Positive Long-run Effect Research Articles

Which is Better: Value Strategy or Growth Strategy?

Purpose: On the backdrop of the recent value versus growth debate in both academics and investment community, this paper investigates which is a better strategy, value or growth strategy. Design/methodology/approach: Reworking the Euler equation, this paper derives the relationship among return, profit growth, and risk. We use three different risk metrics proposed by Park and Fang (2021). We regress the value minus growth return on profit growth and risk variables to determine which is the primary driver of the return in the Korean stock market. The data run from 2000 through 2021. Findings: Our data show that the accumulated return on value minus growth stocks steadily increases over 2000- 2012 in Korea, indicating that value stocks outperform growth stocks over the long horizon. Our regression results show that the time-varying risk effect reverts from negativity contemporaneously to positivity with a time lag, and its temporal effect is negligible when aggregated in time. There exists a positive long-run risk effect on the value minus growth return. However, the effect of profit growth on return is not significant, indicating that growth firms’ profit prospect is not a factor in the determination of value minus growth return. Research limitations/implications: In the past, stock market uncertainty (risk) have been most caused by either financial system failures or technological innovations. Whether value stocks outperform growth stocks or vice versa may crucially depends on the causes of stock market uncertainty. We need to refine our model to account for the differences in the causes of stock market uncertainty. Originality/value: Our model is a first attempt to combine profit growth and risk in a unifying framework to explain the value and growth spread in the stock market. The conditional CAPM is a risk-based approach in which profit growth is not accounted for.

Does stock market performance have a long effect on economic growth: Evidence from MENA

Financial market has a close relationship with economic growth because increasing economic growth, representing the real gross domestic product (GDP), will enhance the efficiency and develop the stock market. On the other hand, the good performance of the stock market will affect economic growth positively. This paper aims to investigate the impact of stock market performance on the economic growth of a group of MENA countries during the time period 2000–2019. This study uses unbalanced panel data, unit root test, co-integration test, and autoregressive distributed lag (ARDL) model for data analysis (Kao, 1999; Pesaran, Shin, & Smith, 2001). The findings report that the stock market index, banking sector development, the ratio of foreign direct investment (FDI) to the GDP, and the consumer price index, as a proxy of inflation, have a significant positive long-run effect on the economic growth, while the ratio of broad money supply (M2) to the GDP has a significant negative long-run effect on the economic growth. The policymakers and government can based on the results of the study in developing and adopting policies to improve and enhance the efficiency of the stock market and attracting new investors inside and outside the country, which results in increasing the economic growth.

Remittances, unemployment, growth and development: a panel cointegration approach

ABSTRACT This paper analyses the short-run and long-run dynamics of the relationship between remittances, unemployment, economic growth and human development in developing countries. Vector Autoregressive Model methodology (VECM) was used to examine the short-run dynamics and direction of causality in three separate panels of 23 low-income, 42 lower middle-income and 48 upper middle-income countries for the 1990 and 2019 period. For the estimation of long-run elasticities of remittance flows, Fully Modified (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimation techniques were used. According to the findings of this study, in low-income economies, the direction of causality is from GDP to remittances in the short run. The unemployment rate has a positive long-run effect on HDI in low-income countries, indicating the importance of underutilized labour force in low-income countries. Although remittances affect human development more in low-income economies compared to other developing countries, unemployment in the country of origin has no significant relationship between remittances and development in low-income countries.

Displacement, Diversity, and Mobility: Career Impacts of Japanese American Internment

In 1942 more than 110,000 persons of Japanese origin living on the U.S. West Coast were forcibly sent away to ten internment camps for one to three years. This paper studies how internees’ careers were affected in the long run. Combining Census data, camp records, and survey data, I develop a predictor of a person’s internment status based on Census observables. Using a difference-in-differences framework, I find that internment had long-run positive effects on earnings. The evidence is consistent with mechanisms related to increased mobility due to re-optimization of occupation and location choices, possibly facilitated by camps’ high economic diversity.

An Empirical Note on the Long-Run Effects of Public and Private R&D on TFP

Several studies have examined the long-run effects of public and private R&D on TFP with mixed results. A common feature of these studies is that they measure public and private R&D activity using perpetual inventory stocks of public and private R&D capital, constructed under the assumption that the prices of GDP, public R&D, and private R&D move identically. This note argues that the results of these studies may be biased if the assumption of identical price movements is violated. The purpose and main contribution of this note is to estimate the long-run elasticities of TFP with respect to public and private R&D using both the stock of public/private R&D capital and an alternative measure of public/private R&D activity: the number of public/private sector researchers. In addition, this study contributes to the literature by developing a simple theoretical model that formalizes the intuition of how public and private R&D affect TFP, and by using both traditional and more recent panel methods. Contrary to previous studies, it is found—using numbers of researchers in the public and private sector—that there is strong evidence both of a significant positive long-run effect of both public and private R&D on TFP and of a greater effect of public R&D than private R&D. Consistent with the mixed evidence reported in the literature, it is also found that the use of public and private R&D stocks yields mixed results regarding the long-run effects of public and private R&D on TFP.

TECHNOLOGY TRANSFER AND MANUFACTURING PERFORMANCE: NIGERIA’S COINTEGRATION AND CAUSAL EVIDENCE

This paper investigates the long-run and causal relationships of technology spillovers on manufacturing performance in Nigeria using the share of Foreign Direct Investment (FDI) in gross fixed capital formation as a proxy for technology transfer for the period 1981 to 2019 in a Vector Error Correction Model (VECM). The FDI stock appears to be too low at less than 1% of capital formation to generate any significant positive spillovers on manufacturing performance, resulting in an insignificant negative long-run relationship and the absence of causal relationships. The size of the local market has the most significant positive long-run effect on manufacturing performance, and the causality for this effect is one-way from manufacturing. A one-way causality was also observed from manufacturing to income per capital, though the long-run effect was significantly negative. The paper concluded that FDI technology spillover is presently not a major factor in Nigeria’s manufacturing performance. This may be redressed with policies aimed at increasing FDI inflows, increasing the technology-learning capacity of local firms and their vertical integration with foreign firms, and the creation of national infrastructure for technology development and diffusion

Policy and Business Cycle Shocks: A Structural Factor Model Representation of the US Economy

We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and five. Focusing on the four-shock specification, we identify, using sign restrictions, two policy shocks, monetary and fiscal, and two non-policy shocks, demand and supply. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluctuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Monetary and fiscal policy shocks have sizable effects on output and prices, with no evidence of crowding-out of private aggregate demand components; both monetary and fiscal authorities implement important systematic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian “cleansing” view of recessions.

Financial Flows and Environmental Degradation

Foreign financial inflow always acts as a sort of catalyst agent for economic growth; moreover, in the recent period, the effect of these financial flows on sustainable development is a debatable topic among researchers. The central idea of conducting this analysis is to empirically explore the effect of foreign financial inflows, which are foreign direct investment (FDI), remittances (REM), and development aid (ODA), on-air pollution of Algeria using the data covers from 1970 to 2018. Instead of the conventional co-integration approach, the ARDL (auto regressive distributed lagged) estimation method is adopted for analysis. The bound test is applied for investigating the co-integration analysis. Results indicate that foreign direct investment, development aid, and energy use assert long-run positive and significant effects on air pollution, whereas remittances indicate a long-run significant but adverse impact on air pollution. In short-run foreign direct investment, ODA and GDP per capita indicate a conclusive and significant impact on air pollution. Furthermore, in short-run, energy utilization indicates a significant adverse effect on air pollution.

Impact of international trade on employment in orange industry of South Africa

The purpose of the study is to analyse the long-run and short-run dynamic relations amongst total employment (lnEMPGt), export output (EXPOt) and import output (IMPOt) from 1990 to 2018, by applying a time-series analysis. The study adopts the secondary data for total employment from the Citrus Growers Association of South Africa, while both export and import output were sourced from the Global Trade Atlas. The multivariate cointegration approach is adopted in the study to identify any causal relationships amongst the concerned variables. The chosen optimum lag selection criterion was the Akaike Information Criterion (AIC) due to its association dependence on the log-likelihood ratio. The third lag was selected for the entire analysis. The results from the cointegration test and the Vector Error Correction Model (VECM) suggest a positive long-run effect between total employment and export output, while import output is negatively associated with total employment. The adjustment term of lnEMPGt, EXPOt and IMPOt suggests that the previous year’s errors are corrected for the current year at a convergence speed of 0.002, 1.11 and 25.37 percentage points, respectively. The results of the Granger causality test show that there are bidirectional causality effects between export output and total employment in the long run, while there are no causality effects between import output and total employment. The overall conclusion is that export outputs positively impact employment, while import outputs impact it negatively in the South African orange industry.

Industrialization from scratch: The “Construction of Third Front” and local economic development in China's hinterland

This paper investigates whether temporary subsidies to the manufacturing sector at an early stage of structural transformation stimulate economic development. We study the “Construction of Third Front” (TF), a massive yet short-lived industrialization campaign in China's under-developed hinterland. Motivated by defense considerations, location choices of TF projects followed a peculiar set of criteria, which generates plausibly exogenous variation in manufacturing capacity before market reforms started in the mid-1980s. We find initial advantages in manufacturing have long-run positive effects on the structural transformation of the local economy. The effects are driven by new entrants in the private sector, consistent with the existence of local agglomeration economics. However, there is no evidence that agglomeration forces are stronger in initially less-developed regions. While the TF reduced regional inequality, it likely hurt the aggregate efficiency.

An Ode to ODA against all Odds? A Novel Game-Theoretical and Empirical Reappraisal of the Terrorism-Aid Nexus

The present inquiry revisits the influence of the fourth religious wave of modern terrorism on the allocation of official development assistance (ODA). The theoretical framework is predicated first on comprehensive review of the pertinent literature on the nexus between political instability and foreign aid, augmented by the assessment of Central Intelligence Agency declassified documents and Congressional Service Reports. Based on the systematic review of the sources, the study puts forward a novel dynamic differential game theory model, which enables derivation of the scenarios for foreign aid allocation. The study finds that despite dominance of geopolitical and/or commercial interests in the allocation of aid, high incidence of terrorist attacks does not lead to less development aid, but rather catalyzes it. Subsequent empirical analysis of a dataset with 121 developing and transition economies spanning between 1970 and 2016 reveals that terrorism incidents, level of political rights, and the War on Terror had a statistically significant positive long-run and negative short-run effect on the level of foreign aid commitment of the Organisation for Economic Co-Operation and Development member states. The growth rate of foreign aid in the developing countries with a predominantly Muslim population has been systematically 0.1 to 0.85 percent greater than in non-Muslim countries. Subsequent assessment of the security bias in the allocation of aid indicates that re-securitization of aid since 1998 has led to weak diversion of aid commitment from areas with fewer terrorism incidents to jurisdictions with a greater frequency of terrorist attacks.

Ethiopian Higher Education and Economic Growth Nexus

Ethiopian government has paid great attention to higher education expansion and hence, it has been a national policy issue of the country. The study investigated the dynamic relationship between higher education and economic growth in Ethiopia using annual data collected from 1981-2014. Autoregressive Distributive Lag framework was used along with Error Correction Term so as to investigate long run relationship between real GDP, enrollment in higher education, gross capital formation and labor. The result from bounds test confirmed the existence of strong long run relationship between variables. Enrollment in higher education and gross capital formation has a positive long-run effect on real GDP. But, only enrollment in higher education has a negative effect in the short run. The study utilized granger causality test in order to examine causal relationship between higher education and economic growth. According to the test result, a unidirectional causality running from higher education to economic growth was observed. The necessary diagnostic tests were applied in order to check reliability and acceptability of model outputs and they were found satisfactory. Drawing on the finding it is recommended that government should continue expanding the provision of higher education and in the meantime, endeavor to improve the quality of the provision.

Analysis of net trade, FDI and GDP growth using cointegration, VECM, Granger causality and a regression approach: A case study of Sub Saharan African region

Net trade and Foreign Direct Investment (FDI) are both important factors of economic growth and development in Sub Saharan African (SSA) region. Many different studies have shown the impact of trade and FDI in economy growth in SSA countries. However, few is known about the effect in SSA region in overall. To use these factors in policy making and development planning, the following questions need to be addressed. As both factors impact the economy growth, can net trade (NT) historical performance be used to forecast FDI? Is there any short-run or long-run relationship effect among GDP growth, FDI and net trade? This paper has implemented the cointegration methodology to analyze the impact of net trade and FDI on GDP growth, used the Vector Error Correction Model (VECM) for long-run and short-run relationship effect, an Ordinary Least Square (OLS) regression to determine the significant impact of FDI and net trade on GDP growth and finally the granger causality test. This study shows a positive long-run relationship effect of FDI on GDP. The positive short-run effect of both FDI and net trade is also detected on GDP growth. The regression result shows that net trade has a significant impact on GDP growth and finally from the Granger causality test, the study shows that net trade Grangercause FDI.

Impacts of Asset Utilization, Market Competition and Market Distance on Stock Returns

To empirically study the effects of asset utilization, market competition and market distance on stock returns of 1961 US public firms of different industry categories over 2001-2015. The heterogeneous panel data set consists of 23,532 (N= 1961*T= 15) observations. Pedroni’s panel co-integration, panel vector errorcorrection model (PVECM), panel dynamic OLS (PDOLS), and panel generalized method of moments (PGMM) are implemented. Both asset utilization and market competition have short-run and long-run positive effects on stock returns. But the effects of market distance are negative. The evidence for convergence toward the long-run equilibrium is very weak. Firms should be strategic to improve asset utilization, be more competitive and expand market distance to maximize stockholders’ wealth.

The causal economic effects of Olympic Games on host regions

This paper is the first to study the effects of hosting Olympic Games on regional economic output beyond population dynamics. For identification, runners-up in the Olympic bidding process are used to construct the counterfactual for Olympic host regions. In the short run, hosting Summer Olympics boosts regional GDP per capita by about 3–4 percentage points relative to the national level in the year of the event and the year before. There is also evidence for positive long-run effects, but results on the latter are not statistically robust. In contrast, Winter Olympics do not have a positive impact on host regions. If anything, they lead to a temporal decline in regional GDP per capita in the years around the event.

House price index (HPI) and Covid-19 pandemic shocks: evidence from Turkey and Kazakhstan

PurposeThis paper aims to investigate asymmetric pricing behaviour and impact of coronavirus (Covid-19) pandemic shocks on house price index (HPI) of Turkey and Kazakhstan.Design/methodology/approachMonthly HPIs and consumer price index (CPI) data ranges from 2010M1 to 2020M5 are used. This study uses a nonlinear autoregressive distributed lag model for empirical analysis.FindingsThe findings of this study reveal that the Covid-19 pandemic exerted both long-run and short-run asymmetric relationship on HPI of Turkey while in Kazakhstan, the long-run impact of Covid-19 pandemic shock is symmetrical long-run positive effect is similar in both HPI markets.Research limitations/implicationsThe main limitations of this study are the study scope and data set due to data constraint. Several other macroeconomic variables may affect housing prices; however, variables used in this study satisfy the focus of this study in the presence of data constraint. HPI and CPI variables were made available on monthly basis for a considerably longer period which guaranteed the ranges of data set used in this study.Practical implicationsDespite the limitation, this study provides necessary information for authorities and prospective investors in HPI to make a sound investment decision.Originality/valueThis is the first study that rigorously and simultaneously examines the pricing behaviour of Turkey and Kazakhstan HPIs in relation to the Covid-19 pandemic shocks at the regional level. HPI of Kazakhstan is recognized in the global real estate transparency index but the study is rare. The study contributes to regional studies on housing price by bridging this gap in the real estate literature.

Bivariate Modelling of the Influence of Trade on Aggregate and Disaggregate Energy Use in Ghana

The current research has explored the trade-energy nexus for Ghana using annual data within 1970-2011, using the Autoregressive distributed lag model (ARDL) and the Granger predictive causality test in bivariate modelling. The research findings provide evidence of a cointegration association between trade liberalisation (proxied by trade openness) and energy resources (proxied by aggregate energy use, electricity energy use, and fossil fuel energy use). However, there is an insignificant positive long-run effect of trade on energy use for all the energy resources under investigation. In the short-term, there is a positive significant effect of trade on electricity energy use and fossil fuel energy use, but an insignificant positive effect of trade on aggregate energy use. Concerning aggregate energy use, the research findings show that for aggregate energy use, there is causality from trade to aggregate energy use without feedback. However, in the case of electricity use and fossil fuel energy use, trade predicts energy use with feedback. For policy, energy conservation (fossil fuel energy use, and electricity energy use) may not have a deleterious effect on trade in Ghana. Future research may focus on how structural breaks and panel analysis improves the current study, controlling for the effect of other variables that influence energy use.

Analyzing the relationship between economic growth and electricity consumption from renewable and non-renewable sources: Fresh evidence from newly industrialized countries

This study analyzes the impact of renewable electricity consumption on economic growth for the panel of 10 newly industrialized countries from 1990 to 2015. For this, panel unit root tests, panel heterogeneous co-integration method, panel Fully Modified Ordinary Least Square and the Granger causality method are employed. The primary outcomes of this study are as follows: (1) panel unit root test and panel co-integration method confirm that the economic growth, renewable electricity consumption, non-renewable electricity consumption, gross capital formation, labor force and trade openness are co-integrated, (2) panel Fully Modified Ordinary Least Square confirms that all studied variables have a positive long-run effect on economic growth, a 1% increase in renewable and non-renewable electricity consumption increased economic growth by 0.095% and 0.017% respectively, (3) the outcomes from Granger causality test also illustrates that there is bidirectional causation between renewable electricity consumption and economic growth in both the short-run and long-run that supports the feedback hypothesis. From the empirical findings, the feedback hypothesis is valid for newly industrialized countries.

The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption

We analyze the quantitative labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates endogenous labor force participation and two margins of adjustment influenced by carbon taxes: (1) firm creation and (2) green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent – roughly the emissions reductions that will be required under the Biden Administration's new commitment under the Paris Agreement – and transfers the tax revenue to households generates mild positive long-run effects on consumption and output; a marginal increase in the unemployment and labor force participation rates; and an expansion in the number and fraction of firms that use green technologies. In the short term, the adjustment to higher carbon taxes is accompanied by gradual gains in output and consumption and a negligible expansion in unemployment. Critically, abstracting from endogenous firm entry and green-technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of these margins for a comprehensive assessment of the labor market and aggregate effects of carbon taxes.

Autoregressive Distributed Lag (ARDL) analysis of U.S.-China commodity trade dynamics

This study examines the U.S.-China trade dynamics focusing on the leading commodity imports and exports in both manufacturing (SITC 5–8) and crude materials (SITC2) sectors at SITC 3-digit level. The effect of real income of China and the U.S., bilateral real exchange rates and its volatility, U.S. investment, the “third country” exchange risk effect, and the role of financial deepening and human capital investment are evaluated using 2000–2016 quarterly data. The Autoregressive Distributed Lag (ARDL) model results for the U.S. inpayments and outpayments indicate that real exchange rates play the most significant role, affecting most commodities in both the short-and long-run, with the expected signs. While the relationship of most U.S. commodity exports and imports with the real income of both China and the U.S. have the expected long-run positive effect, the average responsiveness of the U.S. imports to U.S. real income is larger than that of the U.S. exports’ response to Chinese real income. This, combined with the relatively larger exchange rate elasticity value for the U.S. exports, suggests a greater U.S.-China trade deficit following the real appreciation of the yuan, which is consistent with the actual post-2005 trade experience. Both the real exchange rate volatility measures and the U.S. foreign direct investment in China are found to have a limited significant relationship with both U.S. commodity imports and exports. Although financial deepening and education affect trade in both directions, the positive influence of human capital is consistent and evident across most affected commodity cases.