Panel-based Error Correction Model Research Articles

Determinants of Tax Revenue Performance in European Countries: A Panel Data Investigation

ABSTRACT The purpose of this paper is to investigate the existence and directions of the causal relationships between the level of tax revenue and a set of determinants, using data from 26 European countries for the period 2015–2018. In particular, by applying the panel cointegration method and estimating panel-based Error Correction Models, the long-run and causal relationships between the variables, are being explored. The results of the analysis confirm the existence of cointegration relationships (long-run relationships) and suggest a significant degree of interdependence. In particular, the investigation showed that the level of GDP per capita and public debt, the assessment of the level of control of corruption, the government effectiveness index, the degree of the efficiency of tax administration and the level of tax rates (individuals and corporate) significantly affect the level of tax revenue collection. The analysis also confirms the existence of macroeconomic interdependence (interconnection) between the European countries.

The Effects of Industry Growth and Government Efficiency on Environmental Quality: The Global Perspective

ABSTRACT This research uses the panel cointegration and panel-based error correction models to investigate the causality among environmental quality, government efficiency, and industry growth for the period 2002–2020 for 126 countries. The results indicate that a long-term equilibrium cointegrated relationship exists among the variables. Government efficiency has a positive effect on environmental quality, while industry growth only can have a positive effect on EHI. Moreover, the negative influence of industry growth is quite serious in non-OECD countries. Lastly, increases in government efficiency and industry growth in the long run promote environment quality, but in the short run they are not significant.

Linkage of Electricity with Agricultural Growth and Technology Factors: An Illustration of India’s Case

Understanding the relationship between electricity consumption and economic growth is crucial for formulating efficient energy policies for all sectors in general, and for agriculture in particular. To study this, an empirical examination of the long-run co-movement and the causal relationship between electricity consumption and real gross state domestic product (GSDP) from agriculture and its allied sectors is attempted. The agricultural sector involves the use of different input technologies that are further influenced by electricity consumption. To account for this technology-enabling effect of electricity, we further take up an analysis of the relationship between electricity consumption and agricultural technology factors: fertilizer consumption, the share of irrigation, area under cereal, and the extent of mechanization. We use both state (data from 17 states for the period 1993–2017 for the electricity–GSDP relationship) and country-level data (for the period 1980–2018 for the electricity–technology factors relationship) in the analysis. Since short-period time series datasets analysis may yield unreliable and inconsistent results, we employed modern heterogeneous panel co-integration and panel-based error correction model techniques for analyzing the energy–growth linkage. When the heterogeneous states effect is taken into account, the empirical results fully support a positive long-run co-integrated connection between GSDP and electricity consumption. We could detect both long-run and short-run unidirectional causality running from electricity consumption to agricultural growth. Further electricity consumption was also found to augment the use of technology factors in agriculture. This calls for implementing policies and strategies for achieving higher electricity use in agriculture and improved efficiency in its utilization simultaneously.

Jakość środowiska, korupcja i rozwój przemysłu: perspektywa globalna

This paper investigates the causal relationship between environmental quality and corruption for 129 countries, using the panel cointegration and panel-based error correction models for the period 2002-2015. In the paper, we use EPI, EHI, and EVI to represent environmental quality, which are more reasonable and comprehensive. We further take industry growth into consideration and investigate its impact on environmental quality. Our results corroborate that there exists a long-term equilibrium cointegrated relationship among the variables, both of corruption and industry growth have a negative effect on environmental quality and the corruption can seriously decrease environmental quality in the long term, while industry growth weakens environmental quality no matter in the short or long run.

A Comparison of the Relationship Between Electricity Consumption and Gross Domestic Product According to Development Status of Countries

Electricity is a necessary requirement for the economic, social and cultural progress for all developed, developing and under-developed countries. This paper examines the relationships between electricity consumption and gross domestic product in 30 countries, using data for the period 1995–2014. These countries are classified according to their developmental status. Widely used tests for the panel unit root, heterogeneous panel cointegration, and panel-based error correction models were employed. The empirical results indicate that electricity consumption and economic growth appear to be cointegrated. The long-run and short-run relationship are estimated using suitable estimations. The results show that the developmental levels of countries differ in their impact on the relationship between electricity consumption and GDP.

Long-run dynamics of sulphur dioxide emissions, economic growth, and energy efficiency in China

This paper estimates the linkages among total Sulphur dioxide (SO2) emissions, total GDP and energy efficiency using China's provincial panel data from 2002 to 2015. We investigate total emissions rather than per capita emissions or ambient concentrations since it is total emissions that the environment cares about. Energy efficiency is estimated using stochastic frontier analysis and decomposed into both persistent and transient efficiency. We then investigate the long-run dynamics among SO2 emissions, economic growth, and energy efficiency by employing the panel-based error correction model and taking the effects of cyclical variations into account. Our analysis shows that GDP has a positive impact on total SO2 emissions in the short run and gains in energy efficiency have a significant negative effect on emissions in the long run. By controlling the effects of the business cycle, the effects of GDP on emissions remain positive in both the short and long run. The cross-sectional analysis provides similar insights. We argue that economic growth itself is an emission generator. Therefore, the government needs to establish a long-run strategy to curb emissions by improving energy efficiency.

Indonesian fish consumption: an analysis of dynamic panel regression model

The level of Indonesian fish consumption is relatively lower than other countries in Southeast Asian countries and Asia as a whole, while Indonesia is a large fish producing country which is one of the archipelagic countries with the longest coastline in the world. The research employs the panel co-integration analysis and panel-based Error Correction Models (ECM) to examine the short and long-term relationship of 31-province incomes and fish prices toward fishery consumption in Indonesia along 2010–2015. The research finds that fish price and income statistically significant affect fish consumption in short and long-term, except the income in the short-term model. Price and income elasticity for fish consumption is inelastic in the short and the long-term in Indonesia.

Causes of External Debt Crisis in Developing Countries: An Analysis using Panel VECM

This paper investigates the dynamic causal relationships between Debt Service, Current Account Balance, Total Reserves and External Debt of 72 developing countries for the period 1979 to 2014. The paper employed a panel unit root, panel cointegration, fully modified OLS and panel-based error correction model. The panel cointegration test revealed that there is a longrun relationship between external debt, debt service, current account balance, total reserves. The FMOLS results exhibited that there was a positive and significant impact of total debt service and reserves on external debt. Further, there is a negative and statistically significant impact of the current account balance on external debt. Panel VECM results indicated that there was a long run causal relationship among the variables bidirectional short-run causality runs between external debt and current account balance, external debt and total reserves and unidirectional short run causality run from external debt and total reserves to total debt service and total debt service to the current account balance. To check the direction of causality between the variables Dumitrescu-Hurlin Panel Causality test was employed. The outcome of the analysis revealed a bidirectional causality between the external debt, debt servicing, current account balance, and total reserves.

Long-run Dynamics of Sulphur Dioxide Emissions, Economic Growth and Energy Efficiency in China

This paper estimates the linkages among total Sulphur dioxide (SO2) emissions, total GDP and energy efficiency using China’s provincial panel data from 2002 to 2015. We investigate total emissions rather than per capita emissions or ambient concentrations, since it is total emissions that the environment cares about. Energy efficiency is estimated using stochastic frontier analysis and decomposed into both persistent and transient efficiency. We then investigate the long-run dynamics among SO2 emissions, economic growth and energy efficiency by employing the panel-based error correction model and taking the effects of cyclical variations into account. Our analysis shows that GDP has a positive impact on total SO2 emissions in the short run and gains in energy efficiency have a significant negative effect on emissions in the long run. By controlling the effects of business cycle, the effects of GDP on emissions remain positive in both short and long run. Cross-sectional analysis provides similar insights. We argue that economic growth itself is an emission generator. Therefore, the government needs to establish a long-run strategy to curb the emissions by improving energy efficiency.

The long-run relationships between energy efficiency and environmental performance: Global evidence

Owing to recent climate change concerns, the interaction between energy and environmental governance has received greater attention. Therefore, this study investigates the causal relationship between energy efficiency and environmental performance for 129 countries, using the panel cointegration and panel-based error correction models for the period 2002–2012. Our results corroborate that there exists a long-term equilibrium cointegrating relationship between energy efficiency and environmental performance, and that the panel fully modified ordinary least squares estimations present a positive relationship between variables. In accordance with the panel vector error correction model estimation, evidence confirms a bi-directional causal relationship among variables for the long term in the given sample of 129 countries. In addition, the sub-samples’ analyses present causalities running from energy efficiency to environmental performance in the long run, no matter for Organisation for Economic Co-operation and Development (OECD) or non-OECD countries, but a short-run relationship is seen only in OECD members. Evidence also shows an absence of causal direction from environmental performance to energy efficiency in both groups of countries. The policy implication is that an improvement in environmental quality should be based on promoting energy efficiency. However, given that energy efficiency still has not achieved improvement under strong environmental performance, this is a big challenge that cannot be avoided for both developing and developed countries. We also offer several constructive suggestions for how to promote energy efficiency.

The comovement between venture capital and innovation in China: what are the implications?

This study investigates the long-run co-movement between venture capital and technological innovation for 28 provinces (including autonomous regions) in China, using the panel cointegration and panel-based error correction model over the 2001–2012 period. Our results confirm that venture capital and innovation have long-run cointegrated relationships as well as bidirectional causality for the whole country. Analysis of sub-samples again discovers similar results in both the eastern and central regions, but not in the western region. The policy implication shows that China’s development of innovations should be based on more venture capital input and that the government should establish a long-run innovation policy to accelerate the development of venture capital. We also offer several constructive suggestions for governments in the western provinces.

On the nexus of environmental quality and public spending on health care in China: a panel cointegration analysis

Does pollution drive up public spending on health care? This paper aims to answer such a crucial question empirically using a panel data set of 31 Chinese provinces during the period 1997–2014. In particular, this paper explores the non-stationarity and cointegration properties between health care expenditure and environmental indicators in a panel cointegration framework; in doing so, it examines both the long-run and the short-run impacts of the per capita provincial GDP, waste gas emissions, dust and smog emissions, and waste water emissions on the per capita public health expenditure. We apply panel unit root tests, heterogeneous panel cointegration tests, FMOLS techniques, and a panel-based error-correction model. The conclusion is that, both in the long run and in the short run, public health care expenditure is positively affected not only by the provincial economy but also by the environmental quality.

Energy Consumption and GDP in Selected Asian Countries: A Cointegrated Panel Analysis

Explain the relationship between energy consumption and economic growth can play a significant role in setting and adjustment of policies on energy sector. Given the close relationship between Energy consumption and economic growth in selected countries, determination of quality of the relationship between these two variables helps effectively to explain of policies of the energy sector. This paper studies the causality relationship between energy consumption and GDP in 7 Asian countries, using panel cointegration, and panel-based error correction models from annual data covering the period of 1980 to 2010. The results of this study show that there are significant and positive relationship between economic growth and energy consumption in these selected countries.

National income and fishery consumption: a global investigation

We apply the panel unit root tests, heterogeneous panel co-integration analysis, and panel-based error correction models (ECM) to examine the long-term co-integrated relationship between national income and fishery consumption in a panel of 101 countries for the period 1970–2006. In addition, we utilise a panel dynamic ordinary least squares (DOLS) model, to assess the effect of national income on fish consumption, and vice versa. Our empirical results provide clear support for a positive long-term co-integrated relationship between national income and fishery consumption after allowing for a heterogeneous country effect. Further, we display a bi-directional causality among these variables via the dynamic panel-based ECM in the long-term, and demonstrate that fish is a common food. Finally, our full sample is divided into developed, developing, southern hemisphere countries (SHC) and northern hemisphere countries (NHC) to discover the broader effect of income on fish consumption if any, and vice versa, among different levels of economic development and diverse regions. This facilitates our understanding and provides more insight into the characteristic of fishery among different levels of economic–geography conditions. We propose fishery policy recommendations through our findings.

Energy consumption and human development: Evidence from a panel cointegration and error correction model

In this paper we investigate the co-movement and the causality relationship between energy consumption as well as electricity consumption and the HDI (human development index) using as a proxy of human well-being and by including energy prices as an additional variable, in fifteen developing countries for the period 1988 to 2008. Recently developed tests for the panel unit root, heterogeneous panel cointegration, and panel-based error correction models are employed.The empirical results support the neutrality hypothesis in the short-term, regards total energy or electricity consumption, implying an absence of causality running in either direction. In the short term, energy as well as electricity consumption has a neutral effect on the HDI.In the long-term the findings provide a clear support of a negative cointegration relationship between energy consumption and the HDI. While a positive cointegration relationship exists between electricity consumption and HDI.A 1% increase in per capita energy consumption reduces the HDI by 0.8% and, a 1% increase in per capita electricity consumption increases the HDI by 0.22%. Moreover, a 1% increase in energy price reduces the HDI by around 0.11%.This study thus provides empirical evidence of long-run and causal relationships between energy consumption and the HDI for our sample of countries; supporting the assertion that lack or limited access to modern energy services could hamper economic and human development prospects of countries and underpins all the MDGs (millennium development goals).

Implication of E-Health and IT Governance on Healthcare Expenditure

This paper analyzes the public healthcare expenditure of Middle Eastern countries in relation to different exogenous explanatory variables, through a panel study involving twelve (12) Middle East countries. More specifically, the study methodology uses panel cointegration, and panel-based error correction models derived from annual data covering the period of 2000 to 2010. The empirical results support a short-run co-integration relationship after allowing for the heterogeneous country effect. The long-run relationship is estimated using a full-modified OLS. The results of a ten-year panel study have been interpreted and commented. The public healthcare expenditure of our countries is explicated to a great extent by the single country GDP. Other strong correlation variables were found also to be statistically significant. The research reveals that e-health programming and e-health governance could lead to a decrease in unnecessary health care expenditure.

Energy consumption and economic growth: Evidence from the economic community of West African States (ECOWAS)

Access to modern energy is believed to be a prerequisite for sustainable development, poverty alleviation and the achievement of the Millennium Development Goals.However, theoretical models and empirical results offer conflicting evidence on the relationship between energy consumption and economic growth that we remain largely unsure of the cause-and-effect nature of this relationship, if indeed a relationship exists at all.This paper tests, in a panel context, the long-run relationship between energy access, and economic growth for fifteen African countries from 1980 to 2008 by using recently developed panel cointegration techniques.We adopt a three-stage approach, consisting of panel unit root, panel cointegration and Granger causality tests to study the dynamic causal relationships between energy consumption, energy prices and growth as well as relationship between electricity consumption, prices and growth.Results show that GDP and energy consumption as well as GDP and electricity move together in the long-run. By estimating these long-run relationships and testing for causality using panel-based error correction models, we found unidirectional long-run and short-run causality. The causality is running from GDP to energy consumption in the short-run, and from energy consumption to GDP in the long-run. There is also evidence of unidirectional causality running from electricity consumption to GDP in the long-run.This study thus provides empirical evidence of long-run and causal relationships between energy consumption and economic growth for our sample of fifteen countries; suggesting that lack or limited access to modern energy services could hamper economic growth and compromise the development prospects of these countries.

Granger Causality Test between Oil Consumption and Gross Domestic Product of China Based on the Provincial Panel Data Analysis

This paper, based on the Provincial Panel Data of 30 provinces during 1995~2010 period, applies the panel unit root, heterogeneous panel co-integration and panel based error correction models to re-investigate co-movement and the causality between oil consumption and GDP. The results show that there is one-way directional causality from energy consumption to GDP in the western area, and one-way causality from GDP to energy consumption in the central area, while no causality between energy consumption and GDP exists in the eastern area.

Energy Consumption and Economic Growth: A Case Study of Three SAARC Countries

Energy is a crucial component to economic growth and plays a vital role in economic development. This study inquires the causal relationships between energy consumption (EC) and the economic growth (EG) within a multivariate framework that includes capital stock and labor input for the panel of three SAARC countries by using modern panel unit root technique, residual based panel cointegration and panel based error correction models .The empirical results fully support a cointegration relationship between EC and EG in the long run. But from the causal point of view there is long run unidirectional causality running from EC to EG and no causality was found in the short run.

Long-run money demand in OECD countries: what role do common factors play?

This article examines the long-run money demand function for 11 OECD countries from 1983Q1 to 2006Q4 using panel data. The distinction between common factors and idiosyncratic components using principal component analysis allows for the detection of cross-member cointegration and the determination as to whether national or international sources are responsible for the non-stationarity of money and its determinants. Indeed, the finding that the common factors are I(1) while the idiosyncratic components are I(0) indicates that cross-member cointegration may exist and non-stationarity in the variables is primarily driven by common international trends. Furthermore, it is found that the impact of income on money demand is positive, whereas it is negative for the interest rate, exchange rate and stock prices. Except for the income elasticity of money demand, all estimated long-run coefficients are larger for the common factors of the variables than for the variables themselves. This article provides evidence that the exchange rate is an important determinant of money demand, whereas the results for the stock prices are ambiguous. Finally, the results of a panel-based error-correction model suggest that several domestic money stocks converge to a common international equilibrium relationship between the common factors.