Panel Cointegration Approach Research Articles

Impact of Financialization and Financial Development on Inequality: Panel Cointegration Results Using OECD Data

This study compares the long-run impact of financialization and financial development on inequality through the panel cointegration approach using OECD country data. Results show that financialization, especially high-dividend tendency in non-financial corporations, is one of the causes of rising inequality measured as the share of the top 10 percent richest. Other measures of financialization, such as the increasing size of the financial sector and financial globalization, are not robustly linked to inequality. In addition, the argument that financial development reduces inequality by relaxing the credit constraints of the poor is not supported, and no evidence shows that financial development aggravates inequality. Further, the impact of skills-biased technological change is not a robust variable in explaining inequality. A policy implication is that a simple focus on financial development is not enough to reduce inequality. Government policies are necessary, including differentiated taxation on dividends and reinvestments, which induce non-financial firms to focus on productive reinvestments from profits and discourage high dividends for shareholders.

Are Karachi Stock Exchange Firms Investment Promoting? - Evidence of Efficient Market Hypothesis Using Panel Cointegration

This study investigates the evidence of efficient market hypothesis for the firms listed in Karachi Stock Exchange (KSE), which signifies the nature of the stock market. According to this hypothesis, the empirical information available is not enough to predict the present movement of share prices. After using the Panel cointegration approach between current share price and past share price in the light unknown structural break on the daily data of 75 selected firms over the period June 2004 to March 2014, comprising 2370 observations per firm. The study found that the firms listed in Karachi Stock Exchange are inefficient firms, therefore, for the case of KSE – 100 offer information which can be used to make economic profits. Hence Karachi Stock Exchange provide enough predictable information using past trends so that investor can gain economic profit from it, so it will take time for the market to become mature and the creation of competition.

Sustainability of merchandise trade flows between Croatia and other EU member states: Panel cointegration approach

This research examined the sustainability of merchandise trade flows between Croatia and other European Union (EU) member states. Merchandise exports and imports were disaggregated into bilateral merchandise trade flows between Croatia and nineteen EU trading partners for the period 1999-2014. Following Granger-causality and cointegration tests for panel data, we specified the model to be estimated. Using a pooled mean group (PMG) estimator for dynamic heterogeneous panel data, the relationship between Croatian merchandise export and import was assessed empirically. Research results revealed unsustainable Croatian merchandise exports and imports vis-?-vis nineteen EU partners.

Shadow banking, risk-taking and monetary policy in emerging economies: A panel cointegration approach

This study investigates the nexus between shadow banking, bank risk and monetary policy in emerging economies. The importance of this topic arises from its impact on the relationship between price ...

The Effect of Macroeconomic and Bank-Specific Variables to Risk-Taking of Islamic Bank in Indonesia

This study aims to delineate the relationship between macroeconomic factors and bank-specific variables to risk-taking of Islamic bank. Adopting panel co-integration approach, this study posits macroeconomic and bank-specific factors as exogenous variables consisting to interest rate, exchange rate, inflation, bank size and equity to asset ratio. Risk-taking as endogenous variable has proxies non-performing loan or financing and bankruptcy risk. By using quarterly data from 2010-Q4 to 2017-Q4, this study finds the risk-taking behavior of all banks has long-term relationship with macroeconomic factors. In terms of bank specified characteristic, bank size becomes substantial factor for the bank’s risk mitigation. When the samples are grouped based on Islamic bank’s size, the big size of Islamic bank has no long-term co-integration to macroeconomic variables. As opposed to that, the middle and small size of Islamic bank have long-term relationship to macroeconomics factors and all macroeconomic variables affect the risk-taking of Islamic bank. It concludes that the medium and small size of Islamic banks are more vulnerable from external shock.

Renewable energy drivers: a panel cointegration approach

ABSTRACTThe expected gains from RES deployment to the reduction of carbon dioxide emissions (CO2) and the cut-off of external dependence of electricity sources could be important. However, it is crucial to understand the determinants of RES growth to help policymakers drawing effective energy polices, involving a commitment of both citizens and governments. In this paper, we use novel panel econometric tools (taking into account structural breaks and cross-section dependence) and find evidence of nonstationary issues and cointegration issues between renewable energy production and its drivers (CO2 emissions, GDP per capita, energy use and dependency). The results thus reveal that non-stationary issues should be attended, otherwise they could be biased. Using suitable estimators (DOLS, FMOLS) with two different data sets and different proxies and taking common factors into account by MG estimates, we find that there is no environmental concerns effect explaining the growth of renewables in European countries. However, national revenues, energy consumption (demand effect) and energy dependency have a positive impact on renewables deployment. Considering these results, economic assistance (subsidies) might be a mean to increase further the renewables deployment in EU countries and education about renewables deployment is needed.

A new panel for analyzing the impact factors on carbon emission: A regional perspective in China

As the largest carbon emitter in the world, China is under pressure in addressing carbon emission reduction. It is important for the country to understand the impact factors on emission so that proper mitigation measures can be taken. Previous studies have analyzed emission factors through classifying regions mainly by a single economic index or carbon index, whereas this study introduces a two-dimensional panel framework to classify regions. These two dimensions are per capita GDP and carbon intensity. Based on this panel framework, the 30 provinces in China are classified into four regions, namely, high economy and high carbon intensity (Region I), high economy and low carbon intensity (Region II), low economy and low carbon intensity (Region III), and low economy and high carbon intensity (Region IV). The STIRPAT (stochastic impacts by regression on population, affluence, and technology) model and the panel cointegration approach are employed to analyze the impacts of various carbon emission factors in the four classified regions. The results show that the most significant factor for Region I is industrial structure, and that for Regions II, III and IV is energy intensity, population size and per capita GDP respectively. The research results can help decision makers adopt effective emission control measures. The two-dimensional panel framework introduced can be extended for application to examine the emission impact factors at regional or national levels in other countries.

Banking Sector Development, Inflation and Economic Growth in Asian Countries: A Panel Causality and Co-Integration Approach

This study investigates the causal relationship between banking sector development, inflation, and economic growth for six Asian countries (Bangladesh, China, India, Malaysia, Pakistan and Sri Lanka) over the period of 1970-2016. Using a Pedroni panel, Kao co-integration test, Panel Granger causality-based Error Correction Model, Dynamic ordinary least square (DOLS), and Fully modified ordinary least square (FMOLS), this study finds that the development of the banking sector generally has a positive relationship with economic growth in the long-run. This results show that in the long-run, monetary policy play a vital role in the economic growth. This study also confirmed the response causality between the indicators of banking sector development and economic growth. Based on the empirical findings, this research provides important policy implications to the banking sector and economic supervisory bodies in order to achieve the long run economic growth.

The nexus of electricity consumption and economic growth in Gulf Cooperation Council economies: evidence from non-stationary panel data methods

ABSTRACTThis paper investigates the electricity-growth nexus of Gulf Cooperation Council (GCC) member countries from 1980 to 2014. To achieve the goal of this research, both panel cointegration and causality approaches are utilised to examine the long-term and causal relationships between variables. Empirical results confirm the presence of cointegration between variables. Moreover, this study finds that electricity consumption affects the long-term economic growth. Given that GCC member countries are energy-dependent economies, policies that aim to conserve energy consumption may jeopardise economic growth.

Macroeconomic effect and risk-taking behavior in a dual banking system

This study aims to analyze the relationship between macroeconomic factors and risk-taking behavior in a dual banking system. Adopting a panel cointegration approach, this research posits macroeconomic factors as exogenous variables and risk-taking behavior as endogenous variables. With having 468 quarterly-observations consisting of 18 banks in Indonesia during 2010-Q4 to 2017-Q1, it finds that the risk-taking behavior of the banks has a long-term relationship with macroeconomic factors. Moreover, conventional bank has long-term relationship to macroeconomic nonetheless it results inversely to Islamic bank. In terms of bank-specified characteristics, bank size and equity to asset ratio are substantial factors for the banks’ risk mitigation.

Impact of Economic Growth and Energy Consumption on Greenhouse Gas Emissions: Testing Environmental Curves Hypotheses on EU Countries

This study analyses the relationship between per capita greenhouse gas (GHG) emissions, gross domestic product, gross inland energy consumption, and renewable energy consumption for a panel of 28 countries of European Union in the period 1990–2016. Two theoretical models, a quadratic and a cubic one, are used to estimate the shape of the environmental curve and to test the Kuznets hypothesis. The panel cointegration approach proved the existence of long-run equilibrium relations among the four macroeconomic indicators. Empirical estimations, using panel data techniques, as well as heterogeneous regression for each individual country in the panel, show non-conclusive evidence for the environmental Kuznets curve (EKC) hypothesis. The least square estimates, with the variables in log per capita form, reveal that the inverted U-shaped EKC hypothesis is verified for the panel and for 17 of the 28 EU countries. Estimates of the cubic model show that the environmental curve has an inverted N-shaped form. These results do not hold when the values are in non-logarithmic form. In addition, the estimations for all models show that an increase of gross energy consumption leads to an increase of GHGs, while an increase of renewable energy consumption leads to a reduction in GHG emissions.

Budget deficits, investment and economic growth: a panel cointegration approach

This paper discusses the political economy of budget deficits among the BRICS nations between 1997 and 2016 using a panel cointegration approach to determine the long-run relationship between economic growth, budget deficits, inflation and gross investment. The results of the study show a long-run equilibrium association among economic growth and the selected variables. Furthermore, there is a positive relationship between budget deficit, inflation, and economic growth, for the period under study for BRICS countries. Lastly, the results support the view that there is bi-directional linkage from budget deficit to economic growth and vice versa.

The heterogeneous impact of taxation on economic development: New insights from a panel cointegration approach

In this paper, we study the role of taxation on long-run income performance. In the theoretical part of the study, we develop a stylized model based on Barro (1990), in which income taxation has two contradictory roles in the standard Solow (1956) setup: on the one hand, taxation appropriates resources that would otherwise be used for physical capital accumulation, and on the other, it is the source of government spending, which is used to support private production. In the empirical part of the study, the impact of consumption tax, personal income tax, corporate profit tax and property tax on income is estimated using the common correlated effects (CCE) panel cointegration approach, which allows for cross-sectional dependencies and provides both panel- and country-specific results. The panel findings for 30 OECD countries for the period of 1995–2016 indicate that only consumption tax has a statistically significant negative effect on long-run income. However, because the type and sign of the tax coefficients are heterogeneous for the country-specific results, we conclude that taxation has heterogeneous effects on income.

The Resource Curse Hypothesis: Dynamic Heterogeneous Approach

ABSTRACTNatural resources influence economic performance through many different mechanisms, both beneficial and harmful. Some of these mechanisms tend to set in fast while others are rather slow. This suggests that pooling the long- and short-run effect as typical in the resource empirical literature may lead to incorrect inferences. This article provides an evaluation of the income contribution of natural resources using a panel cointegration approach that allows for short-run dynamic heterogeneity while imposing the restriction of long-run homogeneity. It finds, in a sample of developing countries over the period 1990–2012, that natural resources are a curse in the long run. The evidence is robust to alternative dynamic specifications, different measures and types of natural resource wealth, and controlling for regional effects.

Towards an East German wage curve - NUTS boundaries, labour market regions and unemployment spillovers

The relevance of spatial effects in the wage curve can be rationalized by the model of monopsonistic competition in regional labour markets. However, distortions in extracting the regional unemployment effects arise for administrative boundaries at the district level as they fail to adequately capture spatial processes. In addition, the nonstationarity of wages and unemployment is often ignored. Both issues are particularly important in high unemployment regimes like East Germany where a wage curve is difficult to establish. In this paper, labour market regions defined by economic criteria are used to examine the existence of an East German wage curve. Due to the nonstationarity of spatial data, a global panel cointegration approach is adopted. By specifying a spatial error correction model (SpECM), equilibrium adjustments are investigated in time and space. The analysis gives evidence on a locally but not a spatially cointegrated wage curve for East Germany.

Reassessing forest products demand functions in Europe using a panel cointegration approach

ABSTRACTIn a panel of European countries, we analyse paper products, sawnwood and wood panels consumption data. With this object, we use a classical demand model where national consumption depends on real GDP and real prices. In contrast to previous panel estimations in the literature, we highlight non-stationarity time series which can lead to spurious regressions. We explicitly take into account the issue by using recent panel cointegration techniques. Cointegration is present for printing paper and fibreboard, though less clear cut for other products. Then we estimate demand elasticities and find that GDP elasticities are significantly lower than estimates from the literature. Finally, we simulate the implications of modified demand elasticities by using a partial equilibrium model of the forest sector. For most products, changes in elasticities would lead to lower projected demand and lower prices over a 20-year time horizon. Lower demand for solid wood and wood fibre would lead to less tensions with fuel wood- and wood-based chemical markets. In a context of rising interest for renewable bio-based products, updated long-term demand models contribute to the analysis of the forest sector’s sustainability.

Financial sector development and income inequality in ASEAN-5 countries: does financial Kuznets curve exists?

This study investigates the influence of financial sector development on income inequality in ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand between 1989 and 2013. We have constructed the financial development index for the selected ASEAN countries by applying the principle component method for the major four proxies of financial development available in literature, namely; domestic credit by the banking sector, domestic credit to the private sector, money supply and stock market capitalisation. Pedroni panel cointegration and Kao residual panel cointegration approaches confirm the valid long run relationship between considered variables. Results of fixed-effect model indicate that the different proxies of financial development have a positive and significant impact on income inequality in ASEAN-5 countries, while the squared term of financial development proxies have a negative and significant impact on income inequality. These findings confirm the presence of financial Kuznets hypothesis in ASEAN-5 countries during the period under the study.

Financial sector development and income inequality in ASEAN-5 countries: does financial Kuznets curve exists?

This study investigates the influence of financial sector development on income inequality in ASEAN-5 countries, namely Indonesia, Malaysia, the Philippines, Singapore and Thailand between 1989 and 2013. We have constructed the financial development index for the selected ASEAN countries by applying the principle component method for the major four proxies of financial development available in literature, namely; domestic credit by the banking sector, domestic credit to the private sector, money supply and stock market capitalisation. Pedroni panel cointegration and Kao residual panel cointegration approaches confirm the valid long run relationship between considered variables. Results of fixed-effect model indicate that the different proxies of financial development have a positive and significant impact on income inequality in ASEAN-5 countries, while the squared term of financial development proxies have a negative and significant impact on income inequality. These findings confirm the presence of financial Kuznets hypothesis in ASEAN-5 countries during the period under the study.

Education Enrollment Level and Income Inequality: A Case of SAARC Economies

This study is based on the idea that education forms a quadratic relationship with the income inequality. To evaluate it for South Asian Association for Regional Cooperation (SAARC) countries, this study uses the panel data from 1990 to 2015. Long run panel data necessitated the use of panel co-integration approach, followed up with fully modified OLS model to generate long-run coefficients. The results depict that initially primary and secondary enrollment increases inequality while tertiary enrollment decreases it. However, after a certain threshold level of enrollment (76% for primary, 42% for secondary and 7% for tertiary), their effect reverses. Thus, it makes inverted U shape for primary and secondary enrollment and U shape for tertiary enrollment. Hence education shows diminishing marginal return effect. Only the countries of India, Sri Lanka, Maldives and Nepal in SAARC economies have high enough education enrollments to cause a negative effect on income inequality.

Empirical analysis of price relations along the Finnish supply chain of selected meat, dairy, and egg products: A dynamic panel data approach

AbstractThis study uses a panel cointegration and Error Correction Vector Autoregressive (EC‐VAR) approach to examine the long‐ and short‐run dynamics as well as the direction of causality between agricultural product prices, producer prices and consumer prices along the Finnish meat (i.e., beef, pork, and poultry), dairy (i.e., fresh milk, other milk products, cheese, and yoghurt) and egg supply chains for the period of 2005:01–2014:12. This study also examines the “cost‐push” and “demand‐pull” theories. The results indicate the presence of cointegration among the three price series for each of the eight food chains. The “demand‐pull” factors are found to have a stronger impact along the food supply chain than the “supply‐push” factors. The short‐run causality results show bidirectional causal relations among the three prices, whereas the long‐run causality findings support the assertion that consumer prices dominate the other two prices, implying an attempt by retailers to exert control over the pricing mechanisms along the Finnish food supply chain. The impulse response functions show that the agricultural product prices experience higher and more prolonged fluctuations around the long‐run equilibrium than the other two prices. [EconLit citations: Q11, C32, C33].