Panel Cointegration Approach Research Articles

Determining the Relationship Between Economic Growth, Carbon Emission and Energy Consumption: Panel Cointegration and Causality Approach in G20 Countries

As it is known, CO2 is a greenhouse gas. Greenhouse gases contained in fossil fuels mix with the atmosphere and cause global warming on earth. Global warming causes many negative situations such as irregular rainfall, drought, difficulties in accessing fresh water, and changes in living biology. Thus, life on earth is becoming increasingly threatened. In this study, the relationship between CO2 emissions and renewable and fossil-based energy use, which are among the factors affecting economic growth, was applied in G-20 countries with panel data analysis. The data of the study were collected from the World Bank. A total of 589 data were studied in 19 countries and 31 time dimensions. AMG method was used for long-term estimation of the data by performing cross-section dependence, unit root tests and homogeneity tests. Granger causality test was performed between the variables. A positive relationship was found between GDP growth and CO2, and it was found that a one-unit increase in CO2 use would cause a 0.88-unit increase in GDP growth. Additionally, the study found that there is a unidirectional causality from renewable energy, fossil energy consumption and CO2 usage to GDP growth.

Air, land, and water pollutants and public health expenditures: Empirical data from selected EU countries in the transport sector

The increase in economic activity, particularly in transport, leads to a significant increase in emissions of pollutants, such as ammonia, arsenic and cadmium, at the European Union (EU) level. This can seriously impact human health and, consequently, public health spending. Based on data from 15 European Union countries from 1992 to 2020, a panel co-integration approach is used to study these pollutants’ short- and long-term co-movements and per capita health expenditure. The results show a long-term relationship between ammonia, arsenic and cadmium emissions and per capita health spending, as they are panel-cointegrated. Ammonia and cadmium emissions exert a statistically significant positive effect on health expenditure in the short run, and arsenic emissions have a statistically significant positive impact in the long run. The forecast assessment of reductions in health spending resulting from policies to reduce emissions of air, land and water pollutants, such as ammonia, arsenic and cadmium, from the transport sector supports investments in its policies that reduce pressure on health spending. The reduction in annual healthcare expenditure is greater when these reductions are made sooner and more severely. Indeed, varying the reduction in emissions for each pollutant by 10% and 100%, respectively, from the first year for all countries over a 3-year period results in an average annual reduction in health spending of 2.05% and 51.02%, respectively. However, if we wait until the third year, the annual reduction is only 0.77% and 17.63% respectively.

What explains foreign portfolio investment inflows to BRICS countries?

Large and volatile foreign portfolio investment (FPI) inflows raise financial instability concerns and create several macroeconomic challenges for developing countries. Identifying the factors driving FPI inflows is therefore essential for formulating appropriate policies to manage these inflows efficiently. This study uses a GM-FMOLS panel cointegration approach to examine and identify such factors for BRICS countries, the leading recipients of FPI inflows among all developing countries. The study finds that the 10-year US Treasury bond yield exerts a significant negative influence on FPI inflows. These bonds provide risk-free long-term returns to portfolio investors; hence, a rise in the yield on such bonds prompts them to readjust their portfolios away from assets in developing countries to US Treasuries, leading to a decline in FPI inflows. The study further finds that a thriving domestic stock market, a higher interest rate differential, an appreciating domestic currency, an improvement in the recipient country’s creditworthiness, and a greater degree of trade openness are conducive to FPI inflows. However, a rising consumer price index, higher foreign output growth, and greater global financial volatility discourage these inflows.

Nexus Between Remittance and Economic Growth: Case of Top Remittance Recipient Countries

This paper aims to explore the nexus between remittance and economic growth in the top twenty remittance-recipient countries defined in terms of remittances to GDP ratio by using the panel cointegration approach. Panel data from 2009 to 2022 have been used for the Pedroni and Kao Cointegration test and panel ARDL approach to cointegration. Results showed that while there exists a long-run equilibrium relationship among the variables with a very high degree of adjustment in disequilibrium, remittance flows appear to affect economic growth adversely in the long run. Trade openness and gross fixed capital formation positively affected economic growth while inflation reduced growth in the long run. These results imply that the top remittance-recipient countries need to use remittances productively while addressing their structural problems hindering economic growth including high dependence on external sources and imports, low financial access, weak rule of law, and weak quality of institutions.

Natural resources-financial innovation-carbon neutrality nexus: The role of policy robustness

This study sought to investigate the impact of a natural resources, financial innovation, and policy robustness on carbon neutrality of a nation. Cross-country data from 6 major Asian economies: China, Malaysia, India, Indonesia, Pakistan, and Japan, from 2010 to 2020, were drawn for the analysis. This study employed the Westerlund panel cointegration approach to examine the long term relationship among the variables. Three models were developed and analyzed keeping CO2 emissions, natural resources, and financial innovation as dependent variables. Our findings of model-1 revealed that abundant natural resources and increase financial innovation are linked to lower carbon emissions. Policy robustness plays a significant role in reducing carbon emissions, highlighting the importance of strong environmental policies for sustainable development. However, economic growth is associated with higher carbon emissions, suggesting the need to manage growth sustainably. As economies expand, the consumption of natural resources also increases, indicating the necessity for strategies to decouple economic growth from resource use. In the model-2, GDP positively influences the exploitation of natural resources, emphasizing the need for sustainable practices. In the model-3, financial innovation is positively related to carbon emissions, indicating the potential for innovative financial instruments in emissions mitigation. Conversely, a negative relationship between natural resources and financial innovation suggest the importance of sustainable financial practices. This study stresses the complexity of factors influencing environmental sustainability and calls for comprehensive research. It underscores the significance of combining economic development with sustainable resource use, innovative financial practices, and robust policy frameworks to foster environmental sustainability in the Asian context.

Exploring the impact of public investment on income, energy consumption, and CO2 emissions in ASEAN: new insights from a panel cointegration approach.

Policy adjustments can help strike a balance between economic growth and environmental sustainability, which has increasingly been the heart to nations and regions throughout the World. This paper examines how public investment affects economic growth, energy consumption, and CO2 emissions in eight ASEAN countries: Cambodia, Myanmar, Malaysia, Indonesia, the Philippines, Singapore, Thailand, and Vietnam. Extension of a Cobb-Douglas production function and application of panel cointegration techniques reveal bidirectional Granger causation between public investment and both private development and CO2 emissions from 1980 to 2019. Public investment Granger causes energy usage, the opposite does not hold statistically. More findings from pooled mean group estimations show a mean-reversion dynamic that corrects disequilibria by 14% yearly. State investment crowds in private sector growth, energy use, and carbon footprint. It also finds an inverted U-shaped relationship between public investment and energy consumption, and a U-shaped relationship between public investment and CO2 emissions, indicating complex regional interactions. It is suggested the implementation of public investment policies that enrich green infrastructure projects to foster growth while minimizing environmental impacts, and encourage a strategic approach to public investment for prioritizing environmental sustainability and thus, achieving Sustainable Development Goals 7 to 9 and 11 to 13 in this region.

The relationship between renewable energy production and CO2 emissions in 27 OECD countries: A panel cointegration and Granger non-causality approach

Human-caused CO2 emissions are the primary cause of global warming. In this regard, determining the most effective approach for lowering CO2 emissions and the collateral risk of catastrophic natural disasters is crucial. This study examines the long-run relationship between disaggregated renewable energy production and carbon dioxide (CO2) emissions per capita for a panel of 27 OECD countries from 1965 to 2020. The panel-autoregressive distributed lag (ARDL) models of the pooled mean group (PMG), mean group (MG), and dynamic fixed effect (DFE) were used to evaluate the relationship between CO2 emissions and energy production from biofuel, aggregated geothermal and biomass (GEOB), hydropower, nuclear, solar, and wind. As robustness checks, fully modified ordinary least squares (FMOLS), dynamic ordinary least squares (DOLS), and common correlated effects mean group (CCEMG) estimators were used. Then, using a generalized method of moment (GMM) framework for panel vector autoregression (PVAR), the Granger non-causality between CO2 emissions and renewable energy production was investigated. GEOB, hydropower, nuclear, solar, and wind were found to be negatively and significantly correlated with CO2 emissions. GEOB, hydropower, and solar were the most effective renewable resources in reducing CO2 emissions. Granger non-causality approach showed unidirectional causation from hydropower, solar, and wind to CO2 emissions, bidirectional causation between CO2, and biofuel and GEOB, and unidirectional causation from CO2 emissions to nuclear. The findings were consistent across different model specifications and suggested a faster transition to GEOB, hydropower, and solar energy in OECD countries to reduce CO2 emissions and enhance environmental sustainability.

What happened in COVID to conflict: Re-examination of financial inclusion and green development nexus in China natural resource sector

This study aims to provide insights into the effects of COVID-19 pandemic on the intersection of financial inclusion and green development in the natural resource sector. Specifically, this study explores the dynamic relationship between financial inclusion, green development in the natural resource sector, with a focus on China. Using cross-sectional data from 3 natural resource exploitation industries in China, we employ a panel cointegration approach to analyze the relationship between financial inclusion and green development. The dataset covers the pre-COVID and COVID-19 periods, allowing us to examine the impact of the pandemic on this nexus. Our findings shed light on the role of financial inclusion in promoting sustainable practices within the natural resource sector during times of crisis. We observe that during the COVID-19 pandemic, there has been a heightened focus on the interplay between financial inclusion and green development. This is particularly evident in the context of China's natural resource exploitation industries, where initiatives to enhance financial inclusion have been instrumental in driving sustainable practices and mitigating the adverse environmental impacts of resource extraction. Furthermore, our research underscores the importance of aligning financial inclusion strategies with broader environmental objectives, especially in light of the upcoming Conference of the Parties (COP27) and its focus on global climate action. By leveraging financial inclusion measures to facilitate the adoption of green technologies and practices, the natural resource sector can make significant progress towards sustainable development. This study contributes to the existing literature by offering empirical evidence of the linkages between financial inclusion, green development, and the natural resource sector in the context of China. Our findings provide valuable insights for policymakers, industry practitioners, and stakeholders seeking to enhance sustainability and promote inclusive growth within the natural resource sector.

Extending the resource curse hypothesis to sustainability: Unveiling the environmental impacts of Natural resources rents and subsidies in Fossil Fuel-rich MENA Countries

The resource curse hypothesis (RCH) has been extensively studied in various domains, including economic growth, democracy, and financial development. However, the relationship between RCH and environmental degradation has been largely overlooked. In this study, drawing on the experience of the MENA region, we aim to extend the RCH to environmental degradation and hypothesize that the resource curse also affects the environment. Applying the resource curse framework, we investigate the effects of natural resource rents (NRR), fossil fuel subsidies (FFSs), and Gross National Income (GNI) on the transition from fossil fuels consumption (FFC) to renewable energy consumption (REC), a critical aspect of achieving sustainability. Using the PMG ARDL panel cointegration technique and panel data from 2009 to 2021 for nine fossil fuel-rich MENA countries, which are among the top 20 most heavily subsidized fossil fuel markets globally, we provide a comprehensive analysis. Our findings confirm the existence of the resource curse, as both NRR and subsidies have negative effects on the transition to REC, while GNI positively influences REC. We further support these results by employing the FMOLS panel cointegration approach as a robustness check. The study highlights the necessity of implementing various policy interventions, such as diversifying energy sources, undertaking energy pricing reforms, phasing out fossil fuel subsidies, and promoting renewable energy adoption.

WAYS TO IMPROVE THE GREEN RECOVERY IN UZBEKISTAN BY INVESTMENT AND TRADE

The imposition of measures to contain the transmission of the Coronavirus resulted in a significant economicdownturn, so disrupting the economic activities of numerous nations. The main objective of this study is to assess theeffects of intra-regional trade and investment on the green recovery of Uzbekistan’s economy throughout the period of2010–2023. This will be achieved by utilizing annual data and employing the panel co-integration approach. The findingsof the study provide confirmation that there is a positive and significant relationship between the level of green tradeopenness and the green recovery. The computed coefficient pertaining to direct foreign investment exhibits a negativevalue. The statistical insignificance of the patent coefficient is observed, while a positive impact is detected in relation tothe official exchange rate. The coefficient associated with financial development exhibits a positive and statistically significant relationship. The research presents a number of policy implications that are relevant for scholars and policymakers.These implications include the need to strengthen green Foreign Direct Investment (FDI), encourage green innovation,and promote the liberalization of green trade.

The Impact of the Digital Economy on Carbon Emissions using the STIRPAT Model

As a new economic factor, digitalization plays a vital role in society, economy, and the environment. Based on the expanded STIRPAT model, this paper empirically tests the impact of digital economy on carbon emissions by panel data from 2011 to 2021 in BRICS countries. Utilizing a variety of econometric techniques, the study's objectives were met. For instance, unit root properties are investigated using the CIPS and CADF techniques, while cointegration is examined using the panel cointegration approach of Westerlund and Edgerton (2008). The findings demonstrate the existence of a long-term correlation between carbon emissions, population, GDP, technical level, and digital economy. We propose that governments must not only implement hedging policies to reduce Carbon emissions caused by the digital economy at an early stage but also promote the development of the digital economy in order to accomplish the objective of global collaborative environmental protection.

Nexus between green finance, renewable energy and carbon emission: Empirical evidence from selected Asian economies

Using data from selected Asian countries from 1995 to 2018, this new article investigated the dynamic correlation among non-fossil fuel and fossil - based energy utilization, economic growth, and Gross domestic product (GDP). For empirical research, the panel co-integration approach with structural breakdowns is employed. The findings indicate that non-fossil fuel and fossil - based energy, economic growth, and economic expansion have a long-term equilibrium connection. In both the short and long term, the panel causality studies reveal bidirectional causation between industrial production and both non-renewable energy and renewable energy consumption. The results from the panel error correction model reveals that the positive (negative) elasticities of nonrenewable energy consumption are 0.96 (1.15), suggesting that a 1% rise (decrease) in nonrenewable energy is expected to increase (reduce) 0.96% (1.15%) in carban dioxide emissions. These findings suggest that selected Asian countries’ industrial production and overall economic growth are still energy-dependent. In addition, there is two directional short run test causality among renewable energy consumption and non-renewable energy consumption might help to create a more sustainable energy economy.

The determinants of China’s outward foreign direct investment in ASEAN: A panel ARDL approach

Research aims: This paper aims to examine factors influencing China's outward foreign direct investment (FDI) in ASEAN economies.Design/Methodology/Approach: The Kao panel cointegration approach and the Panel ARDL model were used in this study to estimate the long-run and short-run relationship between variables. This method is deemed superior to other panel models since it is advantageous when dealing with non-stationary variables at the level or I(1).Research findings: The estimation results provide empirical evidence that in the long run, ASEAN market size, exchange rate, import and export levels between China and ASEAN countries, inflation rate, and institutional factors such as the index of corruption control and political stability are the primary determinants of the flow of outward foreign direct investments from China to ASEAN economies. Theoretical contribution/Originality: This study provides additional evidence regarding the factors influencing direct investment flow from the home country to the host country, known as an outward foreign direct investment (OFDI). Previous studies have robustly proven that OFDI flows are influenced by factors such as the resources and market size of the host country, as predicted by location theory. This study further provides evidence that host country trade policy, the level of competitiveness demonstrated by favorable exchange rates, and institutional factors like corruption control and political stability are other important determinants in the context of China’s OFDI in ASEAN countries.Practitioner/Policy implication: Maintaining open trade policy, a competitive exchange rate and significant improvement in law and order would be suitable policies for ASEAN economies to attract more investment from China and other countries.Research limitation/Implication: This study did not cover other variables, such as investment facilities provided by the host government. In addition, economic packages like tax holidays and import-tariff discounts are common policies ASEAN countries provide. Hence, this variable can be considered in future research.

Co-integrating relation between pay, board governance and performance: evidence from Indian banking

Purpose The purpose of the paper is to explore the long-run impact of board governance and bank performance on executive remuneration. More specifically, the study addresses two objectives. First, the authors investigate the long-run relationship between pay and performance hold for the Indian banking industry. Second, the authors explore the moderating role of the board in explaining the relationship between executive pay and performance. Design/methodology/approach The study uses multivariate panel co-integration approaches, i.e. fully modified and dynamic ordinary least square, to explain the co-integrating relationship between executive pay, governance and performance of Indian banks. The analysis is conducted for the period from 2005 to 2018. Findings The results of co-integration tests reveal a long-run relationship between executive pay, board governance and bank performance. The long-run estimates produce evidence in favour of the dynamic agency theory, suggesting that the implications of asymmetric information can be mitigated by associating the current executive pay with the bank performance in the previous periods. The finding of this study reveals that improvements in the board quality serve as a monitoring tool to constrain excessive pay and moderate the executives’ pay. Furthermore, the interaction of performance and board governance negatively impacts pay, supporting a substitution approach. It implies that setting optimal pay packages for executives necessitates enhanced and efficient board governance practices. Practical implications The study recommends significant policy implications for regulators and the board of directors that executive pay significantly responds to the bank’s performance and good board governance practices in the long run. Originality/value This paper provides novel evidence of long-run pay-performance-governance relation using a panel co-integration approach.

The role of pension funds in capital market development in the new EU member states: An empirical panel cointegration approach

AbstractThe main goal of this paper is to analyse the impact of pension funds on capital market development in 11 new EU member states from Central and Eastern Europe using annual data for the period between 2000 and 2019. Given the geographical, institutional, political and economic differences across these countries, we split them into three homogenous groups: Balkan, Baltic and Visegrad countries. We use three different variables as a proxy for capital markets growth: stock market capitalization, the value of stock traded, and private bond market capitalization. We apply dynamic and fully-modified ordinary least squares to examine the relationship between the variables. The empirical results indicate that pension funds have a positive effect on the bond markets growth in all sub-groups but they do not impact the stock market growth in the Balkan and Baltic countries.

Do financial technology and financial development lessen shadow economy? Evidence from BRICST economies using heterogenous bootstrap panel causality

This study examined the role of financial technology (FinTech) and financial development in determining the shadow economy in the BRICST countries, using data from 2004 to 2018. The study also analyzed the moderating impact of financial technology on the financial development and shadow economy nexus. The study employed Breusch-Pegan LM (1980) and Pesaran (2004) tests for investigating cross-sectional dependency, followed by Pesaran's (2007) CADF panel unit root test. The study applied Westerlund's (2007) panel cointegration and CS-ARDL approach for examining cointegration and estimating long-run relationships. Moreover, Konya's (2006) panel causality is also applied to examine the possible causal relationship among the variables. The study explored that financial sector development and using financial technology are negatively related to the shadow economy. The study also found the significant moderating role of financial technology in the financial development and shadow economy nexus. Furthermore, the results highlighted a bidirectional causal relationship between economic growth and the shadow economy in South Africa, India, and Russia. A bidirectional causality between financial technology and the shadow economy is also identified in India and Russia. Finally, based on empirical results, financial development, and technology-related policies are suggested for policymakers to curtail the shadow economy.

Air transport capacity and tourism demand: A panel cointegration approach with cross-sectionally augmented autoregressive distributed lag (CS-ARDL) model

This research aims to quantify the effect of air transport capacity on tourism demand by examining their long-term (cointegrating) relationship, accounting for cross-sectional dependence and endogeneity. Panel time series data from 2008Q1 to 2019Q4 for international tourist arrivals from 16 main origins to six Australian states are investigated. The study finds 1% increase in Available-Seat-Kilometers, seat capacity, or flight frequency can result in 0.4%–0.7% increase in tourist arrivals to Australia, adding to the body of evidence that shows a non-negligible aviation-led generative effect on tourism demand. The study finds ignoring cross-sectional dependence can result in significantly different, and potentially incorrect, coefficient estimates. Although using pre-COVID data, the results are useful in highlighting the likely aviation supply—tourism demand relations under reasonably well-performing market conditions. For greater tourism demand, findings call for more liberal international air services agreements, and direct/indirect air route development subsidies with minimum commitment of several years.

Ways to promote intra-regional trade and investment in Central Asia to boost the green recovery

The economic recession caused by the restrictions on the spread of the Coronavirus disrupted the economic life of many countries. The primary purpose of the paper is to measure the impacts of intra-regional trade and investment on the green recovery of five Central Asian economies over 2010–2021 through employing annual data and the panel co-integration approach. The results confirmed that the degree of green trade openness positively and significantly affects the green recovery. The estimated coefficient of direct foreign investment is negative. The patent coefficient is not statistically significant, and the official exchange rate has a positive effect. Financial development has a positive and significant coefficient. The paper has several policy implications, such as enhancing green FDI (Foreign Direct Investment), supporting green innovation, and promoting green trade liberalism for scholars and policymakers.

To what Extent Does Globalization Influence Climate Change Sensitivity in Sub-Saharan Africa Countries: Evidence from DCCE-MG Approach

Though, the issue of climate change is a global challenge that has attracted the attention of various stakeholders, but the understanding of various contributing factors to address the challenge still remains a moot topic. Thus, this study investigates the sensitivity of climate change in Sub-Saharan Africa (SSA) countries to overall globalization, dejure and defacto globalization, population, urbanization and economic growth using a panel data covering the period from 1990-2018. The estimations were performed using the novel Westerlund and Erdgerton panel cointegration approach to estimate the co-movement of the variables in the long run, while the long-run relationship was estimated using the “Dynamic Common Correlated Effect-Mean Group” (DCCE-MG) techniques and used the “Dynamic OLS” and “Fully Modified OLS” for robustness check. Empirical findings reveal the long-run relationship between the variables of interest. In addition, our study shows a significant and positive influence of overall globalization, dejure and defacto globalization, economic growth and urbanization on climate change in SSA countries in the long-run, while population was found to have a negative and significant long-run relationship with climate change. Finally, the findings implications and suggestions for policy makers in SSA countries were presented.

Financial Stability and Economic Growth in the Cemac Zone: A Panel Cointegration Approach

The objective of this study is to analyze the impact of financial stability on economic growth in the CEMAC zone. Using annual data over the period 2003-2016, the empirical results from the estimation of a cointegrated panel model using FMOLS and DOLS methods indicate that financial stability has a positive effect on economic growth. Moreover, these results reveal that financial depth does not significantly influence economic growth in the area.