene), SBL with STY(Styrene), SUPP(Supply) with DMD(Demand), DMD with STY, DMD with BTD and STY with SUPP and vice versa. Johansen test found out a co-integration of SBL prices. However, this study proved no significant links between the price of SBL and supply of SBL (SUPP) in the long and short run. This paper highlights the fact that SBL price has a significant direct impact in the long run on the styrene (STY) and butadiene (BTD) prices, as well as HHI. Similarly, these aspects also have a significant direct impact proved by the positive coefficient in the long run on the SBL pricing. The findings further showed that the price of SBL has a connection and significant direct impact on the negative arrow for the short and long run equilibrium, in line with the price and demands for SB Latex, pressing and oil classification.

Revenue Mobilization and Investment on Infrastructure of Local Governments in Nigeria

This thesis examined the effects of revenue mobilization and investment of local governments in Nigeria. Secondary data were collected from Central Bank of Nigeria Statistical Bulletin. The dependent variables were proxy by value of basic amenities and value of infrastructural development. The independent variables were proxy by federal government allocation, state government allocation, value added tax, internally generated revenue and grants. Descriptive statistics and multiple regressions were used to examine dynamic long run relationship that exists between revenue mobilization and local government development. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used. The estimated model revealed that value added tax, state allocation, grants and federal allocation have positive effect on value of infrastructural development while internationally generated revenue have negative effect on infrastructural development. The unit root result (ADF) showed that the variables were stationary at the first difference of Order 1 (1). The co-integration tests revealed a long run dynamic relationship between the dependent and independent variables in the models. The parsimonious model summary shows that revenue mobilization explains positive and significant relationship between the revenue and development of local government. However, the direction of causality between revenue and development is mixed indicating uni and bi-directional causality. The study concluded that local government revenue has significant effect on infrastructural investment of Nigeria local governments. Its recommends policies should be directed toward effective utilization of revenue and local government finance should manage in line with international best practices.
 

Revenue Mobilization and Investment on Basic Amenities of Local Governments in Nigeria

This paper examined the effects of revenue mobilization and investment on basic amenities of local government in Nigeria. Secondary data were collected from the Central Bank of Nigeria Annual Statistical Bulletin from 19932017. Investment in basic amenities was proxy by monetary value of basic amenities while revenue mobilization was proxy by federal government allocation, state government allocation, value added tax, internally generated revenue and grants to local governments in Nigeria. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used to conduct the investigations and analysis. The empirical findings based on the models found that value added tax, internally generated revenue and grant have negative and significant effect on investment on basic amenities while federal allocation and state allocation have positive effect on the value of basic amenities. The unit root result (ADF) showed that the variables were stationary at the first difference of Order 1 (1). The co-integration tests revealed a long run dynamic relationship between the dependent and independent variables in the models. The parsimonious model summary shows that accounting bases explains a strong and positive significant relationship between the dependent and independent variables. However, the direction of causality between the accounting bases treasury management is mixed indicating uni and bi-directional causality. The study concludes that local government revenue has significant effect on investment of basic amenities of Nigeria local governments.

Revenue Mobilization and Investment on Infrastructure of Local Governments in Nigeria

This thesis examined the effects of revenue mobilization and investment of local governments in Nigeria. Secondary data were collected from Central Bank of Nigeria Statistical Bulletin. The dependent variables were proxy by value of basic amenities and value of infrastructural development. The independent variables were proxy by federal government allocation, state government allocation, value added tax, internally generated revenue and grants. Descriptive statistics and multiple regressions were used to examine dynamic long run relationship that exists between revenue mobilization and local government development. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pair-wise causality tests were used. The estimated model revealed that value added tax, state allocation, grants and federal allocation have positive effect on value of infrastructural development while internationally generated revenue have negative effect on infrastructural development. The unit root result (ADF) showed that the variables were stationary at the first difference of Order 1 (1). The co-integration tests revealed a long run dynamic relationship between the dependent and independent variables in the models. The parsimonious model summary shows that revenue mobilization explains positive and significant relationship between the revenue and development of local government. However, the direction of causality between revenue and development is mixed indicating uni and bi-directional causality. The study concluded that local government revenue has significant effect on infrastructural investment of Nigeria local governments. Its recommends policies should be directed toward effective utilization of revenue and local government finance should manage in line with international best practices.

An improved methodology for quantifying causality in complex ecological systems.

This paper provides a statistical methodology for quantifying causality in complex dynamical systems, based on analysis of multidimensional time series data of the state variables. The methodology integrates Granger’s causality analysis based on the log-likelihood function expansion (Partial pair-wise causality), and Akaike’s power contribution approach over the whole frequency domain (Total causality). The proposed methodology addresses a major drawback of existing methodologies namely, their inability to use time series observation of state variables to quantify causality in complex systems. We first perform a simulation study to verify the efficacy of the methodology using data generated by several multivariate autoregressive processes, and its sensitivity to data sample size. We demonstrate application of the methodology to real data by deriving inter-species relationships that define key food web drivers of the Barents Sea ecosystem. Our results show that the proposed methodology is a useful tool in early stage causality analysis of complex feedback systems.

Financial Liberalization and Export Promotion: Evidence From Nigeria (1987 – 2018)

Financial liberalization policy is expected to enhance credit allocation to important sector in the economy. With previous studies mainly focusing on the effect of financial liberalization on economic growth in Nigeria, this study explored the effect of financial liberalization on export promotion in Nigeria from 1987-2018. The study used secondary data obtained from Central Bank of Nigeria Statistical Bulletin (2018). Techniques such as Augmented Dickey–Fuller (ADF), Philip Perron, Bound Co-integration Test, Autoregressive Distributed Lag and Pairwise Granger Causality were employed. It was found from the unit result that lending rate was stationary at level form while loan on export, savings rate, gross domestic product, exchange rate and trade openness were integrated at first difference. Also, long run relationship was established among the variables. The ARDL result showed that loan on export, gross domestic product and trade openness significantly enhanced total export while savings rate and exchange rate negatively influenced total export in Nigeria. Furthermore, the Pairwise causality test revealed that loan to export, gross domestic product and exchange rate granger caused total export. The study concluded that financial liberalization has the potential of enhancing exportation in Nigeria through the provision of adequate credit to export based firms. It was recommended that, adequate credit should be given to export based industries at low rate of at least 12%, also, savings rate should be push upward to a threshold of at least 10% to increase savings and resources mobilization of financial and finally, exchange rate should be stabilized through adoption of effective policies.

On the impact of innovation and inequality in economic growth

ABSTRACTWe present robust results on the empirical relationship among income inequality, innovation, and economic growth for a panel dataset of 74 countries over the period 1996–2014. We estimate pairwise causality tests to show that there is bidirectional causality between GDP per capita and R&D, while R&D causes the Gini index of income inequality, and it causes human capital. Allowing coefficients to be different across cross-sections of countries, we get in any case a pairwise bi-directionality. By dynamic panel data estimations, when regressing R&D on GDP per capita, we obtain a threshold value of 0.16% of R&D such that for values above it there is economic growth. While regressing R&D on the Gini index, we get a threshold of 0.10% of R&D above which, the income distribution begins to improve. Finally, we estimate a growth equation that depends on R&D, income inequality, and physical capital. We obtain two thresholds, one of 38.79 for the Gini (above which the economic growth decreases), and one of 0.06% for R&D such that above it, economic growth is rising.