Positive Long-run Relationship Research Articles

Do Muslim economies need insurance to grow? Answer from rigorous empirical evidence

The insurance industry in the Muslims countries has been making faster growth during the last few decades. The main objective of this paper is to examine the relationship of insurance sector with income per capita in Muslim countries. The countries selected for this analysis are 41 and the time span covered is from 1995 to 2019. The selection of cross-sections and time span is dictated by the availability of data. A number of estimators are used to rigorously analyze the hypothesized relationship, including a couple of the most contemporary macro-panel estimators such as pooled mean group (PMG), common correlated effects mean group (CCEMG), and augmented mean group (AMG). Neutral effect is found for life and non-life insurance penetration on income per capita, which can be attributed to beliefs in Muslim countries. However, we found positive long-run relationship between total insurance activity and income per capita, which can be due to complementarity between life and nonlife insurance activity. The results are found robust after applying robustness checks.

Nonlinear Unemployment Effects of the Inflation Tax

<ns3:p>We argue that long-run inflation has nonlinear and state-dependent effects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks – productivity and monetary – and frictions in labor and goods markets. Inflation lowers the surplus from a worker-firm match, in turn making it sensitive to productivity shocks or to further increases in inflation. We calibrate the model to match the U.S. postwar labor market and monetary data, and show that it is consistent with observed cross-country correlations. The model implies that the welfare cost of inflation is nonlinear in the level of inflation and is amplified by the presence of aggregate shocks.</ns3:p>

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.

What drives TFP long-run dynamics in five large European economies?

The aim of this paper is to study the long-run cointegrating relationship of TFP in a panel of five large European economies, namely France, Germany, Italy, Spain, and UK. We test whether TFP is determined by the so-called “capital misallocation effects, scale effects, and labor market effects”. By considering aggregate data, over the period 1983–2017, we employ dynamic panel cointegration techniques to identify the long-run component of TFP. We get two main results. First, the interest rate, the real compensation and the real exchange rate have a positive impact on TFP. Then, the incidence of temporary employment (a proxy of labor market flexibility) has a negative effect on TFP. Moreover, for robustness, we run a panel VECM to check for causalities among the variables. Notably, this further excercise confirms the existence of a strong and positive long-run relationship between TFP and prices. We conclude that coordinated policies on the issue of interest rate, exchange rate, labour cost and regulation, may allow to reassemble the productivity slowdown puzzle and strengthen the European economic structure.

Role of Capital Formation and Saving in Promoting Economic Growth in Nepal: An ARDL Bound Testing Approach

This study examines the relation and impact of gross capital formation and gross national saving on Nepal's Gross Domestic Product (GDP). It is based on the secondary data taken from various economics survey of Nepal and other published sources covering 33 data points from the fiscal year 1987/88 to 2019/20. Descriptive and empirical research designs examine the relation between GDP, gross capital formation, and gross national saving. The EViews 10 data processing software is used. Some econometrics tools like mean, dispersion, ARDL bound testing, error correction model, heteroskedasticity, serial correlation test, normality test, CUSUM test, and CUSUM square test are used. There is a long-run positive relationship between GDP and gross capital formation and gross national saving. The gross capital formation and gross national saving are individually and jointly significant to explain GDP in the long run, but there is a negative impact on regressors' GDP. Capital formation and saving positively impact GDP. Still, the effectiveness is not found satisfactory because a one percent increase in capital formation only increases GDP by 0.267 per cent. So, the saving amount must be utilized in the productive sector. The author of the research is not affected by the other researchers' findings, tools, and methods.

Does tourism promote economic growth? A fractionally integrated heterogeneous panel data analysis

In this article, we analyse whether tourism promotes economic growth using a general dynamic panel data model that incorporates individual and interactive fixed effects and allows for contemporaneous correlation in model innovations. The empirical study is based on quarterly series of GDP and tourist arrivals for 14 European countries covering the period from 1995 to 2019. Results indicate that the case for a positive long-run relationship between tourism and economic growth is rather weak, being slightly stronger for the period prior to the global economic and financial crisis from 2007 to 2010. When applying panel fractional cointegration techniques, we find evidence in favour of the tourism-led growth hypothesis (TLGH) for the full sample mainly for North European countries. For the pre-crisis period, on the other hand, we find evidence in favour of the TLGH for the relevant tourist destinations Spain and France.

Nonlinear Unemployment Effects of the Inflation Tax

We argue that long-run inflation has nonlinear and state-dependent e ects on unemployment, output, and welfare. Using panel data from the OECD, we document three correlations. First, there is a positive long-run relationship between anticipated inflation and unemployment. Second, there is also a positive correlation between anticipated inflation and unemployment volatility. Third, the long-run inflation-unemployment relationship is not only positive, but also stronger when unemployment is higher. We show that these correlations arise in a standard monetary search model with two shocks - productivity and monetary - and frictions in labor and goods markets. Inflation lowers the surplus from a worker-firm match, in turn making it sensitive to productivity shocks or to further increases in inflation. We calibrate the model to match the US postwar labor market and monetary data and show that it is consistent with observed cross-country correlations. The model implies that the welfare cost of inflation is nonlinear in the level of inflation and is amplified by the presence of aggregate shocks.

The Effect of Macroeconomic Variables on the Asset Positions and Financial Performance of Non-Banking Financial Institutions (NBFIs) in Jamaica

The aim of the paper is to evaluate the effect of macroeconomic variables such as real GDP, unemployment levels, bond yields, stock market growth, and interest rate on the asset positions and financial performance of non-banking financial institutions (NBFIs) in Jamaica. This is reflected by return on asset (ROA) ratio, return on equity (ROE) ratio and total asset growth (TA). To explore the nature of the short and long-term relationship between dependent variables and independent variables, the research used a bound test approach to the co-integration and error correction process using time series data over the period from 2005Q1 to 2020Q3. The results showed that real gross domestic product (RGDP) and unemployment rate (UR) had a positive long-run relationship with ROA; government bond yield (GBY), UR, interest rate (IR) and stock market growth (JSEM) influenced ROE positively at the long-run; while all the independent variables showed a long-run causal relationship with TA. In the short-run estimates, however, minimal short-run causal relationships among variables could be identified with ROA, ROE and TA. Meanwhile, the research has shown there is a stable long-run relationship between the three profitability metrics and the variables that have a significant long-run relationship with them. This assumes that, in the event of some shock to the system, the model will converge back to equilibrium. Furthermore, the cumulative sum of recursive residuals (CUSUM) checks validated the model’s stability.

The Impact of Maize Trade on the Development of the Maize Industry in Ghana

This paper examines the impact of maize trade on the development of the maize industry in Ghana using a time series dataset for 1980-2019. The study adopted the multivariate vector error correction model (VECM). We assess whether maize trade spurs development in the maize industry and hence economic growth. The study further examined whether other production variables such as fertilizer, machinery, and FDI efficiently stimulates development in the maize industry. The empirical analysis results suggest that maize trade and other variables positively impact the maize industry in the long run. Firstly, the results show that the import and export of maize positively impact maize productivity in Ghana, hence growth in the maize industry development in the long run. Secondly, the inputs of production including, Land, Machinery, Labor, have a long-run positive significant relationship with the development of the maize industry in Ghana. Thirdly, other production inputs such as fertilizer have a positive non-statically long-run effect on the maize productivity in Ghana. Based on these findings, we recommend that governments look into policy initiatives on the development of the maize industry. The policy initiatives should provide financial and non-financial incentives such as fertilizer and certified seed subsidies, complimentary service provisions on inputs, good agronomic practices. Also, marketing of outputs over an E-Agriculture platform, and reduce trade restrictions to maximize maize production.

Crude Oil Price Changes and Inflation: Evidence for Asia and the Pacific Economies

This paper examines the influence of crude oil price on inflation in seven Asian and two of the pacific economies. The period of investigation is from 1987M5 to 2019M12. The results of cointegration tests reveal that there is stable positive long-run relationship between consumer price index and crude oil price in these countries. In the short run, there is unidirectional causality running from crude oil price change to inflation in most cases. The findings suggest accommodative monetary policy measures to combat high inflation rate.

Dynamic Impact of Banking Performance on Financial Stability: Fresh Evidence from Southeastern Europe

Abstract This study addresses the issue of whether banking performance impacts financial stability in Southeastern European countries. To answer this question, the GMM approach has been applied in the analyses of the panel data over the period 2000–2015 for Southeastern Europe. The findings reveal the presence of significant positive long-run relationship between ROA, ROE, trade openness, and human capital, while government expenditures have negative impact on financial stability. Trade openness, human capital and government expenditures can keep the financial system stable as a whole. The Granger causality analysis discloses the main hypothesis where the banking system in this part of Europe accounts for more than 80% of the financial system. The study sheds light to the policymakers and research about the role of banking performance on financial stability for this region of Europe.

The Role of Financial Development in Economic Growth of Nepal: ARDL Approach of Cointegration with Structural Break Analysis

This paper, using the most recent index of financial development as developed in Svirydzenka (2016), examines the role of financial development in the economic growth of Nepal. This paper employs the Autoregressive distributed lag (ARDL) approach of cointegration with the structural break in time series data for the period of 1980-2017. Nepal is a unique country with a population of about 30 million with high demographic dividend and big markets in the neighbours, the earlier entrant in the liberalization and reform in the region, endowed with lots of natural resources and beauties, and comparatively cheaper labor force in the region but it remains as one of the poor landlocked developing countries sandwiched between two emerging economies, namely China and India. The results show that financial development has a strong long-run positive relationship with economic growth. Therefore, developing the strategies for the proper financial development improving the financial institution quality and widening the financial market to improve capital formation would be a way to accelerate the economic growth in Nepal.

The impact of macroeconomic variables on the budget deficit in Bangladesh: an econometric analysis

PurposeThis paper aims to investigate the impact of selected macro-economic variables like real effective exchange rate (REER), GDP, inflation (INF), the volume of trade (TR) and money supply (M2) on-budget deficit (BD) in Bangladesh over the period of 1980–2018.Design/methodology/approachBy using secondary data, the paper uses the Vector Error Correction Model (VECM) and Granger Causality test. Johansen’s cointegration test is used to examine the long-run relationship among the variables under study.FindingsJohansen’s cointegration test result shows that there exists a positive long-run relationship of selected macroeconomic variables (real effective exchange rate, inflation, the volume of trade and money supply) with the budget deficit, whereas GDP has a negative one. The short-run results from the VECM show that GDP, inflation and money supply have a negative relationship with the budget deficit. The Granger Causality test results reveal unidirectional causal relationships running from BD to REER; TR to BD; M2 to BD; GDP to REER; M2 to REER; INF to GDP; GDP to TR; M2 to GDP and bidirectional causal relationship between GDP and BD; TR and REER; M2 and TR.Originality/valueBangladesh has been experiencing a budget deficit since 1972 due to a decline in sources of revenue. This study contributes to the empirical debate on the causal nexus between macroeconomic variables and budget deficits by employing VECM and Granger Causality approaches.

Some new insights on financialization and income inequality: evidence for the US economy, 1947–2013

ABSTRACT In this article, we study the relationship between income distribution and financialization in the United States between 1947 and 2013. Financialization is introduced as a two-fold process. On the one hand, it implies an increase in the contribution of the financial sector in the composition of production. On the other hand, it is related to an increase in the importance of financial assets in terms of the composition of wealth. We take the share of financial employment as a proxy of the first dimension while, as to wealth composition, we make use of the share of financial assets on corporations’ total assets. Applying cointegration techniques, we identify a positive long-run relationship between financialization and income inequality. Causality goes from employment to income inequality and from the latter to wealth. Nonlinear estimators suggest the existence of certain asymmetric effects such that changes in income distribution cannot be reverted by simply reverting financialization.

THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENTS AND ECONOMIC GROWTH IN TURKEY / Türkiye’de Doğrudan Yabancı Sermaye Yatırımları İle Ekonomik Büyüme Arasındaki İlişki

Foreign direct investments (FDI) in Turkey expanded rapidly following the liberalization programme initiated in early 1980s. Turkey accomplished a record level in terms of its performance to attract FDI in post-2000 era. Foreign currency inflow, capital stock increase, employment generation, and technology transfer are among the benefits of FDI to host country. The most significant impact of FDI is contribution to host country’s economy through realizing production. This empirical study explores the relationship between FDI and economic growth in Turkey using time series analysis for 1980-2015 period. Johansen Co-integration test results demonstrated a positive long-run relationship between economic growth and FDI, and the effect was found as statistically significant. According to Granger causality test findings, there is bidirectional causality between economic growth and FDI. The results of this study imply that a positive change in level of FDI is likely to increase the production of goods and services in Turkey.

A critical review of Korea's long-term contract for renewable energy auctions: The relationship between the import price of liquefied natural gas and system marginal price

The aim of Korea's Renewable Portfolio Standard (RPS) and newly adopted auction system with a long-term fixed-price renewable contract was to support renewable energy providers in hedging electricity and Renewable Energy Certificate (REC) price risks. This study found a long-run positive relationship between the import price of Liquefied Natural Gas (LNG) and System Marginal Price (SMP) in Korea, demonstrating that the fluctuations in global fuel prices are likely to increase uncertainties in renewable investments. The fixed-price contract, which cannot be revised once determined, encourages renewable energy providers' speculative decision-making, and the uncertainty caused by the contract system may discourage investment decision-making.

ELECTRICITY CONSUMPTION AND EXPORT PERFORMANCE: EVIDENCE FROM NEPAL

This paper, noting positive marks due to regular supply of electricity and increased consumption of its, examines the role of electricity consumption in export performance of Nepal employing the Autoregressive distributed lag (ARDL) approach of cointegration for the period of 1975-2018. The results show that electricity does have a strong long-run positive relationship with the export performance of Nepal. Therefore, it can be suggested, based on the results, that increasing electricity consumption might increase the exports values. Also, there is a need for building infrastructure to support production activities, not just the means of transportation to reach our villages. Only those infrastructures focused on production activities will contribute to increasing the exports attracting more foreign direct investment in the country. Keywords: Energy, Electricity, Export performance, Nepal JEL Classifications: O13, L94, F13, O53 DOI: https://doi.org/10.32479/ijeep.10524

Industrial Production and Monetary Shocks: Empirical Evidence from Pakistan

This study focuses on long run relationship between industrial production and financial markets through a restricted structural model. Conditional upon arbitrage between short and long term money market rates, we find an evidence of cointegration between output and the stock market. Statistical results indicate that positive long-run relation between the stock market and real output allows the identification of a demand shock as permanently affecting stock market. Similarly money supply and short-term interest rate shock permanently affect stock market while inflation affects negatively in long run. The results also indicate that the monetary reaction function is less responsive to inflation and the policy maker put more weight to output. Our results imply that due to cost-push nature of inflation, policy makers have some flexibility to target other sectors of the economy, such as investments in asset markets. A prudent central bank can use interest rate smoothing approach using arbitrage conditions.

Asymmetries in the euro area and TFP growth: evidence from three major European economies

PurposeIn this paper, the authors study the long-run determinants of total factor productivity (TFP) in three major European economies over the period 1983–2017, namely Germany, France and Italy.Design/methodology/approachThe authors focus on the capital misallocation effects, scale effects and labor misallocation effects. To this end, the authors study how real interest rate shocks, real exchange rate shocks, real wage shocks and changes in labor regulation affected TFP in major European countries over the last decades. The authors employ a theoretical and an empirical model to investigate the issue. The empirical results are obtained using a VAR model for estimation.FindingsA stripped-down model of labor market in open economy with technology progress allows to identify the relevant variables affecting TFP. On the empirical ground, the authors find a positive relationship between TFP and real interest rate in the long run. Importantly, the authors detect a positive relationship between TFP and real exchange rate. Further, the authors show that the TFP can respond positively to a stricter labor market regulation and to a higher real compensation per employee. The results provide support to the idea that TFP has a positive relation with prices in the long run, while it may be biased along the cycle because of price rigidity.Research limitations/implicationsThe present model is stylized and may not capture all of the details of reality. The analysis should be extended to a larger number of countries. Technology progress could be proxied using different variables, as the R&D expenditure or the number of patents. Micro data, for specific sectors and industries, can improve the quality of the empirical investigation.Practical implicationsMainly the authors find that TFP has a positive relationship with price changes in the long run, while it may be biased along the cycle because of price stickiness. Capital misallocation and labor misallocation can negatively affect TFP. Thus, the observed divergences in European TFP can be traced back to the misallocation effects attributable to the decrease of real interest rate and real wages, together with the raising labor flexibility. Mainly, the authors detect a positive long-run relationship between TFP and real exchange rate. This outcome strengthens the supply-side view of the relationship between productivity and real exchange rate.Social implicationsThe authors believe that the present setup can be helpful to reflect critically on the nodes at the core of the productivity slowdown and asymmetries in the eurozone. The aim is to implement renewed policies in order to favor economic growth, convergence and stability in the euro area.Originality/valueThis research addresses the issue of asymmetries among European economies by focusing on the role played by real prices in the long run. Traditionally, the dynamics of TFP have been attributed only to technological components, human capital and knowledge. This work shows that the dynamics of prices such as the real interest rate, the real exchange rate and the real wage can also influence the technological process by pushing the production system toward choices that are not always optimal for economic growth. An interesting result of this research concerns the positive relationship between real exchange rates and TFP in the long term, evidence of an important supply-side effect on the technological process.

Determinants of gold price movements: An empirical investigation in the presence of multiple structural breaks

This study investigates the short- and long-run determinants of gold price movements in financial markets by taking into account multiple structural breakpoints using an ARDL-based error correction approach. The study used daily time series data from December 19, 2018 to May 15, 2020. The key variables used include international stocks and bond funds that are frequently traded on stock exchanges around the world. The results, based on the fourth breakpoint regime, reveal a significant positive relationship between gold price movements and LSE, Nikkei stocks, T.Rowe global multi-sector bond funds, and CBOE volatility index; and a significant negative association with Gmo emerging country debt and Pimco emerging markets local currency bond funds both in the short- and long-run. Other stocks, like NASDAQ, DJI, S&P500, only revealed negative short-run relationships; except for NYSE that was found to have a positive short-run association with gold price movements. Conversely, Goldman Sachs bonds revealed a significant positive long-run relationship with gold price movements. These results have significant policy implications for gold producers and investors, as both stocks and bonds are an important source of information in the determination of gold price movements both in the short- and long-run.