Panel GMM Research Articles

THE ROLE OF INSTITUTIONAL QUALITY IN THE RELATIONSHIP BETWEEN FDI AND ECONOMIC GROWTH IN VIETNAM: EMPIRICAL EVIDENCE FROM PROVINCIAL DATA

All investigations into the role of institutions in the relationship between foreign direct investment (FDI) and economic growth conclude the impact of interaction between FDI and institutional quality on economic growth is significantly positive. Contrary to the conclusion of these studies, this paper finds it is significantly negative for a panel data of 43 provinces in Vietnam over the period 2005–2012 via the estimation method of difference panel GMM Arellano–Bond. In addition, the estimated results also show: (1) FDI inflows significantly foster economic growth; (2) Good institutional quality has a significantly positive impact while bad institutional quality has a negative albeit insignificant effect on economic growth. From the policy perspective, these findings signal an important message to developing countries that governments should carefully adjust policies and institutions because aside from attracting more FDI inflows and promoting the economic activities, it can also be detrimental to economic growth.

Labour quality and benefits reaped from global economic integration: An application of dynamic panel SGMM estimators

This paper investigates the effects of educational levels – as a proxy for labour quality – on benefits reaped from economic integration by applying Arellano–Bond dynamic panel GMM estimators to panel data on 91 countries from 1970 to 2015. The results illustrate that labour quality plays a crucial role, enhancing the rate of labour productivity and exports. Importantly, labour quality also influences the impact of openness variables on benefits gained from integration. In particular, labour quality depresses the effects of trade openness on the rate of labour productivity that follow from convergence effects until trade openness is sufficiently high. However, the effects of labour quality on productivity growth do not depend on levels of financial openness. Furthermore, countries with high levels of trade openness gain fewer benefits from economic integration than those with low levels of openness. Our findings also provide evidence that rejects the hypothesis that high levels of labour quality accelerate the impact of trade openness on the rate of export; we found that the effect of labour quality on the rate of export does not depend on levels of trade openness. By contrast, labour quality significantly depresses the level of financial openness at all levels of openness. Therefore, policy-makers should focus on the linkages between labour quality and productivity and export performance in seeking to secure greater gains from economic integration.

Sovereign Sustainability and Economic Growth: The International Evidence

This study documents a significant and positive impact of country-level ESG improvement on economic growth using a comprehensive sample across 109 countries. The economic benefits of country-level ESG improvement are robust after alleviating endogeneity concerns using instrumental variable regression, dynamic panel GMM approach and placebo tests. Further, according to the subsample analyses, we find that the positive influence of country-level ESG improvement on economic growth is more pronounced in countries with a stronger incentive to improve ESG performance, and more powerful CSR responsive and law enforcement. Our findings provide policy implications for promoting sustainable economic growth.

Natural resources governance and tax revenue mobilization in sub saharan Africa: The role of EITI

The resource curse literature suggests that windfall revenues from the exploitation of natural resources have a negative impact on non-resource tax revenues. Consequently, improving governance and transparency in the management of natural resource revenues is considered critical in mitigating the negative outcomes that typify resource-rich countries. This paper investigates whether EITI membership helps countries to offset the negative impact of natural resource dependence on tax revenues in a panel of 31 Sub Saharan African countries with significant natural resource endowments. Using panel fixed effects and dynamic panel GMM econometric methods, results confirm the existence of a negative relationship between revenues from natural resource sectors and tax revenues. Membership to the EITI has had a weak positive effect on non-oil revenue mobilization and only partially offsets the negative impact of natural resources dependence on non-resource tax revenues. These results suggest that while the EITI has had some positive contributions, it is not a panacea for eliminating the tax revenue curse in natural resource rich African countries.

The influence of heterogeneous environmental regulation on the green development of the mining industry: empirical analysis based on the system GMM and dynamic panel data model

The intensity of environmental regulation (ERI) affects the short-term effect of the level of green mining (GML), and which structure determines the long-term mechanism. Based on the panel data fro...

Does competitiveness moderate inclusive growth: a panel study of low-income countries

PurposeIn the past few years, the concept of competitiveness developed by the World Economic Forum has become the focal point. Global competitiveness index (GCI) presents the constructs which are possible means of productivity of the country. The purpose of this study is to explore whether boosting the productivity of agriculture, services and industry sector is the possible channel of competitiveness leading to growth.Design/methodology/approachFor this, panel GMM moderator model has been used for 16 low-income countries.FindingsThe results indicate that competitiveness helps agriculture and industry sector to become more growth productive, while it reduces the productivity of services sector.Originality/valueThis study urges that the gains from following the competition promotion policies overweigh the costs. Hence, low-income countries can break the low productivity trap.

Ownership Structure, Size and Interest Income Substitution by Banks: An Exploratory Study in Indian Context

This study explored that how emerging economy banks are rebalancing their interest income and non-interest income to ensure stability. We set our study in Indian during the period 2015 to 2017. Interetsingly, we observe that time series correlation of Interest Income growth and Non-interest income growth for public sector banks as well as private banks is on the negative side. By applying panel VAR and GMM methodology, it has been found that when bank interest income falls, they try to increase their non-interest income to offset their losses to a certain extent and trend is increasing. Public sector banks are overall substituting non-interest income for a reduction in the margin, and there is an increasing trend for this substitution. When comparison of large and small banks is made, it has been found that change in non-interest income in the subsequent year due to change in interest income in the previous year is there for large banks, whereas no such significant change has been found in case of small banks.

Innovation Persistence and Employment Dynamics

This paper examines the effect of persistence in product and process innovations on the employment dynamics of a representative sample of Spanish manufacturing firms observed over more than 20 years. We build on a conceptual framework that links innovation persistence, employment growth and the persistence of this growth in the long-run. Using dynamic panel GMM and survival analysis techniques, we find that persistence in product innovation affects both employment growth and the sustainability of job creation over time significantly, whilst persistence in process innovation does not play any relevant role. The evidence we provide supports the notion that product innovation is more effective in spurring sustained employment growth when carried out systematically.

Estimating the Railways Kuznets Curve for high income nations—A GMM approach for three pollution indicators

Railways transportation is still taken as an account of economic growth without considering the cost of environmental damages. Therefore, it is an urgent need at the national and global level to take into account the sustainability of environment by key sector. So this analysis has contributed in unveiling the striking facts and figures for environment with regard to railways transportation sector. The aim of this study is to investigate the “Railways Kuznets Curve” in context of three key pollution emissions Carbondioxide emission, Nitrous oxide emissions and Methane emissions for 37 High income nations during 1990 to 2017. The econometric results of Panel GMM shows that there exists “U shaped” Railways Kuznets curve for carbondioxide and methane emissions indicating increased level of pollution. While nitrous oxide emissions exhibit the “inverted U shaped curve” validating the Railways Kuznets curve. The Pairwise Dumitrescu Hurlin Panel Causality shows a bidirectional relation of nitrous and methane emissions and uni-directional association of CO2 emissions to railways transportation. The Impulse Response function and Variance decomposition indicates a diverging drift of CO2 and CH4 emissions while converging trend of N2O emissions to railways transport sector. The diagnostic test of ARCH-effect and serial correlation shows the homoscedasticity and no autocorrelation along with CUSUM test that shows stability of all the three models. On the basis of econometric results, this analysis suggests that developed nations should focus on exploiting renewable energy resources along with adopting fuel-saving traveler and freight technologies including hybrid switch trains and hydrogen-powered steam engines that thorough cuts the diesel fuel.

Comparative Advantage, Endowment Structure and Trade Imbalances - Theory and Evidence

This paper constructs a theoretical model to illustrate the inherent dynamics between the trade imbalance and the comparative advantage of factor endowment structure under a two-country setting (South vs North). Our model shows that the shift of comparative advantage of factor endowment structure from labor-intensiveness to capital-intensiveness in Southern country would lead to the shrinkage in trade imbalances for the Northern country. We further argue that the increase in the wage level in the Southern country would also lead to the increase in its trade imbalance .Our paper provides a first theoretical look to how the trade imbalance between two trading partners could be affected by the dynamics of comparative advantage of factor endowment structure of respective trading economies. We employ the panel GMM consisted of 157 selected developing countries to test our theory. It is found that the empirical evidences presented in the end are broadly consistent with the theories proposed in this paper.

The environmental impacts of financial development in OECD countries: a panel GMM approach.

Financial development is often expressed as a private sector initiative earmarked towards motivating economic growth and mitigating poverty. Nonetheless, the need for economic development accompanied by high industrialisation and commercialisation strategies has generated natural environmental effects which have raised enormous concern to green interest groups about whether all the seventeen sustainable development goals will be achieved. This paper investigated the environmental effects of financial development in OECD countries from 2001 to 2012 by employing static models and system GMM analysis. The study utilised foreign direct investments, domestic credit to private sector by banks and domestic credit to private sector as the three proxies of financial development. The effects of these measures of financial development were examined on carbon emissions and greenhouse gases (indicators of environmental quality) and environmental sustainability. In this setting, the findings of the research spotlight that domestic credit to private sector by banks shows a negative and significant relationship with carbon emissions, greenhouse gases and sustainability. Conversely, domestic credit to private sector and economic growth indicates a positive and statistically significant relationship with carbon emissions, greenhouse gases and sustainability. Foreign direct investment is positive and significantly connected with carbon emissions and sustainability but only shows a positive and not significant link with greenhouse gases. The evidence suggested by this analysis adds that the financial system should continue to add more initiatives which consider natural environmental perspectives in their current operations. This present study also confirms the existence of the environmental Kuznets curve (EKC) in carbon emissions (turning point, $109,820), total greenhouse gases (turning point, $74,280) and sustainability (turning point, $112,505). The finding that the turning point of carbon emissions is higher than that of total greenhouse gases indicates why introducing initiatives designed to curb growth of carbon emissions in the respective OECD economies is important.

Military expenditure and economic growth: evidence from a heterogeneous panel of African countries

This study investigates the causal relationship between military expenditure and economic growth by using a balanced panel of 35 African countries spanning 1990 to 2015. It uses the more recently developed bivariate heterogeneous panel causality, GMM and SGMM estimation techniques. The country-by-country causality results reveal:(i) no causal relationship between military expenditure and growth in seven countries; (ii) unidirectional causality from military expenditure to growth in two countries; (iii) unidirectional relationship from growth to military expenditure in fourteen countries; and (iv) bidirectional relationship in twelve countries. These findings imply: (i) that the seven African countries with no causality can pursue defence policy objectives independently from growth policy objectives; (ii) in the fourteen countries, the fact that growth causes military expenditure and not vice versa implies that, defence decisions are not made in a way as to relatively promote growth; (iii) two African countries effectively use military expenditure for growth aims, hence military expenditure causes growth; and (iv) the bidirectional causality in the 12 countries implies that both growth and defence policy objectives can be pursued together. The GMMs results show that military expenditure has a significant negative impact on growth in Africa.

Examining bank-specific determinants of the dividend payout ratio of Sub-Saharan Africa banks: the panel GMM approach

Dividend payout policy of banks has been the commonest dividend policy in commercial banks world-wide owing to the assumption that it will minimise agency costs in the banks. Hence, this study adopts the dynamic panel two-step system and differenced GMM in analysing the data of 250 commercial banks from 30 countries in Sub-Saharan Africa (SSA) for the period 2006 to 2015 to examine the determinants of the dividend payout ratio of these banks. The empirical results reveal that past year dividend is the most significant determinant of current year dividend. Taxation and capital adequacy ratio, which are the legal and regulatory factors considered, are found to be insignificant. Our findings reveal earnings-after-tax and leverage as being significant determinants of payout ratio in SSA banks. Hence, Lintner's model holds in SSA banks as a region and it is, therefore, recommended that it must be strictly followed in setting the dividend process of commercial banks in SSA.

To what extent the global financial crisis deteriorated loan quality of US commercial banks

This paper aims to study the extent to which the global financial crisis worsened the loan quality of US commercial banks. That is, we specify the factors behind non-performing loans with a focus on the effect of the crisis as an additional determinant. Thus, we use dynamic panel GMM estimation on three size groups of 184 US commercial banks over 2000-2013 period. Our findings show that bad loans in the three sub-samples are differently affected by the bank-specific and macroeconomic variables. Moreover, our results indicate that the crisis factor has a positive and statistically significant effect on non-performing loans of US banks with small ones being mostly influenced. This finding can be clarified by the policies of financial intervention that favoured larger banks so as to save the US financial system. Also, the diversification of large banks enables them to overcome the contagious crisis effect.

The Risk-Taking Channel and Monetary Transmission Mechanisms in China

This study is one of very few studies which have investigated if the risk-taking channels of monetary policy exist in China and which transmission mechanisms are more significant than others. This study uses a new estimation methodology, dynamic panel GMM estimation, to effectively reduce the endogeneity problem. Using data from forty-seven commercial banks in China during the period of 2006-2016, we find that the risk-taking channel of monetary policy exists in China for various monetary policy instruments, such as statuary reserve ratio, prime lending rate and the growth rate of broad money supply. China?s monetary policy influences bank?s risk-taking through the valuation effect, searching for yield effect, and competition effect, but not insurance effect. Monetary authorities in China should encourage moderate competition in the banking industry, while commercial banks in China should improve their risk management and innovate their business to lower the impact of monetary policy on bank?s risk-taking.

Institutional Quality and the Public Investment-Growth Relationship in Vietnam

Questions concerning the relationship between public capital spending and economic growth under different institutional environments are of great analytical and empirical interest. This paper investigates the role of institutional quality in the public investment-growth relationship for a balanced panel data of 52 provinces in Vietnam during the period 2005-2014 through the estimation method of difference panel GMM Arellano-Bond. The results show twofold. First, public investment and institutional quality significantly promote economic growth, but their interaction term impedes it. Second, the public investment-growth relationship is positive under good institutional environment and negative under poor one. These findings suggest some important policy implications related to public capital spending in developing countries.

Rail, Rivers, Road or Air: Which Infrastructure Promotes Growth in China?

We examine the relationship between growth in transportation and economic output across Chinese provinces from 2005-2014. Panel GMM methods evaluate the impact of changes in air, conventional rail, HSR, roads, and waterways turnover volume on provincial output growth. GMM estimates demonstrate that rail and roads significantly affect economic growth; rail’s impact is particularly significant and robust across econometric specifications, different regions in China and the coefficients are economically large for agriculture and manufacturing output. Out-of-sample GMM forecasts show that road and rail substantially reduce forecast error of provincial GDP growth. In contrast, air, HSR, and water usage do not contribute to economic growth. Impulse response and variance decompositions indicate that rail and roads considerably affect GDP growth across China, and there is bi-causality between transportation and economic growth. Cost-benefit analysis highlights that the benefit of roads, and particularly rail, outweigh the costs of infrastructure spending.

Comparing the Impact of Brand Value on Corporate Profit in B2B and B2C Businesses: A Case Study

In recent years, the importance of branding has dramatically increased on the ground that brands have the potential to be a source of long-term competitive advantages for any businesses. Although it seems that brand value, theoretically, has a significant impact on corporate profits, evaluating the brand value's influence level on corporate profits can give clear signals to both managers and investors to adopt the most accurate and probable decisions. Furthermore, another significant concern of this study is whether considering different types of business matters in such analyses. As a case study, this paper investigates the impact of brand value on corporate profit in two significant industries that operate in the Tehran Stock Exchange, i.e., petrochemical and banking industries which stand for B2B and B2C businesses respectively. To do so, the monthly data from June 2008 to June 2018 in a Panel GMM framework is applied. The results show that the effect of brand value on the profit of both the banking and petrochemical industries are positive and significant. These results also confirm that the effect of brand value on profitability in the B2C businesses (banking industry) is significantly higher, almost double, compared to the B2B (petrochemical industries) business group.

The impact of R&D and knowledge spillovers on the economic growth of Russian regions

AbstractRussia presents an interesting case of a country which has strived to implement innovation policies since the transition period but so far has achieved mixed results. This study aims to analyze the impact of knowledge production and knowledge spillovers on regional growth in Russia within a framework of endogenous growth models. Applying GMM and spatial error panel modeling techniques to Rosstat data for 80 Russian regions from 2005 to 2013, the authors test the hypothesis about the relevance of R&D and expenditure on technological innovations (H1) and the hypothesis about the relevance of knowledge spillovers (H2) on the growth rates of GRP per capita. Hypothesis 1 was confirmed while Hypothesis 2 was rejected, indicating the absorptive capacities of innovatively lagging regions were not high enough for effective adaptation of new technologies from technologically innovative regions. Inclusion of indicators related to additional channels of knowledge diffusion in regressions resulted in the relevance of FDI and imports of goods and services for regional growth. Results of the study could form the basis for developing innovation policies for the Russian regions.

Home Sales Pair Counts: The Organic Metric for Trading Volume in Housing Markets

AbstractHome sales pair counts are proposed as the organic metric for trading volume in housing markets. Aside from seasonality and temporal aggregation, as opposed to price appreciation, pair count growth is serially uncorrelated. A nonlinear dynamic GMM panel relating home price appreciation to adjusted count growth is estimated for respectively 5 condominium and 10 single‐family home S&P/Case–Shiller indices. While both condominium and single‐family home indices display a positive long‐run response to shocks in trading volume, the latter is economically and statistically more pronounced. Overall, the empirical findings are consistent with the observation that housing markets are primarily quantity clearing markets.