Pairwise Granger Causality Test Research Articles

Linking Public Finances’ Performance to Renewable-Energy Consumption in Emerging Economies of the European Union

Implementing public policies linked to sustainable development is a global challenge for most countries that focused their efforts on identifying and improving the factors that led to environment degradation. The current paper analyzes the influence of primary indicators of public finances (public debt and budget deficit) on renewable-energy consumption (REN), for the emerging economies within the European Union. The main objective of this research is to understand the implications of fiscal measures on the sustainable development of a country and thus provide directions for stimulating renewable-energy consumption. The research starts with cross-sectional dependence analysis by using the Breusch–Pagan Lagrange multiplier (LM) test that is followed by cointegration relationships among variables by applying two appropriate panel-cointegration tests (Pedroni and Johansen). The research methodology is based on the fully modified ordinary-least-squares (FMOLS) method in order to test the long-run relationships, and on the pairwise Granger causality test in order to identify the direction of causality among variables. Results show unilateral influences from public debt and budget deficit on the analyzed variables, especially on renewable-energy consumption, and a bidirectional causality relationship between budget deficit and trade openness.

Long- and Short-Run Dynamics between South African Hedge Funds and the Equity Market

The hedge fund industry in South Africa has undergone positive changes in terms of both regulation and structure since 2007. These changes have provided an opportunity to further utilize hedge fund strategies within a portfolio management framework. This is especially significant when considering the diversification potential that hedge funds may have and their ability to generate an alternative source of return, both of which are important when considering tactical and strategic asset allocations. There is therefore a need to model the interrelationships between the major hedge fund strategies and the local equity market in order to understand the dynamic linkages that may be present in both the long and short term. We conducted cointegration analysis within the VAR framework on monthly data spanning from 2007 to 2018. The analysis of long-term dynamics indicated that there is no cointegration between the All Share Total Return Index and the hedge fund strategy return indexes as measured under a Johansen cointegration methodology. Pairwise Granger causality tests supported the cointegration findings with no directional causal impacts found. The analysis of short-term dynamics via impulse responses indicated limited causality between the hedge fund indexes and the equity market, while variance decomposition showed few spill-over effects from the equity market to the hedge fund indexes. The overall findings imply that a South African investor could achieve diversification benefits in both the short and long term by adding hedge funds to an equity-centric portfolio. The findings also provide evidence that hedge funds can be used as effective components within tactical and strategic asset allocation. <b>TOPICS:</b>Real assets/alternative investments/private equity, emerging markets, risk management, VAR and use of alternative risk measures of trading risk, quantitative methods, statistical methods <b>Key Findings</b> ▪ There is no long-term equilibrium relationship between the returns of South African domiciled hedge funds and the equity market. This is supported by both cointegration and Granger causality analyses. ▪ Hedge funds provide investors with diversification benefits in both the short and long term when added to an equity-centric portfolio. ▪ The results support the use of hedge funds in both tactical and strategic asset allocation.

Investigating the Long-run and the Short-run Relationship Between Domestic Macroeconomic Forces and Indian Equity Market: Evidence Based on ARDL Bounds Testing Approach

Understanding the effect of domestic macroeconomic forces on equity market is essential since macroeconomic forces have a systematic effect on the equity market returns. The present study uses monthly observations from India for the period from January 2012 to December 2019 to investigate the long-run and short-run relationship between the domestic macroeconomic forces and equity market. The study employed the autoregressive distributed lag (ARDL) bounds testing approach and pair-wise granger causality test to attain the objective. The long-run empirical results indicated that the Indian equity market and the domestic macroeconomic forces are cointegrated. The long-run coefficients of foreign exchange rate and money supply are found to be significant. The short-run coefficients suggest that money supply, inflation and foreign exchange rate significantly influence the Indian equity market. The study also observed the presence of feedback mechanism between foreign exchange rate and Indian equity market. The study provides the policy and managerial implications.

WITHDRAWN—Administrative Duplicate Publication] Investigating the Long-run and the Short-run Relationship Between Domestic Macroeconomic Forces and Indian Equity Market: Evidence based on ARDL Bounds Testing Approach

Understanding the effect of domestic macroeconomic forces on equity market is essential since macroeconomic forces have a systematic effect on the equity market returns. The present study uses monthly observations from India for the period from January 2012 to December 2019 to investigate the long-run and short-run relationship between the domestic macroeconomic forces and equity market. The study employed the autoregressive distributed lag (ARDL) bounds testing approach and pair-wise granger causality test to attain the objective. The long-run empirical results indicated that the Indian equity market and the domestic macroeconomic forces are cointegrated. The long-run coefficients of foreign exchange rate and money supply are found to be significant. The short-run coefficients suggest that money supply, inflation and foreign exchange rate significantly influence the Indian equity market. The study also observed the presence of feedback mechanism between foreign exchange rate and Indian equity market. The study provides the policy and managerial implications.

The Role of Socio-economic and Female Indicators on Child Mortality Rate in Bangladesh: A Time Series Analysis.

This study aims to identify the role of socio-economic and female indicators on child mortality in Bangladesh from the data of 1975 - 2019. A number of econometric techniques of time series analysis like Augmented Dickey-Fuller, Autoregressive Distributive Lag bounds and pair-wise Granger causality tests have been applied to ascertain the desired outcomes. The Augmented Dickey-Fuller test has confirmed that neither series is integrated at level two and the Autoregressive Distributive Lag bounds testing approach has shown the cointegration and short-run and long-run relationship between the variables. Total fertility rate and urbanization have a positive effect, and female education, female life expectancy at birth, and economic growth rate have a negative effect on the child mortality rate. The pair-wise Granger causality test has shown the unidirectional and bidirectional causal relationship among the studied variables. All the outcomes are theoretically consistent and the policy recommendations are made based on findings.

Determinants of Deposit Money Banks’ Lending Behaviour to Private Sector of the Economy in Nigeria (1986-2017)

The study examined those factors that determine the deposit money bank's lending behaviour to private sector of the economy in Nigeria using annual time series data spanning from 1986 to 2017. Secondary data were sourced majorly from CBN Statistical Bulletin (2017). In measuring the variables, determinants of deposit money bank lending behaviour to private sector were subjected to bank-specific factors, regulation factors, financial deepening and macroeconomic factors. The bank-specific factors were proxied by volume of deposit (VD) and lending rate (LDR), regulation factor was proxied by reserve requirement (RSR), financial deepening was proxied by the ratio of the money supply to GDP (M2G) while macroeconomic variables were proxied by inflation (INF). The estimation techniques used for the study were the Augmented Dickey-Fuller test, pairwise Granger causality test and autoregressive distributed lag (ARDL). It was found that the variables in the series were integrated of difference order l(0) and l(1) and there was a significant relationship between bank lending behaviours and the identified determinants. In addition, it was revealed that the variables move in the long run, however, among the variables of interest, the volume of deposit and M2G determines bank lending behaviour in the short and long run while RSR, INF and LDR retard lending to private sector. The study also found that causality runs from the volume of deposits to private sector credit. Hence, the study concluded that there is a significant relationship between bank lending behaviour private sector and its determinants. It was recommended that bank lending rate should be brought down or flexible to meet up the categories of borrowers since there is common knowledge that high-interest rate discourages borrowers and influences banks to select bad loan offer which may affect the bank returns in the long run. Secondly, the reserve requirement dictated by CBN on deposit money banks should be reduced so as to enable banks to be more liquid for the private sector to access funds for their productive purposes and lastly, inflation should be made below 2 digits, as inflation above a digit may be unfriendly to economy activities thereby affecting the private-sector output which is germane to the economic growth.

Relationship Between Threshold Level of Inflation and Economic Growth in Bangladesh: A Multivariate Quadratic Regression Analysis

The main objective of this study is to empirically examine the relationship between inflation and economic growth in Bangladesh and to investigate the ongoing possible threshold effect. This study draws on diverse tables and charts, correlation matrices, pair-wise Granger Causality tests, ADRL (General to Specific Approach) test, and a quadratic regression equation estimated by OLS using time series annual data covering the sample period from 1980 to 2017. The results demonstrate that the relationship between inflation and GDP growth is non-linear with a subsistence of a breakpoint, which means the inverted U-shape curve. Moreover, the Granger Causality shows that economic growth does granger cause inflation. The empirical result indicates that when the inflation level reaches the threshold level at 7.84 percent then the economic growth is in peak position. This study proposed that the Bangladesh Bank should maintain the precautious and growth-friendly monetary policy structure by keeping inflation targeting below 7.84 percent, or else the growth might be held back.

A Note on the Relationship between COVID-19 and Stock Market Return: Evidence from South Asia

The transformation of COVID-19 from a regional health crisis in a Chinese city to a global pandemic has caused severe damage not only to the natural and economic lives of human beings but also to the financial markets. The rapidly pervading and daunting consequences of COVID-19 spread have plummeted the stock markets to their lowest levels in many decades, especially in South Asia. This motivated us to investigate the stock markets’ response to the COVID-19 pandemic in four South Asian countries, namely Bangladesh, India, Pakistan, and Sri Lanka. To this end, we collected and analyzed the daily data on COVID-19 spread and stock market return over the period May 28, 2020, to October 01, 2020. Using Dumitrescu and Hurlin panel Granger non-causality test, our empirical results demonstrate that the COVID-19 spread measured through its daily confirmed cases in a country significantly induces stock market return. We cross-validated the results using the pairwise Granger causality test and find the results robust. Our study delineates various policy implications and avenues for future research.

HEALTH CARE EXPENDITURE AND ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL APPRAISAL OF THE NEXUS

A nation’s wealth is often described in terms of their physical stock of capital per time for the promotion of economic growth. One of such physical stock of capital is a healthy labour force. Therefore, this study investigated the relationship between health expenditure and economic growth in Nigeria from 1985 to 2019. To determine this, annual time series data was collected from various issues of the Central Bank of Nigeria (CBN) statistical bulletin and the World Development Indicator (WDI). Stationarity, long run relationship, equation estimation and causality were determined using the Augmented Dickey Fuller (ADF), Johansen-Cointegration, Parsimonious Error Correction Mechanism (ECM) and Pairwise Granger Causality test respectively. The result showed that a long run relationship exist among the variables while the ECM showed that in event of a disequilibrium, the system would restore itself to equilibrium at an adjustment speed of approximately 85.5percent. The result uncovered that current and past percentage of health expenditure in total expenditure (PHETE), government final consumption expenditure (GFCE), and labour force participation (LABF) all had direct impact on national growth (real GDP per capita) while current and past number of infant deaths (NUFD) had inverse relationship with national growth. Result further showed that there exists a unidirectional causality running from NUFD to RGDPPC; from GFCE to RGDPPC; from LABF to RGDPPC, from NUFD to PHETE, from LABF to PHETE, from NUFD to GFCE and from NUFD to LABF. It was recommended that the federal government through the Ministry of Health should endeavour to encourage private-public partnership in the building of quality health infrastructure such as hospitals with state of art facilities in localities where standard health care centres are not accessible to working citizens.

(Testing the causality between Exports, Oil Rent, and Gross Domestic Product in Kuwait: An empirical study for the period (1980 -2017: اختبار السببية بين الصادرات وإيجار النفط والناتج المحلي الإجمالي في الكويت: دراسة تجريبية للفترة (1980 - 2017)

The study of the relationship between oil prices, exports, and economic growth has captured the interest of economists for decades, especially for oil-exporting countries. This study intends to determine the relationship and the direction of causation among oil rent, exports, and economic growth in the short-run and long-run, and the causation effects among the variables. Time series data collected from both the world bank and International Monetary Fund databases for the period 1980 to 2017. The series tested for stationarity, cointegration, and causation using the unit root, cointegration, and pairwise granger causality tests. The results revealed that there was a long-run association among the variables. On the other hand, causation only exists between export and economic growth in both directions. Eviews10 statistical software used for the analysis.

GROWTH EFFECTS OF FOREIGN DIRECT INVESTMENT AND FINANCIAL DEEPENING IN NIGERIA (1981-2018)

This study investigates growth effects of foreign direct investment and financial deepening in Nigeria for the period 1981-2018. Data employed for this study were obtained from Central Bank of Nigeria Statistical Bulletin and World Development Indicators. Pairwise granger causality test and autoregressive distributed lag (ARDL) model were employed in the data analysis. Empirical results show that foreign direct investment (FDI) has positive significant effect on economic growth (GDP) in Nigeria both in the long and short runs. Financial deepening measured as broad money supply as a ratio of GDP (broad money velocity) has positive significant effect on GDP in Nigeria in the long run but the position is reversed to negative non-significant in the short run. In the long run, financial deepening indicator-credit to private sector as a ratio of GDP-, has negative non-significant effect on GDP in Nigeria while its influence is absent in the short run model. Findings also reveal a unidirectional causality from FDI to GDP. Likewise, unidirectional causality flows from GDP to each of the two financial deepening indicators, thus lending credence to the demand-following hypothesis. This study concludes that foreign direct investment and financial deepening have positive growth effects in Nigeria with causality flowing from foreign direct investment to economic growth and the latter granger-causing financial deepening in Nigeria. To boost economic growth, there is a need for Nigeria’s government to further develop the financial system and implement policies to stimulate FDI inflows to the country.

Impact of Government Expenditure on Agricultural Value Chain in Nigeria

This research examined the impact of government expenditure on agricultural value chain in Nigeria. It uses annual time series data for the period 1998-2018. Statistical Techniques, survey, simple percentages and the Ordinary Least Squares (OLS) methods were adopted. The OLS result using Multiple Regression analysis revealed an insignificant positive relationship between government expenditure and Agricultural value chain, proxy by Aggregate importation of rice (AMR). Imports had a negative sign; it is a leakage on the economy. It however, showed that agricultural gross domestic product (ADP) has a positive relationship with government expenditure, at 5 percent level. The pair-wise Granger causality tests showed that government expenditure on agriculture (GEA) granger causes aggregate importation of rice (AMR), this was indicated by their respective F-statistics and probability values which stood at 0.39420(0.6815).. In conclusion, government expenditure, with supportive policies, would have huge impact on agricultural value chain in Nigeria. The agricultural sector is the engine of economic recovery, growth and development, therefore an improvement in government spending to the sector is recommended. This study contributes to the downstream linkages in the agricultural sector.

The impact of agriculture and renewable energy on climate change in Central and East European Countries

According to the objectives of the European Union concerning the climate changes, Member States should take all the necessary measures in order to reduce the greenhouse gas emissions. The aim of this study is to identify the causality relations between greenhouse gases emissions, added value from agriculture, renewable energy consumption, and economic growth based on a panel consisting of 11 states from the Central and Eastern Europe (CEECs) in the period between 2000 and 2017. The Autoregressive Distributed Lag (ARDL) method was used to estimate the long-term relationships among the variables. Also a Granger causality test based on the ARDL – Error Correction Model (ECM) and a Pairwise Granger causality test were used to identify the causality relationship and to detect the direction of causality among the variables. The results obtained reveal, in the long term, two bidirectional relationships between agriculture and economic growth and two unidirectional relationships from agriculture to greenhouse gas emissions and renewable energy. In the short term, four unidirectional relationships were found from agriculture to all the variables in the model and one unidirectional relationship from renewable energy to greenhouse gas emissions.

ENERGY-GDP NEXUS FOR OIL-EXPORTING COUNTRY: THE CASE OF BAHRAIN

The main objective of this paper is to investigate the relationships between electricity consumption and economic growth in Bahrain between 1980 and 2019, utilizing the Autoregressive Distributed Lag (ARDL) model. Estimates revealed the existence of a long run equilibrium relationship between the electricity consumptions per capita and GDP per capita. The Pairwise Granger Causality Test results indicated a unidirectional causality running from electricity consumption to economic growth. The estimation results provide a strong support for the Growth hypothesis in Bahrain, suggesting that Bahrain economy is Energy-dependent. Therefore, it should be taken into consideration that energy consumption has effect on economic growth rates by policy makers.

The Consequences of Indirect Taxation on Consumption in Nigeria

This research tests the consequences of Nigeria’s indirect taxes on consumption. There are two reasons why the government imposes taxes on goods and services in Nigeria. The primary purpose is to produce income for the smooth running of the administration. Another silent reason is to discourage the ingestion of prohibited products and services, and that is through customs and excise duties (CED). This study assesses both Value Added Tax (VAT) and CED to determine their effects on consumption using various econometric tools, such as trend analysis, pairwise Granger causality tests, unrestricted co-integration rank test, least squares technique, and data that cover the period from 2005 to 2019. The results indicate that VAT insignificantly but positively influences consumption, while CED has a considerable auspicious influence on use. This result shows that VAT imposition on merchandises and services is discouraging the absorption of specific foodstuffs and services and allowing the operation of informal economic activities to thrive in Nigeria. However, CED charges do not reduce the use of certain illegal products purposely taxed to discourage their consumption. This study recommends a reduction in the prices of food items and services to enable consumers to increase their patronage, while the products that attract CED but are harmful should be banned entirely. Thus, offenders should be allowed to face the wrath of the law.

The dynamic links among energy consumption, tourism growth, and the ecological footprint: the role of environmental quality in 38 IEA countries.

We examine the impact of energy consumption and tourism growth on the ecological footprints and economic growth of 38 International Energy Agency (IEA) countries, as moderated by labor and capital, over the 1995–2018 period. We develop a comprehensive empirical analysis that applies second-generation unit root and cross-section dependence analysis. The co-integration analysis indicates long-run relationships among the variables, while the fully modified least square (FMOLS) approach specifies that energy consumption promotes economic growth and degrades environmental quality in the long run, and tourism growth improves environmental quality and stimulates economic growth in the long run. In addition, the result of a pairwise Granger causality test reveals bidirectional causality between energy consumption and economic growth and unidirectional causality from the ecological footprint to energy consumption. Policy implications for theory and practice and directions for future research in the area are presented.

The Nexus between Carbon Emissions, Energy Use, Economic Growth and Financial Development: Evidence from Central and Eastern European Countries

The aim and novelty of this study consist of estimating the nexus between CO2 (carbon dioxide) emissions, energy use, economic growth, and financial development for ten Central and Eastern European countries (CEEC) over the 2000–2017 period, starting from Environmental Kuznets Curve (EKC) theory. The Fully Modified Ordinary Least Squares (FMOLS) method was used for testing the cointegration relationship. Granger causality estimation based on the Vector Error Correction Model (VECM) and Pairwise Granger causality test were applied to identify the causality relationships between the variables and to identify the direction of causality. The implementation of the tests led to significant conclusions. In the long run, the levels of CO2 emissions and energy use do not have any influence on economic growth. Furthermore, there is a bidirectional causality among economic growth in terms of GDP and financial development variables. Thus, increasing financial development will generate more CO2 emissions and more energy use, and increasing economic growth will lead to rising financial development. In the short run, increasing financial development will generate more CO2 emissions and will lead to increased energy use and economic growth. Also, a bidirectional causality is being revealed between financial development and CO2 emissions. This indicates that financial development may help to reduce CO2 emissions.

An assessment of the relationship between public debt, government expenditure and revenue in Namibia

This paper investigates the relationship between government expenditure, government revenue and public debt in Namibia by employing the data of these variables for the period 1980 to 2018. An error correction model (ECM) was employed to analyse the short-run dynamics and a positive relationship between government expenditure and government revenue was found. Similarly, there is supporting evidence that an increase in public debt will stimulate government expenditure. The error correction term indicates that any disequilibrium is corrected at an annual speed of 46.4 percent. Additionally, the pair-wise Granger causality test fails to support the spend-revenue hypothesis. However, there is supporting evidence that the tax-spend hypothesis does hold for Namibia. The study recommends that policy-makers should thoroughly review government expenditure and bring it to optimal levels in order to prevent the widening of public debt.

Test of Weak Form Efficiency and Nigerian Foreign Exchange Market Volatility

Beside the stated concerns for this study, a lot of scholarly articles abound on the test of weak form efficiency and capital market. For that, the researchers deemed it fit to test if the Nigerian foreign exchange market follows a random walk or not. This and others led to this study, test of weak form efficiency and volatility of the Nigerian foreign exchange market with the following parametric tools; Augumented Dickey Fuller (ADF) unit root test, Pairwise Granger Causality test, Regression test, Normality/Random Walk test, ARCH-GARCH Model, the Autocorrelation cum partial autocorrelation method and Variance Ratio Test. After the analysis, all the results confirmed that the Nigerian foreign exchange market does not follow a random walk, hence weak form inefficient. No wonder the exchange rate business in Nigeria is very lucrative. The dealers always make abnormal profit at every slightest opportunity. Again, the result of the EGARCH framework found that volatility exacts negative impact on Nigerian foreign exchange market and that exchange rate volatility in Nigerian foreign exchange market is persistent. Again, that there is no asymmetric effect in the Nigerian foreign exchange market. Consequent upon the findings, the researchers suggest that the regulatory authorities of the Nigerian foreign exchange market tighten up their belt to enhancing the efficiency of the market. Again, the authority must do everything to stabilize the naira to ensure efficiency in the foreign market in Nigeria. Keywords: Weak form, Foreign Exchange Market, Parametric tool, Nigeria DOI: 10.7176/RJFA/11-16-14 Publication date: August 31 st 2020

Examining the Causal Relationship between Exchange Rates, Foreign Investments and Inflation Rate: The Case of Turkey using data from January 2008 to December 2018

This study examines the relationships between exchange rates, foreign investments and inflation rate in Turkey using monthly data from 2008-2018. The vector autoregression (VAR) model is used to examine whether these three variables are correlated to each other. VAR results showed that Exchange Rates (ER) have a moderated impact on Foreign Investments (FI), where a percentage increase in Exchange Rates (ER) accounts for an increase of 27,58% on Foreign Investments (FI). Exchange Rates (ER) have a significant impact on Inflation Rates (IR), where a percentage increase in Exchange Rates (ER) is associated with an increase of 77,02% on Inflation Rate (IR). Pairwise Granger Causality test results’ showed that Inflation Rate (IR) does not cause Foreign Investments (FI) and Foreign Investments (FI) does not cause Inflation Rate (IR); Exchange Rate (ER) does not cause Foreign Investments but Foreign Investments (FI) cause Exchange Rate (ER); Exchange Rates (ER) does not cause Inflation Rate (IR) and Inflation Rate (IR) does not cause Exchange Rates (ER).The result of impulse function shows that Foreign Investments (FI) and Inflation Rate (IR) responded positively to Exchange Rates (ER) in earlier periods and negatively in late periods.