Positive Long-run Relationship Research Articles

Income and Expenditure in the Tourism Industry: Time Series Evidence from Cyprus

This study empirically examines the existence and nature of long-run relationships between, on the one hand, income derived from the tourism industry in Cyprus and tourist arrivals, and, on the other hand, three categories of supply-side expenditure – transport and communication, hotels and restaurants, and advertising and promotion. The results suggest the existence of positive long-run relationships between income derived from the tourism industry and two categories of expenditure (hotels and restaurants and advertising and promotion), with causality running both ways. Causality running both ways is also observable between tourist arrivals and hotels and restaurants. This leads to the conclusion that the expenditure policy followed by the tourism industry in Cyprus during 1975–2001 has been rather effective.

Economic integration and the diversification of regional exports: evidence from the Canadian-U.S. Free Trade Agreement

We investigate the impact of Canada–U.S. trade integration on the degree of export diversification of the Canadian regions. Trade integration is captured through the decrease of trade-weighted tariffs that were boosted by implementation of the Canadian–U.S. Free Trade Agreement. We found strong evidence to support integration’s long-run impact on the patterns of absolute exports diversification. Significantly, this new finding remains robust to the exclusion of the primary sectors and to the potential presence of unit root in the data. Our results lead us to support a positive long-run relationship between trade integration and export diversification.

Finance and Economic Development in China

This paper focuses on the following two issues. First, the paper investigates the extent to which financial development has contributed to economic growth in China. For this purpose, we utilize well-known financial development indicators and seek to find a long-run relationship between output growth and financial development. Second, the effects of financial repression on economic growth are examined. A financial repression index is constructed based on three related measures, and this index is augmented to the growth-finance equation. Empirical results show that, three financial development indicators, Liquid Liabilities, Domestic Credit and Non-Policy Loan, have stable positive long-run relationships with output growth. It is also found that output growth is weakly exogenous with respect to financial development, whereas financial development is not with respect to output growth. As for the financial repression, it turns out to have affected output growth negatively during the sample period. Unlike financial development indicators, financial repression index is found to be weakly exogenous.

Finance and Economic Development in China

This paper focuses on the following two issues. First, the paper investigates the extent to which financial development has contributed to economic growth in China. For this purpose, we utilize well-known financial development indicators and seek to find a long-run relationship between output growth and financial development. Second, the effects of financial repression on economic growth are examined. A financial repression index is constructed based on three related measures, and this index is augmented to the growth-finance equation. Empirical results show that, three financial development indicators, Liquid Liabilities, Domestic Credit and Non-Policy Loan, have stable positive long-run relationships with output growth. It is also found that output growth is weakly exogenous with respect to financial development, whereas financial development is not with respect to output growth. As for the financial repression, it turns out to have affected output growth negatively during the sample period. Unlike financial development indicators, financial repression index is found to be weakly exogenous.

Development aid and economic growth: A positive long-run relation

a b s t r a c t We analyze the growth impact of official development assistance to developing countries. Our approach is different from that of previous studies in two major ways. First, we disentangle the effects of two kinds of aid: developmental and non-developmental. Second, our specifications allow for the effect of aid on economic growth to occur over long periods. Our results indicate that developmental aid promotes long-

Financial Development, Financial Fragility, and Growth

This paper studies the apparent contradiction between two strands of the literature on the effects of financial intermediation on economic activity. On the one hand, the empirical growth literature finds a positive effect of financial depth as measured by, for instance, private domestic credit and liquid liabilities (e.g., Levine, Loayza, and Beck 2000). On the other hand, the banking and currency crisis literature finds that monetary aggregates, such as domestic credit, are among the best predictors of crises and their related economic downturns (e.g., Kaminski and Reinhart 1999). The paper accounts for these contrasting effects based on the distinction between the short- and long-run impacts of financial intermediation. Working with a panel of cross-country and time-series observations, the paper estimates an encompassing model of short- and long-run effects using the Pooled Mean Group estimator developed by Pesaran, Shin, and Smith (1999). The conclusion from this analysis is that a positive long-run relationship between financial intermediation and output growth co-exists with a, mostly, negative short-run relationship. The paper further develops an explanation for these contrasting effects by relating them to recent theoretical models, by linking the estimated short-run effects to measures of financial fragility (namely, banking crises and financial volatility), and by jointly analyzing the effects of financial depth and fragility in classic panel growth regressions.

Can the Balassa-Samuelson theory explain long-run real exchange rate movements in OECD countries?

This study tests empirically the Balassa-Samuelson (BS) hypothesis using annual data for 12 OECD countries. New panel data cointegration techniques recently developed by Pedroni (2000) are applied and the results are compared with those obtained with conventional Johansen (1995)'s time series cointegration tests. Whereas standard time series approach turns out to be unable to put in evidence a significant long-run relationship is largely accepted for all countries using recent advances in the econometrics of non-stationary dynamic panels methods. This result doesn’t mean however that the BS is uniformly supported by data for all OECD countries, since actually four of them (Australia, Belgium, Canada and the USA) are proved not to follow the BS path. Closer examinations of the three key components of the BS hypothesis enable one to identify clearly the causes of this empirical failure. It is found that the absence of a positive long-run relationship between real exchange rate and the relative prices of non...

Relating the Knowledge Production Function to Total Factor Productivity: An Endogenous Growth Puzzle

The knowledge production function is central to RD the second captures a long-run positive relationship between TFP and the knowledge stock. The results indicate the presence of strong intertemporal knowledge spillovers and that the long-run impact of the knowledge stock on TFP is small. This evidence is interpreted in light of existing theoretical and empirical evidence on endogenous growth.

Economic Integration and Regional Industrial Specialization: Evidence from the Canadian-U.S. FTA Experience

We investigate the impact of trade integration between Canada and the United States on the degree of industrial specialization of the Canadian regions. Trade integration is captured through the decrease of trade-weighted tariffs that was boosted by the implementation of the Canadian-U.S. Free Trade Agreement. We found strong evidence supporting integration's long-run impact on the patterns of absolute industrial diversification. Significantly, this new finding remains robust to the exclusion of the primary sectors and to the potential presence of unit root in the data. Our results lead us to support a positive long-run relationship between trade integration and industrial diversification.

Defense Spending and Economic Growth in Turkey: An Empirical Application of New Macroeconomic Theory

This study presents new empirical evidence on the relationship between the level of economic growth and defense expenditures in the case of Turkey for the period of 1950–2002. On using new macroeconomic theory and multivariate cointegration procedure, this study demonstrates empirically that there exists a positive long-run relationship between aggregate defense spending and aggregate output in Turkey. In addition, the CUSUM and CUSUMSQ tests confirm the stability of the aggregate output function. The results obtained from this study are, by and large, in line with the previous studies concerning Turkey.

Relative prices and wage inequality: evidence from Mexico

This paper examines the link between relative goods prices and relative wages during two periods of Mexico's trade liberalization. The relative price of skill-intensive goods rose following Mexico's entrance to the General Agreement and Tariffs and Trade (GATT) in 1986, but fell after Mexico entered the North American Free Trade Agreement (NAFTA) in 1994. This paper adds a band pass filter to two established techniques to compare the relationship between prices and wages. Results from all three approaches are consistent with a positive long-run relationship between relative output prices and relative wages. The band pass filter results suggest that the relevant time frame for the relationship begins after 3–5 years.

The Feldstein–Horioka Puzzle and Twin Deficits in Selected Countries

Hysteresis (unit root) of the current account, fiscal balance, and investment shares is found for the majority of industrial countries as well as selected emerging and transition economies between 1970 and 2001. Twin deficits are defined as a positive long-run relationship between the current account and the fiscal balance. The paper provides evidence for twin deficits in several countries, although we can see differences between the 1980s and the 1990s. Investment in some EU countries is financed to a relatively high degree at the international financial markets implying that the Feldstein-Horioka puzzle is less important in the EU.

Determinants of commercial banks' profitability in Malawi: a cointegration approach

This article investigates the relationship between market structure and profitability of commercial banks in Malawi using time series data between 1970 and 1994. It uses time-series techniques of cointegration and error-correction mechanism to test the collusion hypothesis and determine whether a long-run relationship exists between profits of commercial banks and concentration in the banking industry. The results obtained from the study support the traditional collusion hypothesis of a long-run positive relationship between concentration and performance. The dynamic short-run analysis also shows a high speed of adjustment in profitability from disequilibrium and indicates a positive response in profitability to a negative deviation from a long-run equilibrium.

Testing an augmented fisher hypothesis for a small open economy: The case of Finland

We augment the famous Fisher hypothesis for a small open economy by introducing foreign interest rate and exchange variables to the traditional test equation of the hypothesis. Using the Johansen cointegration method for the Finnish money market interest rate data we find that it is possible to find a positive long-run relationship between nominal interest rates and inflation. We also find that for a small open economy, like Finland, the effects from the corresponding markets of its main foreign trade partners are important when analyzing single macroeconomic hypotheses, like the Fisher hypothesis.

Dynamic Gains from Trade: Evidence from South Africa

This paper examines the empirical relationship between trade and total factor productivity (TFP) in South Africa. Using data on actual trade protection across different manufacturing sectors, it is shown that trade liberalization had a positive impact on TFP growth during the 1990s. In addition, time-series evidence on macro data supports a positive long-run relationship between TFP and openness.

A Clustering Approach to Some Monetary Facts: A Long-Run Analysis of Cross-Country Data

Long-run dependencies among inflation, growth rates of money, real output and real output per capita are analysed. For a cross-section of 119 countries, clusters are obtained, and correlations among these variables within each cluster are calculated. Unlike the correlations obtained using data from the full sample, correlations of growth rates of real output and real output per capita with money growth and inflation are dissimilar across clusters. In particular, for some clusters of countries positive long-run relationships of money growth and inflation with growth rates of real output are observed. JEL Classification Numbers: E5, F01, C69.

Openness and economic growth: an empirical investigation

Unlike previous research that investigated the relation between exports and output, in this paper we assess the long-run relation between the degree of openness and economic growth. For the many countries considered here, we find a positive long-run relation between openness and economic growth.