Cointegration Test Results Research Articles

White Swan - the pandemic crisis, lockdown and unlock effect on the Indian stock market

The COVID-19 pandemic crisis, the White Swan event, has pushed the world markets to crash to levels that have not been witnessed since the 2008 Global Financial Crisis. Therefore, this study investigates the impact of the first wave of pandemic COVID-19, nationwide lockdown and unlock on the Indian stock market. The findings reveal that the lockdown has a significant positive impact on the volatility of BSE returns. Secondly, this study investigates the relationship between daily confirmed cases of COVID-19 and the closing price of BSE Sensex using Johansen's cointegration test. The results of cointegration test indicate that there is a long run relationship between daily confirmed cases and closing price of Sensex. Therefore, the findings of this research are beneficial to investors of all categories and portfolio managers.

An Analysis of the Dynamic Linkages of Pakistani Stock Market with the World’s Leading Stock Markets

Using the theoretical framework of International Portfolio Diversification (IPD), the study explores the long-run relationship between the Pakistan Stock Exchange (PSX) and the world's six leading stock exchanges of Canada, China, France, Japan, United Kingdom, and the United States. These markets are represented by the indices such as KSE-100 index (Pakistan), TSX (Canada), SSE Composite (China), CAC-40 Index (France), Nikkie-225 (Japan), FTSE-100 index (UK) and DJIA (US). An extended sample period of 27 years, has been studied ranging from 1991 to 2018, using daily, weekly, and monthly frequencies. This paper investigates the existence of cointegration among the markets by employing Johansen and Juselius bi-variate and multivariate co-integration techniques. The Augmented Dicky Fuller (ADF) and Phillip and Perron (P-P) test indicate that all the series are non stationary at level, whereas they are stationary at the first difference form. In addition, the results of the bi-variate co-integration test show that Pakistani market is weakly linked with the rest of the six markets. In addition, the findings of the multivariate co-integration test confirm two co-integrating equations—France and the UK stock exchanges are integrated on the daily data, while China and Canada stock exchanges are integrated on monthly data. An essential implication deduced from this result is that these markets are loosely connected with each other over the period investigated. Hence, international investors seeking to reduce risk can diversify their portfolio risk by including these markets in their pool of investment.

How are urbanization, energy consumption and globalization influencing the environmental quality of the G-7?

<abstract> <p>Many developed countries including G-7 became part of the Kyoto Protocol for improving their environmental quality in 2005. Its main goals were to develop national-level programs for energy conservation and the eradication of greenhouse gas emissions. To achieve such goals, certain policy measures including reduction in deforestation, urban population and promotion of renewable energy consumption were adopted. This study aims to examine the consequences of these policies on the environmental quality of G-7 from 1988 to 2018. LLC and IPS unit root tests were applied to check the stationarity of analyzed variables. The results of Pedroni and Kao's co-integration tests proved the long-run relationship between the dependent and explanatory variables. The application of multiple cross-sectional dependence tests revealed that the cross-sections are independent of each other. The findings of the panel Autoregressive distributed lag (ARDL) model exhibited that urbanization, economic growth and nonrenewable energy consumption are hampering the environmental quality. While renewable energy consumption and globalization are improving it in the long term. Urbanization, renewable and nonrenewable energy consumption significantly improve the environmental quality during the short term whereas globalization insignificantly deteriorates the environment. The study confirms the presence of reversed U environmental Kuznets curve between urbanization and carbon emissions with a turning point at 80 per cent of urbanization. The study suggests that the transformation of energy consumption from nonrenewable to renewable sources and strict compliance with environment management policies will prove prolific for improving the environmental quality of G-7.</p> </abstract>

Cointegration between Stock Market and Economic Growth: Evidence From Nepal

This paper examines the linkage between stock market development and economic growth in the context of Nepal using 33 annual observations from Mid-July 1988 to 2020 on economic and financial time series of real GDP, market capitalization and annual turnover. The study employs Engle-Granger(1987) and Johansen’s (1988) cointegration test to examine the cointegration between economic growth proxied by log of real GDP and stock market development indicators, namely stock market size and liquidity, proxied by log of market capitalization and log of annual turnover, respectively. The results of cointegration show that both stock market size and liquidity can predict economic growth in Nepal. The results of cointegration test from both Engle-Granger procedures and Johansen’s method suggests that economic growth is cointegrated with both stock market size and stock market liquidity, and hence they are interrelated with each other in the long run. The basic implication of study finding is that both stock market size and liquidity significantly predict the economic growth in Nepal over the sample period and hence there is a need for promoting secondary market trading both in terms of size and liquidity.

The Dynamic Effect of Fiscal Decentralization on Economic Growth: Role of Governance and Macroeconomic Stability

This study investigates the effects of decentralization on output growth in the case of South Asian countries over the period of 1996 to 2018. Further, the study investigates the existence of complementarities between fiscal decentralization with the quality of institutions and macroeconomic stability is affecting economic growth. In order to obtain some flawless results, the study uses a more state-of-the-art technique. The results of Westerlund's co integration test confirm the existence of a long run equilibrium between economic growth and its determinants such as decentralization, human capital,investment, budget deficit, trade openness, governance, and macroeconomic stability. The results of the CS-ARDL method confirm that fiscal decentralization is positively linked with growth, as suggested by the theory. The results further show that the decentralization - growth nexus is strengthened with the improvement in governance and macroeconomic stability. Hence,it is not only fiscal decentralization but its interaction with other factors that enhance output growth.

Reel Efektif Döviz Kurunun Türkiye'nin AB-27 ile İkili Ticareti Üzerine Etkisi: FADL Eşbütünleşme

Exchange rate policies have become important after the change resulting from the Bretton Woods system. Until today, different exchange rate systems were implemented in Turkey. Drastic changes in the Turkish Lira's value before and after economic crises led to the questioning of the exchange rate system in Turkey. Fluctuations have increased due to the determination of exchange rates within market conditions. With several macro-economic variables, changes in exchange rates impacted exportation and importation as well, causing uncertainty for both.EU countries have a significant share in Turkey's foreign trade regarding exports and imports. In the EU, local currencies are in use along with the EU's common currency, the Euro. A significant impact of economic unions is the inbound deviation within the union regarding trade with non-members. Monetary union among member states increases the importance of exchange rate fluctuations in non-member states such as Turkey.This study investigates the long-term relation between bilateral trade and real effective exchange rate in terms of Turkey's trade with 27 EU countries. Data regarding the 1998-2020 period's GDP, real effective exchange rate, imports and exports was investigated by Fourier ADL cointegration test. For series' stationarity, ADF and FADF tests were used; all series were determined as I (I). According to the results of the FADL cointegration test, a cointegration relation was determined for both models, where exports and imports were dependent variables. This study has found that real effective exchange rate does not have a statistically significant impact on Turkey's import and export with 27 EU countries.

Cointegration and causality analysis between foreign direct investment, exports and economic growth in the republic of Croatia

The main objective of this paper is to analyze the causal relationship between foreign direct investment (FDI), exports, and economic growth in the Republic of Croatia for the period 2000-2020 and determine the implications of research results on corporate management. The management of the investment enterprise is usually interested in high returns, whereas the management of the recipient enterprise is interested in higher productivity, spillovers, and larger market share on domestic and international markets. Several methodological approaches, including unit root tests, cointegration tests, and Granger causality test, were used to assess the relationship between gross domestic product (GDP) growth rate, on the one side, and the share of FDI and total exports of goods and services in real GDP, on the other side. The results of cointegration tests indicated there is no long-term relationship between the real GDP growth rate, the share of FDI, and the share of exports of goods and services in real GDP. Based on the Granger causality test, it cannot be concluded that there is no causal relationship between the analysed variables. Finally, the paper discusses the implications of the conducted research for corporate management. The results indicate that managers are not discouraged by the fact that FDI is not correlated to economic growth, as investment decisions are determined by numerous factors and not primarily by the growth rate of a recipient country.

Dynamic Linear Interdependence between International Trade and Macroeconomic Stability in Nigeria: A Vector Error Correction Modelling.

Causal relationships are often treated erroneously in isolation as a single equation without the consideration of the endogeneity of right-hand side variables and also without recourse to the presence of coco-integration. This study modelled and estimated the dynamic linear interdependence between international trade and macroeconomic stability in Nigeria. The specific objectives were to, establish the trend of the study variables, model and estimate the interdependence existing among total export, total import, exchange rate, and inflation rate, determine the significant causalities and summarize the causal channels among the study variables. The study used the quasi-experimental design. The study used monthly time series data which span from January, 2000 to June, 2019. The data on all the variables were sourced from the Central Bank of Nigeria Statistical Bulletin. Appropriate models were specified in line with the objectives. The study used the Vector Error Correction Models, the pre and post-diagnostic tests were also conducted. The unit root test results showed that the variables were integrated of order one [I(1)]. The co-integration test results showed 1 co-integrating equation and VAR lag length selection criteria choose lag 2. The Vector Error Correction Result showed that inflation rate was the most explained by variations in the independent variables (R2 =73.4%) while exchange Rate was the least explained (R2 =18.8%), the total export model had R2 =53.8% and total import model had (R2 =59.2%. Significant bi-directional causality was found between total export and inflation rate, and also between total import and inflation rate. There was also significant joint causality on total import and also on exchange rate. The post test showed that the models were stable. It was recommended that the right-hand side variables should be tested for endogeneity before concluding on single or system equation. It was also recommended that policies to check inflation rate should consider possibility of shocks to international trade.

The impact of total factor productivity on energy consumption: Theoretical framework and empirical validation

This study contributes to the literature on energy demand by developing a theoretical framework, in which energy demand is a function of total factor productivity (TFP) alongside traditional factors such as price and income. The proposed theoretical framework is examined using annual data on energy consumption, TFP, income, and energy price for 49 countries from 1990 to 2019. The empirical analysis includes 32 high-income countries, 12 upper-middle-income countries, and 5 lower-middle-income countries dictated by data availability. The results of the panel cointegration test and long-run estimates validate the proposed framework, i.e., TFP has a statistically significant negative effect on energy consumption, in addition to the theoretically predicted and statistically significant effects of income and price. The results of the individual country level analysis, as a complementary analysis to the panel, also show that TFP plays a role in shaping energy consumption. The suggested framework would be useful for policymaking to understand the role of TFP in energy demand. The key message of the study to the decisionmakers is that they should consider TFP in designing energy demand related policies. Because TFP can curb energy consumption without compromising economic growth, while helping to save energy resources and reduce environmental pollution, as it is a representative for technological progress and efficiency, and is driven by factors such as institutions, governance, infrastructure, human capital, learning by doing, macroeconomic stability - key elements of sustainable development. The proposed framework can also be used as a theoretical basis to link energy demand to the compositions and drivers of TFP, which opens up possibilities for future research.

Empirical Reflections of the Nexus between Dual Banking System Credits and Industry Production in Turkey: Cointegration and Causality Analysis

The existence of a developed financial system is essential for directing savings to the economy. The effects of the financial system and banks on the economy have been frequently investigated in the literature. This study aims to evaluate the efficiency of banking sector financing to produce output in Turkey. Today, as in many countries the banking sector has been operating out of a dual banking system including Islamic and conventional banks in Turkey. In this study, the cointegration and causality relationships between the financing provided by Islamic banks and conventional banks to the real sector and industrial production variables were investigated. According to the Johansen cointegration test results, the financing series provided by industrial production and conventional and Islamic banks to the real sector move together in the long run. According to the VECM causality analysis, a long-term causality relationship between the series from bank loans to industrial production can be mentioned.

Integration of the Indian Stock Market with Select Asian Stock Markets : An Analysis

The present study explored the long-term associative relationships and the short-run causal relationships between stock market indices of select Asian economies: India, China, Hong Kong, Indonesia, Japan, Singapore, South Korea, and Taiwan. These countries make significant contributions in terms of foreign portfolio investments in India. The techniques of the Augmented Dickey – Fuller test, Phillips – Perron test, Granger causality test, and Johansen cointegration test were employed to trace the interdependence among the selected markets. Both Augmented Dickey – Fuller and Phillips – Perron tests revealed that all markets contained unit root at level and were integrated of order one. The results of the Granger causality test indicated a unidirectional relationship between Nifty50 and Indonesian and Japanese stock markets. Furthermore, it was found that bi-directional causal relationships existed between the stock markets of India and Hong Kong as also Singapore. The quarterly data of all the indices spanning the period from January 01, 2000 – March 31, 2018 were collected for the study. The cointegration test results revealed that international investors from China, Japan, Hong Kong, Singapore, and South Korea would not benefit from portfolio diversification to the Indian stock markets since a long-term equilibrium relationship existed between these markets.

Impact of heat and electricity consumption on energy intensity: A panel data analysis

This study investigated the impact of heat and electricity consumption, two forms of final energy consumption, on energy intensity. Because existing literature is exclusively focused on the socioeconomic factors affecting energy intensity rather than energy consumption, this study used forms of final energy consumption to explain energy intensity. Three models were used to widen the scope of the empirical analysis performed herein. For the preliminary analysis, cross-section dependence, unit root, and homogenous slope tests were conducted. The test results indicate that the relationships among the variables should be determined using an estimator that can process cross-section dependence and heterogeneous panel slope. The cointegration test results indicate that the common correlated effects mean group (CCEMG) and augmented mean group (AMG) estimators can be used to derive the required cointegrating equations. The results provided by the CCEMG and AMG estimators are consistent, demonstrating that the heat mix decreases energy intensity while heat and electricity consumption themselves increase the energy intensity. The results also indicate that although the use of renewable energy increases primary energy consumption, renewable heat expansion decreases the energy intensity by creating new markets to produce value-added. Therefore, the expansion of renewable heat is recommended.

THE ROLE OF ICT AND ENERGY CONSUMPTION ON CARBON EMISSIONS: AN AUSTRALIAN EVIDENCE USING COINTEGRATION TEST AND ARDL LONG-RUN AND SHORT-RUN METHODOLOGY

Information and communication technology (ICT) and energy consumption have substantially increased use over the last decade. It has become one of the essential aspects for improving the standard of life for many people. This study investigates the impact of internet use and energy consumption on the carbon emissions (CO2 emissions) using annual data from 1990 to 2019. For this investigation, ADF and PP unit root tests were applied with the Zivot-Andrews structural break for the unit root test. The paper implements the ARDL cointegration test, JJ cointegration test, and Bayer-Hanck test to check the long-run relationship between carbon dioxide emissions (CO2), internet use, and energy consumption with GDP and total population. The cointegration test results show that there exists a long-run relationship between the variables. The long-run findings reveal a negative impact of ICT on the environment, whereas energy consumption has a positive and significant impact on the environment. According to the short-run dynamics results, both internet usage and energy consumption have a positive and statistically significant impact. Thus, the government should increase subsidies and boost the adoption of high-efficiency appliances to lower energy usage.Keywords: ICT, Energy consumption, CO2, Cointegration tests, ARDL, AustraliaJEL Classifications: O30, Q43, Q54, Q56DOI: https://doi.org/10.32479/ijeep.11419

Effect of Fiscal Policy on Unemployment in Ethiopia

Over the years unemployment has increased tremendously in Ethiopia. It is a social and economic problem that has eaten deep into the Ethiopian economy. The main objective of this study was to examine the short term and long-term effects of Government spending and Tax revenue on unemployment in Ethiopia. Annual time-series data for the period of 1990-2021 were employed. The ARDL approach to co integration is applied to investigate the long run and short-run determinants of unemployment. The results of unit root suggested that both variables in the model were stationary after first difference. The results from regression analysis revealed that Government expenditure has the negative impact on Unemployment of Ethiopia. Co-integration technique was employed to establish the relationship between Fiscal policy and Unemployment. The results of co-integration test using ARDL test showed that over the period of 1990-2021 their Fiscal policy and Unemployment a negative and statistically significant short-term relationship was found. Furthermore, pairwise Granger causality test as well applied in order to find out the directional causation between Tax rate and Unemployment rate. The result indicates unidirectional causality running from unemployment to Tax and government expenditure. The concerned body should increase government spending. Therefore, the author recommends the need to increase expenditure on in productive ventures that are labor intensive which would increase employment. Keywords: Fiscal policy, Unemployment, co-integration, Tax rate DOI: 10.7176/JESD/12-15-03 Publication date: August 31 st 2021

Domestic Savings, Investment, and Economic Growth: an Empirical Evidence from Nepal using VEC Model

This study examines the relationship between domestic savings, investment, and economic growth in Nepal by using time series data covering from the period 1975 to 2019. The vector error correction model (VECM) has been used to investigate the long-run and short-run causal relationship between the variables. The Johansen cointegration test results confirmed that there is a long-run relationship between savings, investment, and economic growth. Therefore, further analysis has to be set for the VEC model to analyze both long-run and shortrun causality. The VECM equation result is -0.1363 which is the adjustment speed of disequilibrium towards the equilibrium in long run. The coeffi cient of savings and investments are positive with economic growth which also indicates that both variables have a positive impact on economic growth in the short run. The results of the Jarque-Bera test show the residual distribution is normally distributed. For the model stability test, the study performed recursive estimation applying CUSUM and CUSUM of square, and both tests move within the 5 percent level of upper and lesser bound significance indicating that the model is stable over the observation period. Overall, the study suggests that in Nepal, domestic savings and investment growth have a positive contribution to economic growth. The central bank, planning commission, and ministry of finance should focus on stimulating the capital formation and productive sector investment for sustainable economic growth in Nepal.

THE SOCIO-ECONOMIC EFFECTS OF REMITTANCE ON POVERTY REDUCTION IN PAKISTAN

The purpose of this study to contribute to the existing literature by investigating at the impact of remittances on Pakistan’s poverty, both in the long run and over the short run over the period from 1980 to 2018. Poverty is the dependent variable, and independent variables are inflation, education, trade openness, domestic growth product per capita, and remittance. For this purpose, ARDL bound testing technique is used to examine the effect of remittances on Pakistan’s poverty in multidimensional form. To confirm the results' robustness, this study used two proxies of poverty. For Model 1, consumption of household (HHC) used as poverty's proxy. For 2nd model, the rate of infant mortality (IMR) is taken as a proxy of poverty. Unit roots' outcomes indicate appropriateness to apply the ARDL bond testing to conclude on co-integration and (ARDL) regression analysis. Co-integration test results indicate that relationships of long run are present among the study variables of models 1 and 2 because both models' the value of F-statistics is greater than the serious value. In model 1 (long-run and short-run), results represent the impact of remittance (REM) is negative on poverty (HHC). From previous studies, remittance has an adverse influence on poverty. In model 2 (long-run), results represent the impact of remittance (REM) is negative on poverty (IMR). However, short-run results represent that remittance (REM) is positive on poverty (IMR). The negative relationship between remittances and poverty implies that remittance increases can decrease the poverty level in Pakistan. The results show that remittances have an important role in reducing poverty in the country.

Developed Stock Market Integration: New Evidence from the Pre- and Post-Financial Crisis of 2007-2009

This paper studies the interdependence between the U.S. and four other developed stock markets in Canada, Japan, Sweden, and the UK. Specifically, we investigate how the 2007-2009 financial crisis influenced the dynamics of stock market integration among five developed countries by analyzing the short-run and long-run effects of the crisis over two sample periods: pre-crisis and post-crisis. We employ the Johansen co-integration test to verify cointegration and the Vector Error Correction Model (VECM) to examine the short-run and long-run relationships among five national stock markets. The results of co-integration tests confirm the presence of co-integration in both sample periods. The short-run VECM results indicate a significant influence of the U.S. market on four other markets in both periods, suggesting that little diversification benefits exist in the short-run. The pre-crisis long-run results demonstrate significant cointegrating relationships between the U.S. market and each of three markets (in Canada, Japan, and Sweden). The insignificant cointegrating relationship between the UK and U.S. markets in the pre-crisis period, however, becomes significant in the post-crisis period. In contrast, the Japanese stock market, which was initially cointegrated with the U.S. market in the pre-crisis period, loses its cointegrating relationship with the U.S. market in the post-crisis period. Overall, our findings confirm that major national equity markets are, to varying degrees, interdependent in both the short-run and long-run. We also find that a negative shock such as a financial crisis may significantly change the co-movements among national stock markets.

Islamic equities and COVID-19 pandemic: measuring Islamic stock indices correlation and volatility in period of crisis

PurposeThe purpose of the study is to measure cross-country stock market correlation and volatility transmission during the global coronavirus disease 2019 (COVID-19) pandemic. The paper traces trajectory of Islamic equity investments in order to get insights on the behavior of the markets during the crisis.Design/methodology/approachThe paper uses generalized method of moments (GMM), autoregressive distributed lag (ARDL) and multivariate GARCH (MGARCH) models for analysis of dynamic causality, stock market cointegration, correlation and volatility transmission between Islamic stock indices.FindingsThe result of normal correlation analysis on the share indices show the markets move together. The result of ARDL cointegration test shows the markets returns are cointegrated as a group. To further make sense of the data; the indices were grouped into four different categories, then cointegration tests were conducted. The results of the analysis show that the subgroups are cointegrated except the low COVID-19 subgroup. Based on MGARCH findings, the possibility of volatility transmission between markets during the crisis is high. The market returns indices show the usual herd mentality common during the period of crisis.Originality/valueUnlike other works in this area, this paper attempt to trace the trajectory of Islamic equity investment in order to get relevant insights and arrives at appropriate ways of responding to the crisis.

NIGERIA DEEP OFFSHORE INLAND BASIN PRODUCTION SHARING CONTRACT ACTS: EVALUATING CONTRACTOR’S TAKE

Value-focused thinking is often designed to focus our decision on the essential activities that must occur prior to solving a decision problem. This approach was adopted by the Nigerian government in the fiscal legislation for Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSC) Act enacted in 1999 and the subsequent amendment of 2020. One major item of interest in the amended Act is the introduction of royalty by price to enable the government to capture windfall in high oil price spike. This study evaluates the new fiscal regime to ascertain its attractiveness and impact of contractor take. Four features (royalty, cost recovery, tax oil, and profit oil) of the PSC contract terms were used to determine contractor and government takes from the transactions. This study adopted the full range of oil prices captured in the amended DOIBPSC Act in addition to the current market price of oil estimation. Six ranges of oil price ($ 20/bbl, $ 30/bbl, $ 40/bbl, $ 80/bbl, $ 120/bbl, $ 160/bbl) were used to cover the five royalty sliding scales adopted in the amended DOIBPSC and the current oil price during this study which is ≤ $ 20/bbl. From the econometric analysis, estimates from the unit root tests revealed that the time series data are mixture of I(0) and I(1) series. The ARDL/bound cointegration test result shows that all the integrated variables are cointegrated at a 5% level. Analysis of the impact of the price sliding royalty regime on the contractors' take shows that in both the long run and the short run, the price sliding (royalty by price) regime had a negative impact on the contractors' take. The short-run impact of the royalty level and the regime change on the contractor's take is high and significantly negative. This is expected as the design of the royalty regime is based on long term benefits. Keywords: Deepwater fiscal system; Royalty regimes; Production sharing contract; Oil and Gas; Long and short runJEL Classifications: P28, O22, O38DOI: https://doi.org/10.32479/ijeep.11244

Does environmental taxes achieve the carbon neutrality target of G7 economies? Evaluating the importance of environmental R&D

The present study highlights the importance of environmental taxes and R&D in achieving the goal of carbon neutrality. Post Paris conference (COP21), countries set domestic targets to achieve zero carbon or carbon neutrality. Several studies have been conducted to explore the factors affecting environmental quality. However, the literature on the importance of environmental taxes and environmental R&D in affecting environmental quality is scant, and thus, this study investigates the impact of environmental taxes and R&D on consumption-based carbon emissions for G-7 countries over a period of 1990–2019. The cointegration test results show a stable long-run association between environmental taxes, environmental R&D, imports, exports, GDP, and consumption-based CO2 emissions. The results show that in the short- and long-run, environmental taxes, environmental R&D, and exports significantly reduce carbon emissions, whereas GDP and imports significantly enhance carbon emissions. The Dumitrescu and Hurlin Granger causality test results show that any policy that targets environmental taxes, environmental R&D, exports, imports, and GDP significantly changes CO2 emissions. This study recommends that policymakers in G-7 countries should focus on environmental R&D and taxes to achieve the goal of carbon neutrality.