Pooled Ordinary Least Squares Research Articles

Impact of democracy on literacy rate

This study investigates the impact of democracy indices on the literacy rate. Panel Data of 134 Countries from 2007-2018 were collected from the website the World Bank and Gapminder. This study uses Ordinary Least Square (OLS), Pooled Ordinary Least Square (POLS), Driscoll-Kraay (DK), Second Stage Least Square (2SLS), Generalized Methods of Moments (GMM) methods. This research has found that political participation index and political culture index has a significant positive relationship with literacy rate in all the method. The functioning of the government index has a significant positive relationship and electoral process and the pluralism index has a significant negative relationship with literacy rate in all the methods except the GMM method. The civil liberties index has a significant negative relationship with literacy rate in POLS and in the other models, there is no significant relationship between the civil liberties index and literacy rate.

Global FDI Inflow and Its Implication across Economic Income Groups

Foreign direct investment (FDI) as a driver of growth is important in today’s globalized economy. It is extremely difficult for economies to grow sustainably without economic interactions outside their borders. However, there has been a debate on the impact of FDI inflow on economic expansion. Hence, this study investigated the influence of FDI on economic growth for a selection of 200 economies around the world for the period 1990–2018. We subdivided the sample into World Bank income group clusters to aid comparison across income blocs. The study employed panel estimation techniques including pooled ordinary least squares (POLS), dynamic panel estimation with fixed-effects and random-effects and generalized method of moments (GMM). The study found that FDI, debt stock and official development assistance are promoters of growth in the selected countries—although debt stock weakly impacts economic growth. In contrast, trade openness and exchange rates had a mixed (negative and positive) influence on economic growth. The study suggests that the creation of a conducive business environment and economic policies will attract FDI inflows. Additionally, borrowing from external sources could be minimized despite its perceived positive influence on growth to achieve financial independence.

Analysis of China’s Importance in “Belt and Road Initiative” Trade Based on a Gravity Model

This study used a gravity model to analyze the importance of China within the “Belt and Road Initiative” (BRI) trade pattern based on different regression methods, including pooled ordinary least squares (POLS), fixed effects (FE), and the Heckman two-step calculation. The results show that from 2000 to 2018, China’s position in the BRI trade pattern constantly rose in both exports and imports. After removing zero trade flow, POLS and FE analyses showed GDP and a common language had more influence on national exports than population or common religion. The Heckman two-step results with zero trade flows are similar to the other regression results, showing that both a country’s economic aggregate of a country and a common language between two countries were important during trade exchanges. China is one of Eurasia’s most attractive trading partners; while China provides more goods for BRI countries to export, it also provides a huge market for other BRI countries’ goods while promoting their economic development. Thus, China plays a very important role in the BRI trade pattern. Its huge export/import growth potential is a key economic foundation for further promoting Eurasia’s economic and trade integration.

Acemoglu Meets Lucas: Institutions, Human Capital and Economic Growth

This paper proposes a reinterpretation of Lucas endogenous growth model (1988), once we add an institutional component as one of its determinants. Firstly, the paper develops a theoretical model that links human capital and institutions. Our modelling strategy establishes the human capital accumulation function as being derived from an endogenous process in which the institutional performance is a booster for the economy’s growth. The essay uses a 40–country panel data of the years 2000, 2005 and 2010 and implements a Pooled Ordinary Least Squares (POLS) analysis – alongside instrumental variables (IV) – aiming to validate empirically the model proposed. We verify that Lucas’ model overestimates the human capital contribution as we evaluate the significant impact that economic and political institutions have on the capability of human capital foment growth. Additionally, our estimations also suggest that human capital is, effectively, institutionally driven and works as a channel for the institutions.

Panel data analysis of employment and unemployment in Sub-Saharan Africa and its impact on annual percentage change in GDP growth

ABSTRACTSub-Sahara Africa has over the years been exposed to diverse arguments and agitations about the provision of employment to alleviate poverty in the sub region with the aim of achieving full employment. Whereas some economists and bibliographers believe of the significant impact that employment and unemployment have on annual percentage change in GDP growth, some do not. The main objective of the study is to access the impact that employment and unemployment have on annual percentage change in GDP growth in Sub-Saharan African countries. World Development Indicator (WDI) data was collected from the World Bank from the year 2000 to 2014 for the purpose of the study. A sample of 12 sub-Saharan African countries were randomly selected using a random number generator and variables taken. Two statistical models were used; the Pooled Ordinary Least Square (OLS) regression model and the Least Square Dummy Variable (LSDV) regression model with fixed effect was used to empirically access impact that employment and unemployment have on annual percentage change in GDP growth. Both the Pooled Ordinary Least Square regression model and the Least Square Dummy Variable regression model tested to be statistically significant but LSDV regression model explained a greater percentage of the variability of the model than the Pooled OLS for employment on GDP growth rate. The pooled OLS regression model was not statistically significant at 5% level of significance in assessing the impact that unemployment has on annual percentage change in GDP growth. Further empirical analysis of the study also revealed a positive relationship between annual percentage change in GDP growth and employment for the female population (Empl15+Female), employment rate for the male population (Empl15+Male) and employment rate for the Total Youth population (Empl15-24 total). Also, an inverse relationship existed between unemployment male youth population (15-24years), and female youth population (15-24years) on annual percentage change in GDP growth. The study can be improved by considering other factors that impact GDP growth other than employment and unemployment.Keywords: Employment, Unemployment, GDP growth rate, Pooled OLS, LSDV

Inequality Within the EU-15 Countries: Have Social Benefits Been Pro-poor, Pro-middle Class or Pro-rich?

This study utilizes static and dynamic panel models in investigating the impact of social benefits on the aggregate level of income inequality as well as on the income shares of different income groups within the EU-15 countries over the period 1995-2015. While the static panel regression models are estimated with Pooled Ordinary Least Squares (POLS) and Least Squares Dummy Variables (LSDV) techniques, the dynamic panel regressions are estimated using dynamic GMM-IV technique. Diagnostic tests indicate that the results from the GMM-IV technique are consistent and the associated instrumental variables are valid; hence this study gives preference to the results from this technique. The results indicate that social benefits generally have a significantly negative impact on the aggregate level of inequality, a positive impact on the income shares of the low and middle income groups, and a negative impact on the income shares of the high income groups. In the long run, the sign and significance of the parameter estimates remain unchanged but their sizes increase considerably. This research considers a variety of theories and finds that there exists much ambiguity in the theoretical literature. Based on its findings, this study recommends that policymakers address rising income inequality by intensifying efforts towards raising social benefits and ensuring that the welfare system is efficiently managed.

How Does Government Spending Affect Labour Force Participation and Unemployment Within the WAMZ Countries?

This study utilizes static and dynamic models in examining the short run and long run impacts of government spending on labour force participation and unemployment within the West African Monetary Zone (WAMZ) over the period 1991-2018. While the static models are estimated using the Pooled Ordinary Least Squares (POLS) technique and the Least Squares Dummy Variables (LSDV) technique, the dynamic models are estimated using the GMM-IV technique. The GMM-IV technique better addresses endogeneity issues relative to the other techniques utilized and also, the parameters obtained from the technique are confirmed to be consistent by the Arellano-Bond test for zero autocorrelation. Accordingly, this technique is given preference in this paper. The results from the technique reveal that government spending increases the labour force participation rate but has an ambiguous impact on unemployment rate. In the long run, the parameter estimates largely remain unchanged in terms of their sign and significance; however, they increase in size. Based on these findings, this paper firstly recommends that policy makers intensify efforts in increasing government spending; as a reduction may impact negatively on the labour force participation rate. Secondly, this paper recommends the formulation and implementation of fiscal policies that are robust enough to reduce the unemployment rate as they increase the labour force participation rate.

Risk and return analysis of listed financial companies in Ghana (a study of Cal Bank, Ecobank GH Ltd, Ghana Commercial Bank ( GCB) and Standard Chartered Bank (SCB))

ABSTRACTGlobally, Investors as well as business men and women are very optimistic about the future and therefore defer current use of resources for use at a later period with a higher expected rate of return. This is not so different in the case of Ghana. The main objective of the study is to analyse the risk and return of listed financial companies in Ghana. A sample of four financial companies listed on the Ghana Stock Exchange (Cal Bank Limited, Ecobank Ghana Limited, GCB Bank Limited and Standard Chartered Bank Ghana Limited) were selected and financial ratio (return on equity, return on asset, current ratio, quick ratio and financial leverage) computed using excel and analyzed using STATA. The study fitted a Pooled Ordinary Least Square (OLS) and Least Square Dummy Variable (LSDV) regression model with fixed effect model since fixed effect was tested to be statistically significant in the model. Empirical analysis of the data revealed that Banks with high risk levels proved to have a higher profitability as compared to the other banks under study. Standard Chartered Bank Ghana Limited and Ecobank Ghana Limited showed the highest levels of profitability, with Standard Chartered Bank Ghana Limited topping the charts in most years. However, on average, Cal Bank Ghana recorded the lowest rates of profitability.Also, a positive relationship existed between profitability (return on equity) and current ratio and financial leverage whilst an inverse relationship between return on equity and quick ratio. Overall model for both the Pooled OLS and the LSDV regression model tested to be statistically significant and a greater percentage (99.99%) of the total variability in return on equity was explained by the independent variables (return on asset, current ratio, quick ratio and financial leverage).Key words: Risk, Return, Pooled OLS regression model, LSDV regression model.

RENEWABLE ENERGY CONSUMPTION, EDUCATION AND ECONOMIC GROWTH IN BRAZIL, RUSSIA, INDIA, CHINA, SOUTH AFRICA

The study investigated two aspects, namely, (1) the impact of renewable energy consumption on economic growth in BRICS (Brazil, Russia, India, China, South Africa) and (2) whether education is a channel through which renewable energy consumption affects economic growth in BRICS. Panel data analysis such as fully modified ordinary least squares (FMOLS), pooled ordinary least squares (POLS) and fixed effects methods were used with data ranging from 1994 to 2015. Both models across all the three estimation techniques show that renewable energy consumption had a significant negative effect on economic growth in support of the findings by Silva et al (2012) and Lee and Jung (2018). What is also clear across all the three panel data analysis methods used is that education reduced the size of the negative effect of renewable energy consumption on economic growth in BRICS. In other words, education is a channel through which renewable energy consumption’s influence on economic growth is enhanced, in support of views by Dunn and Mutti (2004), Ozcicek and Agpak (2017) and Lawrence et al. (1991). The implication of the study is that BRICS countries are therefore urged to invest more in education as that is more likely to enhance the impact of renewable energy consumption on economic growth. Keywords: Renewable Energy Consumption; Education; Growth; BRICS; Panel Data JEL Classifications: Q2, I2, F43, P2 DOI: https://doi.org/10.32479/ijeep.8497

The impact of the Ease Doing Business Indicators on Foreign Direct Investment in the European transition economies

The objective (aim) of this paper is to explore the impact of the Ease of Doing Business Indicators on FDI on transition economies in Europe. Authors have used the dynamic panel methodology, by using three methods: Pooled Ordinary Least Square (POLS), Fixed Effect (FE), and Two Step-System Generalised Method of Moments (GMM) estimation techniques. By referring to the GMM technique, it can be seen that variables such as: Starting a Business, Registering property, Getting electricity and Resolving insolvency have a positive and significant impact in attracting FDI in 16 European transition countries, while variables as: Dealing with construction permits, Getting credit, Paying taxes, Protecting minority investors, have shown negative impact, whereas Trading Across Border and Enforcing contracts have not shown any impact on attracting FDIs in European transition countries. This paper contributes to the enrichment of existing literature in this field by using these three methods.

Effect of Financial Leverage on Firm Value: Evidence From Selected Firms Quoted on the Nigerian Stock Exchange

This study examined the effect of financial leverage on firm value with evidence from a sample of selected companies quoted on the Nigerian Stock Exchange. The study adopts a panel data analysis using secondary data obtained from the financial statements of the selected companies over the period 2014-2018. The sample of 18 firms studied was selected through the convenient sampling technique. The level of financial leverage was denominated by long term debt to equity ratio. This work is the first Nigerian study to utilize the Tobin’s q ratio as a proxy of firm value. Other variables proven in literature to be of importance when considering firm value such as Total Asset, Return on Asset and the Number of years for which the firm has been in operation, were utilized as control variables in presenting the Tobin’s Q model of firm valuation. Data obtained were analyzed by E-VIEWS to determine the extent of the causal and correlational relationships between the dependent variable and the regressors. The study determined the degree of causality using the Pooled Ordinary Least Squares (POLS), Random Effect Panel Data Model(REM) and Fixed Effect Panel Model(FEM) estimation techniques. The correlation coefficients were estimated using the pairwise correlation matrix to determine the extent to which financial leverage can predict firm value In line with the findings of Akani & Kenn-Ndubuisi (2017); the regression results showed that financial leverage has a significantly negative effect on firm value while the result of the pairwise correlation showed that there is no significant linear relationship between leverage and firm value. The Management of these companies were advised to take less long term debts and instead such firms should consider issuing more equity to reduce the level of financial leverage to thereby attain the optimal capital structure. Financial leverage has proven to be a weak predictor of firm value; hence the management should not rely on the levels of financial leverage to predict future firm value. Future studies may consider the use of a larger sample and a random sample selection method which will group the firms based on their level of capitalization into mid, low and high-capitalization companies so which will help to ascertain the average optimal capital structure for each of the three classes. Finally, future studies can consider a longer time span. Keywords : Firm value, Tobin’s q, Financial Leverage, REM JEL Classification: G11; G32; M21 DOI : 10.7176/EJBM/12-3-16 Publication date: January 31 st 2020

Trade Openness, Inflation and GDP Growth: Panel Data Evidence from Nine (9) West Africa Countries

The underlying purpose of this study is to determine the effects of Trade openness and inflation on the GDP growth for nine West-African Countries for the period from 1998 to 2017. The data used in this study are secondary data sources derived from the World Development Indicators (WDI) of the World Bank over the period 1998-2017. This study employed pooled Ordinary Least Squares (OLS), Fixed Effects and Random effects test with panel data in arriving at the results. This study has Trade Openness (OPEN), Inflation (INFLA), Real Exchange Rate (REER) and Investment (INVEST) as independent variables and GDP growth rate as a dependent variable. The results show that inflation has a negative and significant impact on GDP growth in using pooled OLS and Random whiles having an insignificant impact on GDP with the fixed effect test. Trade Openness has a significant negative impact on GDP using the pooled OLS and an insignificant impact using the fixed and Random effects tests. Real Exchange rate showed a positive significant impact in all the tests whiles investment showed an insignificant impact in all the tests.

Loan Loss Provision and Risk-Taking Behavior of Commercial Banks in Pakistan: A Dynamic GMM Approach

The paper analyzes the determinants of the loan loss provision (LLP) of 22 commercial banks in Pakistan from 2010 to 2017. The motive of the research is that LLP is a measure of credit risk as a proxy for bank risk-taking behavior profits and banks’ sustainability. Especially after the occurrence of a global financial crisis. The quantitative research method of data collection from Bureau Van Dijk’s BankFocus portal and the World Bank’s World Development Indicators. Other than considering specific bank variables such as capital adequacy ratio, return on average equity, and government securities, the effects of macroeconomic variable inflation and lending interest rates are explicitly studied. The model of pooled ordinary least squares (POLS), fixed effect (FE), panel corrected standard error (PCSE), and panel data estimation in the form of a general method of moments (GMM) two-step system is used to find the risk-taking behavior of banks in Pakistan. The results obtained by the use of inflation (INF) as an instrumental variable of LLP are highly dependable with a negative impact on loan loss provision. Lending interest rate (LIR) has a positive and significant relationship with LLP and contribute in the study of macroeconomic variables for bank risk-taking, excessive amount of interest rate was not beneficial for banks to earn profits especially during the economic crises. Return on average equity (ROAE) significantly moderates LLP with a negative interaction and helped the bank with profitable operations and save bank from solvency. Capital adequacy ratio (CAR) and government securities (GOV) are insignificant to LLP. The result is robust by measure of endogeneity, and highlights the important role of commercial banks’ sustainability to explain risk-taking behavior in Pakistan with the intention to increase profits after the occurrence of financial crises. The study further contributes to future research on managerial policy and decision making. In summary, the paper on loan loss provision has the capacity to forecast commercial banks’ credit risk for risk-taking in an emerging country.

Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market

This study aims to determine whether a firm’s dividends are influenced by the sector to which it belongs. This paper also examines the explanatory factors for dividends across individual sectors in India. This longitudinal study uses balanced data consisting of companies listed on the National Stock Exchange (NSE) of India for 12 years—from 2006 to 2017. Pooled ordinary least squares (POLSs) and fixed effects panel models are used in our estimation. We find that size, profitability, and interest coverage ratios have a significant positive relation to dividend policy. Furthermore, business risk and debt reveal a significantly negative relation with dividends. The findings on profitability support the free cash flow hypothesis for India. However, we also found that Indian companies prefer to follow a stable dividend policy. As a result of this, even firms with higher growth opportunities and lower cash flows continue to pay dividends. We also find evidence that dividend policies vary significantly across industrial sectors in India. The results of this study can be used by financial managers and policymakers in order to make appropriate dividend decisions. They can also help investors make portfolio selection decisions based on sectoral dividend paying behavior.

Foreign Direct Investment: Is Natural Resources the Rejoin? Evidence from Ghana, Nigeria, and Togo: Fixed Effect Approach

Several scholarships have endeavored to guesstimate the sway of natural resources on foreign direct investment inflows around the globe, but very few have engrossed on relative studies on Ghana, Nigeria, and Togo. The current paper departed from prior lessons and employed a thoughtful charter that clearly investigate the question of whether natural resource endowments is a more relevant factor to explain FDI’s attraction to the countries under study. Two models fixed and random effects were established using pooled ordinary least squares (POLS) model, to estimate the coefficients. We applied a panel and time series data from 1982-2017. Preliminary results were obtained using both the random effect and fixed effect model. After conducting several tests such as Hausman Test and Breusch and Pagan Lagrangian Multiplier Test, the fixed effects model was considered the most appropriate model for the study. The results of the study yielded by both techniques registered natural resources to be significant as a propelled feature for FDI inflows. Additional issues such as GDP per capita, trade openness, political stability, and economic liberalization were also found to be significant in FDI determination.

The Infuence of Macroeconomics Factors and Political Risk on the Sukuk Market Development in Selected GCC Countries: A Panel Data Analysis

In light of the countries' attempt to develop their economies and follow stable macroeconomic policies that stimulate the sukuk markets and the stress placed on the political stability of the countries, investigating the role of political risk and macroeconomic factors is crucial to sustain a country’s Islamic financial development. Therefore, this study used the panel data to examine the influence of the macroeconomic factors and political risk on the sukuk market development in the selected GCC countries, namely Saudi Arabia, United Arab Emirate, Bahrain, Qatar and Kuwait from 2001 to 2016. The model of sukuk market development is extended by incorporating the six specific characteristics of GCC countries. The diagnostic tests affirm that the most preferred model to explain the determinants of sukuk market development is by using the Pooled Ordinary Least Square (POLS) Model. The findings reveal that the banking sector and exchange rates are negative and have significant effects on the sukuk market development. The consideration of the increasing level of trade openness is vital due to its major contribution to enhance the sukuk market development. Interestingly, this study finds a positive significant association between the political risk and the sukuk market development. In order to promote the sukuk market development in the region, it is important to develop strategies for integrating and linking the banking sector and the sukuk market in order to promote the sukuk market by creating a scale economy and the required financial market infrastructure.

Financial development-income inequality nexus in South Eastern European countries: does the relationship vary with the level of inflation?

The study investigated two aspects using panel data analysis methods: 1) the impact of financial development on income inequality; 2) the role of inflation in the financial development-income inequality nexus in the case of South Eastern European countries (Bulgaria, Greece, Croatia, Montenegro, Romania, Serbia, Slovenia). Without interaction term, fixed effects approach shows that financial development increased income inequality whereas pooled ordinary least squares (OLS) indicates that income inequality was narrowed down by financial development. Using fixed effects, the interaction term between inflation and financial development reduced income inequality. Employing pooled OLS approach, the interaction term between inflation and financial development increased income inequality. The study therefore urges South Eastern European countries to implement policies targeted at reducing inflation in order to enhance financial development's ability to reduce income inequality. South Eastern European countries should also implement policies aimed at deepening their financial markets in order to reduce income inequality.

Does Endogeneity in Causal Relationships Matter: A Case of Board Independence and Firm’s Market Valuation

The credibility and rectitude of monitoring effectiveness of non-executive (outside) directors has been highly discussed in the past academia. In this light, the present research involves the testing of endogeneity in the relationship between board independence and firm performance as proxied by firm market valuation. It has utilized the multimethodological approach on the data set of top corporates listed in Indian context. Notably, the application of pooled ordinary least squares (OLS) (static as well as dynamic), fixed effects regression, and system generalized method of moments (GMM) approach under dynamic modeling methodologies has demonstrated varying effects, which in turn, too provide manifestation of the predilection for dynamic system GMM, dynamic pooled OLS, and fixed effects over static pooled OLS. Findings of the research have ultimately concluded insignificant relationship between board independence and firm value. This effect remained robust even after controlling for the effect of board size. The implications of the insignificant board independence–firm value relationship have also been discussed and, thereby, offer useful directions to the regulators and policymakers.

Export and Economic Growth Nexus in the GCC Countries: A panel Data Approach

<p><span style="font-size: medium;">The export and economic growth nexus, which is called Balassa’s Export-Led Growth Hypothesis (ELGH) </span><span style="font-size: medium;">in the literature, is still an unstill issue in both the theoretical and empirical literature. In the present study, the effect of export on economic growth in</span><span style="font-size: medium;"> </span><span style="font-size: medium;">oil exporting developing countries, namely, Bahrain, Saudi Arabia, Qatar,</span><span style="font-size: medium;"> </span><span style="font-size: medium;">Kuwait, UAE, and Oman in the 1990–2014 period was tested based on three models, pooled ordinary least squares (POLS), fixed effects model (FEM), and random effects model (REM)</span><span style="font-size: medium;"> </span><span style="font-size: medium;">via panel data analysis . The findings revealed strong support for the “export-led growth” hypothesis. In addition, our results show that apart from growth in the labor force, investments in capital formation are necessary for economic growth. According to the obtained results, the ability to adopt technological changes in order to increase efficiency, and sustain economic development is also important.</span><span style="font-size: medium;"> </span></p>

Investor relations and information asymmetry

ABSTRACT Companies invest significant volumes of resources in investor relations (IR) departments. The professionals working in the IR department are responsible for communication between the company and the market, so that the information generated is widely disseminated and understood by investors. In this context, this research aims to investigate whether there is evidence that the IR activity decreases information asymmetry between the company and the market. Specifically, we evaluate the hypothesis that Brazilian companies with IR websites classified as more informative have a reduced bid-ask spread (proxy for asymmetry). Therefore, this paper classifies the informative content from IR websites of Brazilian companies for the years 2013 and 2014 and relates the outcomes obtained with information asymmetry metrics. Initially, the estimation considers the pooled ordinary least squares (POLS) model and, at a second moment, in order to mitigate potential endogeneity problems, the pooled two-stage least squares (2SLS) model is used. The results indicate that more informative IR websites are able to decrease the bid-ask spread of Brazilian listed companies. This finding strongly encourages companies to provide information to stakeholders on well-structured IR websites of their own.