Panel Cointegration Analysis Research Articles

Exchange rate volatility and Turkish industry-level export: Panel cointegration analysis

The purpose of this article is to investigate the impact of the exchange rate volatility on Turkey's export. To this end, the panel cointegration analysis is applied to the data from Turkey's top 20 export industries to major 20 trading partners for the period 1980–2009. Special attention is paid to test for whether employment of country-level trade data instead of industry-level data is subject to the aggregation bias problem in the estimation of long-run cointegration parameters. The results indicate that employing country-level trade data suffers from the aggregation bias in estimating the cointegration parameters for the level of exchange rate and for the exchange rate volatility. The findings imply that (i) the impact of the exchange rate volatility on Turkish exports differs across industries, (ii) Turkey benefits from the depreciation of Turkish lira, and(iii) the foreign income plays a key role in determining the Turkish industry-level exports. The findings increase our insights to explain therecent dynamics of Turkish exports and provide some policy implications.

The Relationship between Non-Oil Trade and GDP in Petroleum Exporting Countries

This paper investigates the causal relationship between non-oil international trade and the GDP in a panel of 11 selected oil exporting countries by using panel unit root tests and panel cointegration analysis. A three-variable model is formulated with oil revenues as the third variable. The results show a strong causality from oil revenues and economic growth to trade in the oil exporting countries. Yet, non-oil trade does not have any significant effects on GDP in short- and long-run. It means that it is the oil and GDP that drives the trade in mentioned countries, not vice versa. According to the results, decision makings should be employed to achieve sustainable growth through higher productivity and substantially enlarging the economic base diversification in the future.

Islamic banking and economic growth in GCC & East Asia countries

Purpose – The purpose of this paper is to assess the contribution of Islamic finance to economic growth in countries that were early adopters of Islamic banking: Malaysia, Indonesia and the Gulf Cooperation Council (GCC) countries. Design/methodology/approach – Through panel cointegration analysis, variance decompositions (VDCs) and impulse response functions, this study investigates the Islamic finance and growth nexus. Findings – Islamic banking is found to contribute to economic growth both in the long run and the short run for both GCC countries and the selected East Asia (EA) countries. In the short run however, Islamic banking contributes more to economic growth in Malaysia and Indonesia compared to the GCC countries. Practical implications – The results lend support to the view that Islamic intermediation not only leads to economic benefits but also; increases managers' entrepreneurial skills through the involvement of the lender in the decision making and the partnership like relationship between the fund provider and the entrepreneur and also; reduces agency costs which produces positive impact on both the economy and the development of the society. This serves as a motivation for other countries to continuously promote Islamic finance. Originality/value – To assess the importance of Islamic finance to economic growth, this study compares two main regional Islamic financial hubs, the GCC and EA countries. Another novel aspect of this study is in the methodology; it employs panel cointegration analysis, VDCs and impulse response functions on the set of annual data for period of 2000-2009.

An Environment Kuznets Curve for GHG Emissions: A Panel Cointegration Analysis

In this article, we attempt to use panel unit root and panel cointegration tests as well as the fully-modified ordinary least squares (OLS) approach to examine the relationships among carbon dioxide emissions, energy use and gross domestic product for 22 Organization for Economic Cooperation and Development (OECD) countries (Annex II Parties) over the 1971–2000 period. Furthermore, in order to investigate these results for other direct greenhouse gases (GHGs), we have estimated the Environmental Kuznets Curve (EKC) hypothesis by using the total GHG, methane, and nitrous oxide. The empirical results support that energy use still plays an important role in explaining the GHG emissions for OECD countries. In terms of the EKC hypothesis, the results showed that a quadratic relationship was found to exist in the long run. Thus, other countries could learn from developed countries in this regard and try to smooth the EKC curve at relatively less cost.

The Determinants of Economic Growth in Africa: A Dynamic Causality and Panel Cointegration Analysis

This paper examines the dynamic causal relationships between trade openness, foreign aid, domestic investment, long-term external debt, government spending and economic growth for a panel of 33 highly aid-dependent African countries for the period 1974-2009. Short-run bidirectional causality is found between economic growth and trade openness. Short-run unidirectional causalities are found from external debt to foreign aid, from trade openness, foreign aid, external debt to domestic investment, from economic growth, trade openness to external debt and also from trade openness to government spending. The long-run effects of trade openness, domestic investment and government spending on economic growth are significantly positive.

The Relationship between Economic Growth and Human Capital in Developing Countries

This paper investigates the causal relationship between education and GDP in developing countries by using panel unit root tests and panel cointegration analysis for the period 1970-2010. A three-variable model is formulated with capital formation as the third variable. The results show a strong causality from investment and economic growth to education in these countries. Yet, education does not have any significant effects on GDP and investment in short- and long-run. It means that it is the capital formation and GDP that drives education in mentioned countries, not vice versa. So the findings of this paper support the point of view that it is higher economic growth that leads to higher education proxy. It seems that as the number of enrollments raise, the quality of the education declines. Moreover, the formal education systems are not market oriented in these countries. This may be the reason why huge educational investments in these developing countries fail to generate higher growth. By promoting practice-oriented training for students particularly in technical disciplines and matching education system to the needs of the labor market, it will help create long-term jobs and improve the country’s future prospects.

The Causality between Capital Formation and Economic Growth in MENA Region

This paper investigates the causal relationship between gross domestic investment (INV) and GDP for Middle East and North Africa (MENA) region countries by using panel unit root tests and panel cointegration analysis for the period 1970-2010. The results show a strong causality from economic growth to investment in these countries. Yet, investment does not have any significant effects on GDP in short- and long-run. It means that it is the GDP that drives investment in mentioned countries, not vice versa. So the findings of this paper support the point of view that it is higher economic growth that leads to higher investment. According to the results, decision makings should be employed to achieve sustainable growth through higher productivity and substantially enlarging the economic base diversification in the future

Religiosity and Income: A Panel Cointegration and Causality Analysis

In this paper we examine the long-run relationship between religiosity and income using retrospective data on church attendance rates for a panel of countries from 1925 to 1990. We employ panel cointegration and causality techniques to control for omitted variable and endogeneity bias and test for the direction of causality. We show that there exists a negative long-run relationship between the level of religiosity, measured by church attendance, and the level of income, measured by the log of GDP per capita. The result is robust to alternative estimation methods, potential outliers, sample selection, different measures of church attendance, and alternative specifications of the income variable. Long-run causality runs in both directions, higher income leads to declining religiosity and declining religiosity leads to higher income.

Determinants Of Foreign Direct Investment In MENA Region: Panel Co-Integration Analysis

<p>This paper aims<strong> </strong>to investigate the relationship between Determinants of Foreign Direct Investment (FDI) inflows and their determinants in MENA (Middle East and North Africa) region during the period 1970- 2010. Using panel data techniques, we take into account the both hypothesis economic dependencies and structural breaks. We find that the macro determinants like openness, growth rate, exchange rate, and economic instability have a long-run impact on FDI inflows in our panel.</p>

HEALTH INVESTMENT AND ECONOMIC OUTPUT IN REGIONAL CHINA

Using a 29‐year (1978–2006) panel of provincial‐level data from China, this article investigates the role of health capital in a human capital model of economic output. Robust evidence is found through panel cointegration analysis that health capital has a significant and positive effect on the Gross Regional Product in China; the effect being stronger in the inland regions compared to the coastal areas based on estimates that account for regional heterogeneity. This article highlights and discusses the potential role of diminishing returns to health investment in this globally important area. (JEL I15, R11, C23)

A Reassessment of Tourism-Exports Led Growth Hypothesis in Africa

In spite of Africa’s potentials in tourism, its endowments have been underdeveloped and underutilized. This is not far from limited empirical studies on tourism issues. It is against this backdrop that I intend to determine the effects of tourism exports on Africa’s economic growth. A panel cointegration analysis from 1990 to 2011 for thirty African countries was used to discover that tourism exports have significant positive long run effects on growth in Africa. The policy implication is that, tourism has the potentials of accelerating long run economic growth, while African growth can be use in the development of tourism exports.

SEÇİLMİŞ OECD ÜLKELERİNDE BÜTÇE AÇIKLARININ SÜRDÜRÜLEBİLİRLİĞİ: YATAY KESİT BAĞIMLILIĞI ALTINDA PANEL EŞ – BÜTÜNLEŞME ANALİZİ

Budget deficits are one of the most important macroeconomic problems in many countries. High public spending and insufficiency of public revenue are main reasons of collapse for Greek, Italy, Spain, Portugal and Ireland economies. Therefore, the conservation of budget balance and sustainability of budget deficits have got a great importance. In this study; the sustainability of budget deficit in selected 25 OECD countries was analyzed by using 2000-2011 period data, via panel co-integration analysis under cross-section dependence. According to the results of analysis; cross-section dependence was determined among these countries. Therefore, an economic shock coming to one of these countries, affects the others, too. Co-integration relationship was determined between these series. Consequently, it has been seen budget deficits of these countries were sustainable in weakly form in the long term.

Policing the chain gang: Panel cointegration analysis of the stability of the Suffolk System, 1825–1858

Conventional monetary theory suggests that a closed system banking regime may lead to in-concert overexpansions of circulation by its banks. However, Selgin (2001, 2010) argues that this is unlikely as long as there are enough banks to ensure (i) routine interbank settlement and (ii) no collusion amongst banks refraining from redeeming one another’s notes. Banks effectively form a “chain gang” where in-concert expansion requires coordination that is prohibitively costly in a system with many banks. In order to test this conjecture, we examine state-level data on circulations and reserves from the Suffolk Banking System (1825–1858) in New England. In addition to narrative evidence on the stability of the Suffolk, panel cointegration tests provide evidence of a long-run relationship between state-level circulations and total reserves. The estimated error-correction mechanisms suggest a deviation half-life of about 2years. We argue that a cointegrating relationship between circulations and reserves, along with rapid error-correction, supports the Selgin hypothesis.

Do Financial and Institutional Variables Enhance the Impact of Remittances on Economic Growth in Latin America and the Caribbean? A Panel Cointegration Analysis

Using recently developed panel unit root and panel cointegration tests and the Fully-Modified OLS methodology (FMOLS), this paper estimates the impact of remittances on the economic growth of selected upper and lower income Latin American & Caribbean (LAC) countries over the 1990–2007 period. Despite the large flow of remittances to the region, there have been relatively few empirical studies assessing the impact of remittances on economic growth in LAC. Panel unit root tests suggest that several of the macro variables included in the model exhibit unit roots, yet, at the same time, Pedroni’s panel cointegration test determined that there is a cointegrating relationship among the variables in the estimated model. The FMOLS estimates suggest that remittances have a positive and significant effect on economic growth in both groups of countries. The estimates also indicate that both the degree of economic freedom and credit provided by the banking system have a positive and significant effect on economic growth in upper (middle) income LAC countries. The sign of the interaction term between remittances and the credit (and EFI) variables suggest that remittances act as substitutes for these variables. Finally, the effect of remittances on both sets of countries is stronger in the presence of a financial (credit) variable.

A regional perspective on inequality and growth in Portugal using panel cointegration analysis

This paper examines the relationship between inequality and economic growth for thirty Portuguese NUTS3 regions within a multivariate panel framework over the period 1995–2007, using panel cointegration techniques to test for the existence of a relationship between inequality and real GDP per capita. The results point to the existence of a relationship between the variables, where the effect of inequality, measured as the Gini index of the earnings distribution, on per capita output is negative. This negative influence seems to be determined by the behaviour of the bottom of the earnings distribution, most likely by dampening investment in human capital, with the results pointing to the coexistence of a positive impact of inequality at the top of the distribution, supporting the incentives argument for the inequality-growth nexus. Additionally, the results confirm the predicted positive relationship between human capital and output, lending support to both the exogenous and endogenous growth models predictions on the importance of human capital for production both as an input in the production of final goods and in the production of technology. Another interesting result concerns structural funds: we found a negative relation of this variable with regional output. We believe that EU structural funds were a source of Dutch disease for Portugal, which resulted mainly in a lack of external competitiveness of the Portuguese economy due to the excessive specialization in non-tradable goods made possible by the European funds.

Determinants of new vehicle registrations in EU countries: a panel cointegration analysis

This paper investigates the determinants of new vehicle registrations in European Union (EU) countries by focusing on four particular segments – passenger cars, light commercial vehicles, commercial vehicles, and heavy commercial vehicles. A panel cointegration analysis for a panel of 13 EU countries during the period from January 1999 to August 2010 shows that new vehicle sales have long-run cointegration relations with vehicle prices, consumer confidence, income, interest rates, fuel prices, industrial production, and trade. More effective factors in determining new vehicle sales appear to be trade, interest rates, and industrial production.

Tax Structure and Economic Indicators in Developing and High-income OECD Countries: Panel Cointegration Analysis

This paper investigates the long-run relationship between tax structure and economic growth and the other economic indicators via panel unit root tests and panel cointegration analysis. Panel unit root tests are carried out to determine the order of integration of panel variables. In order to find out the long-run cointegration relationship, we employ the Kao residual cointegration test. The results of panel cointegration test reveal that there is no long-run cointegrating relationship between tax structure and both of GDP and gross saving (SAVING) in developing countries. Yet, there is an evidence of a strong cointegrating relationship among tax structure and international trade's activities. Conversely, for high-income OECD countries, Kao's test suggests that there is a long-run cointegrating relationship between components of tax revenue and GDP and gross saving, while there is no evidence for imported and exported of goods and services (international trade).

Investigating the Cross Country Causal Relationship between Institutions and Economic Performance: A Panel Cointegration Analysis

Investigating the Cross Country Causal Relationship between Institutions and Economic Performance: A Panel Cointegration Analysis

More penetration, more growth? A panel cointegration analysis for the OECD countries

The paper investigates the causal relationships between penetration rate, an indicator of telecommunications development, and economic growth of 34 OECD countries during the period 1960–2010. The panel model is used in this study. Based on the panel cointegration test results, is found that penetration rate has a long run relationship with economic growth. Moreover, there is also a bidirectional Granger causality between penetration rate and economic growth in both the short run and long run. The results of this study show clearly that telecommunications development plays an important role in the economic growth of the OECD countries. Furthermore, these results can reinforce the importance of economic growth for the continued development and use of various telecommunications services in those countries.

A Panel Co-Integration Analysis of Industrial and Services Sectors' Agglomeration in the European Union

This study empirically investigates the relevance of Traditional Trade Theory, New Trade Theory and New Economic Geography in explaining industrial and services sectors' agglomeration in the European Union. Therefore, new dynamic panel data estimation techniques will be employed. Static panel data analysis reveals that assumptions of New Trade Theory and New Economic Geography can explain industrial concentration in the EU best. Results from dynamic panel OLS show that intermediate goods' intensity and therewith New Economic Geography’s assumptions are important in explaining both industrial and services sectors' agglomeration. Several non-stationarity and co-integration relationships can be detected. Further, decomposition of effects across and within sectors is provided. Scale economies are only important for across industries' variation in agglomeration, not within. For services sectors' agglomeration results show that intermediate goods intensity matters only for within and not across industries' variation in agglomeration. Further evidence for intrasectoral trade explaining equalizing economic structures for services sectors is given.