Robust GMM Research Articles

Carbon emissions and liquidity management

Do higher carbon-emitting firms increase liquidity out of reluctance to invest in an era of rapidly changing climate policy concerns? Are rapidly escalating climate concerns placing higher carbon-emitting firms in a position where they are liquidity stressed? Liquidity management has long informed scholarly research in corporate finance. However, despite nearly universal interest in environmental aspects of finance, the intersection of liquidity and emissions management remains thinly studied. To address this gap, we analyze data of non-financial firms' carbon emissions and liquidity management for 2014–2021, using a robust methodological approach involving static and dynamic analysis with robust standard errors, GMM, and 2SLS regressions. For robustness, we incorporate an instrumental variable based on local mortality rates attributable to air pollution. Results show a strong negative relationship between firm-level emissions and firm liquidity, as reflected by net working capital ratios. Results are consistent with emissions-generating firms being either confident to expend liquidity even in an era of changing climate policy risks or, more plausibly, being stressed to preserve liquidity.

Do Firms ESG Commitments Affect Investment in-Efficiency in the Global Context

This paper has examined the relationship between (ESG) environmental, social, and Governance performance and firm investment in-efficiency in global economies. This paper's empirical results are estimated using fixed-effect with robust standard error and GMM. These results are consistent with our study hypothesis and prior literature and have suggested that ESG practices reduce a firm's investment in-efficiency by mitigating issues such as information asymmetries and agency conflicts. Moreover, we have also determined the negative relationship between firm's ESG performance and a firm's investment in-efficiency.

Influence of Microfinance on Poverty Reduction in Pakistan: An Analytical Approach

This study's goal is to empirically examine how microfinance tools have affected Pakistan's efforts to combat poverty. The panel data of Pakistani microfinance institutions—both deposit-taking and non-deposit-taking institutions—was selected from Microfinance Information Exchange (MIX) and the World Bank data resources between 2004 and 2018. Due to the presence of endogeneity and heteroskedasticity in the model we apply One Step Robust System GMM model. This paper's major objective is to determine how gross loan portfolio affects the country's efforts to combat poverty. The assertion made in the hypothesis that there is a negative association between them was disproved by our findings. The other macro level control variable unemployment rates is significant and accepting the hypothesis that unemployment is negative to poverty. When applied to the regression analysis, the other variables show that OSS and TA are negatively related to poverty. This suggests that loans should be distributed through large size microfinance institutions that are capable of sustaining themselves in such a way that it will increase employment, which will ultimately lead to a reduction in poverty.

Financial deepening and income inequality: is there a financial Kuznetz curve in Latin America?

We investigate whether financial deepening improves income distribution and whether there exists a financial Kuznetz curve in Latin America. A fixed effect estimation is based on a newly compiled panel for 16 major Latin American countries, including recent data from 1990 onward but excluding the pandemic. The dynamic panel estimates, based on Driscoll-Kraay robust standard errors and dynamic GMM instrumental variable methodology, reveal that financial deepening worsens income distribution by increasing the Gini coefficient. At the same token, there exists a financial Kuznetz curve for the region implying initial worsening and then improvements in the income gap as the financial sector develops. Additionally, educational attainment, economic growth and level of output contribute to a reduction in inequality. In contrast, we find that FDI, exports and poverty rate exacerbate the income gap.

The Nexus between Financial and Investment developments and State Capacity. The case of G-20

On this paper we examine the relationships between state capacity, approximated by the Composite Index of National Capabilities, and certain macroeconomic and financial variables. Particularly, we study the nexus of their interactions by focusing on the G-20 economies from 1980 to 2020 by applying a robust GMM panel VAR model. Our results capture a negative and lasting impact of ‘domestic credit to private sector’, a negative short-term impact of market capitalization, along with a positive impact of inward and outward FDIs, and of gross capital formation, on state capacity. State capacity, in its turn, enhances in the short-term market capitalization, consumes credit to private sector, and substantially boosts gross capital formation in the medium-term. Trade openness enhances state capacity and is enhanced by state capacity as well. The presence of financial crises, such as the Asian Financial Crisis or the Global Financial Crisis, affects negatively state capacity. Conversely, the absence of financial crises has a positive impact on state capacity, leading to its amelioration. Furthermore, the specific case of the Second Oil Crisis is found to strengthen state capacity. These findings shed light to the mechanisms that impact national power and provide a framework for policy design and conduct.

The role of distinct electricity sources on pollution abatement: Evidence from a wide global panel

In this study, we examine the contribution of nuclear, fossil (coal, oil, and gas), and renewable (hydro, solar, wind, biofuel) electricity sources to pollution in the globalization era, as measured by total greenhouse gases (GHG) produced by electricity per capita. We conduct an empirical investigation in a global panel of 163 countries which assesses both the concurrent and individual effects of alternative energy sources. Additionally, we implement a second model to assess the roles of various electricity sources on the carbon intensity of electricity generation. Robust GMM estimators show that fossil electricity is a major polluter and a driver of carbon intensity. Furthermore, nuclear and renewable energy reduce pollution on a global scale, with wind emerging as the most efficient energy source in the global fight against pollution and climate change. Moreover, globalization as measured by trade openness tends to reduce the carbon intensity of electricity production (CI), whereas biofuels have an increasing impact on CI. The findings have important policy implications, indicating that shifting to nuclear and renewable energy sources could help countries achieve their sustainable development goals more efficiently.

Determinants of Sustainable Profitability of the Serbian Insurance Industry: Panel Data Investigation

This paper aims to investigate the main drivers of sustainable profitability trends in the Serbian insurance industry over the years 2008–2019 (inclusive). Our study is motivated by the fact that insurance companies contribute to economic growth, and thus it is essential to understand the factors that contribute to their financial strength and stability. We use a set of standard panel regression models, including the mixed-effects model, followed by a more robust GMM estimation to uncover the linkage between selected micro-specific, macroeconomic, and institutional factors, and return of assets (ROA) and return on total premiums (ROTP). The present paper constitutes a significant contribution to the existing literature on the account of its comprehensiveness both in terms of the institutional datasets that we use, and in terms of the methodologies we apply (in particular, mixed effects and the generalized method of moments (GMM)). The estimated parameters are model-specific, and we find that firm size, GDP, the population growth rates, political stability, and the degree of specialization (in some empirical models) all lead to higher profitability. On the other hand, we observe that excessive risk-taking and inflation (in some specifications) are inversely related to profitability. Finally, we note that regulatory quality, average wage, and life expectancies are found to be not statistically significant. Accordingly, we argue that a profitability-centric managerial strategy should be based on expanded market share and stringent risk management protocols. At the macro level, we conclude that pro-growth and pro-population policies, combined with a well-oiled institutional setting that ensures political stability, constitute the best possible prescription for strong operational performance and profit sustainability in the Serbian insurance industry.

Estimation of Duration Gap and its Determinants for Islamic Banks: Empirical Evidence using Two-Step Robust GMM

Abstract. Banking industry is risk management business. One specific risk is the rate of return risk (ROR) in the banking book. This study estimates the duration gap of IBs and its determinants in the context of ROR risk. Using Duration Gap Model and Two-Step Robust Generalized Method of Moments (GMM), with a sample of 50 IBs from 13 countries, for the period 2007-2015, our empirical findings are: (a) time series and cross-sectional duration gap of IBs reflecting significant variations across the banks and countries; (b) IBs have a general tendency of maintaining a higher duration gap compared to their conventional counterparts, and are exposed to increasing ROR risk due to their larger duration gaps and severe liquidity mismatches; and (c) there is significant difference in the estimated coefficients of idiosyncratic factors influencing the duration gaps of IBs. This study provides direction to the IBs to reflect upon the significance of liquidity mismatch risk. Keywords: ROR risk, Islamic banks, Duration Gap, IFSB, BCBS, GMMAbstrak. Industri perbankan adalah bisnis manajemen risiko. Salah satu risiko spesifik adalah risiko tingkat pengembalian (ROR) dalam banking book. Studi ini memperkirakan kesenjangan durasi IB dan determinannya dalam konteks risiko ROR. Menggunakan Duration Gap Model dan Two-Step Robust Generalized Method of Moments (GMM), dengan sampel 50 IB dari 13 negara, untuk periode 2007-2015, temuan empiris kami adalah: (a) time series dan cross-sectional durasi gap IB yang mencerminkan variasi signifikan di seluruh bank dan negara; (b) IB memiliki kecenderungan umum untuk mempertahankan kesenjangan durasi yang lebih tinggi dibandingkan dengan rekanan konvensional mereka, dan terpapar pada peningkatan risiko ROR karena kesenjangan durasi yang lebih besar dan ketidaksesuaian likuiditas yang parah; dan (c) terdapat perbedaan yang signifikan dalam estimasi koefisien faktor idiosinkratik yang mempengaruhi kesenjangan durasi IB. Studi ini memberikan arahan kepada IB untuk merenungkan pentingnya risiko ketidaksesuaian likuiditas. Keyword: Risiko ROR, Bank Syariah, Kesenjangan Durasi, IFSB, BCBS, GMM

Does the inflow of remittances and energy consumption increase CO2 emissions in the era of globalization? A global perspective

In recent decades, remittances inflow has become a major source of capital which has multidimensional consequences on various economic indicators and potentially associated with CO2 emissions. This study investigates the impact of remittances, energy use, and globalization on CO2 emissions using a global sample of 97 countries during 1990-2016. Our findings based on robust system GMM indicate that remittances and energy use increases CO2 emissions, however, globalization reduces CO2 emissions. To capture the national difference, this study divides the global sample into two sub-samples: first comprised of developed countries and second developing and emerging countries. Interestingly our findings are similar in both sub-samples. Further, our results are robust to various robustness checks, which ensures the reliability of our findings. Based on our results, we suggest governments, regulators and other stakeholders to mitigate the adverse impact of remittances and energy use on environmental quality by strict market regulations and monitoring, allocating substantial financial resource to research and development for innovating environmental friendly production technologies and renewable energy sources and by giving incentives i.e tax rebates and subsidies on imports of environment-friendly production technology from the advanced countries. Lastly, considering the negative impact of globalization on CO2 emissions, governments can use globalization as a tool to reduce CO2 emissions and promote environmental quality.

Efficiency of regional higher education systems and regional economic short-run growth: empirical evidence from Russia

ABSTRACT This paper analyses the link between the efficiency of regional higher education systems and the rates of regional economic development between 2012 and 2015 in Russia. The efficiency scores are calculated at the institutional level using Two-stage Semi-parametric data envelopment analysis. Then, the scores are aggregated at the regional level. We formulate an economic growth model that considers the efficiency of regional higher education systems as one of the explanatory variables. As an econometric method, we employ a robust GMM estimator. The findings highlight a positive, and statistically significant effect of higher education institutions efficiency on the regional economic growth. We also found negative spillover effects.

Foreign aid volatility and lifelong learning

This paper has put a demand-side empirical structure to the hypothesis that foreign aid volatility adversely affects choices to lifelong learning in recipient countries. Lifelong learning is measured as the combined knowledge acquired during primary, secondary and tertiary educational enrolments. Three types of aggregate foreign aid volatilities are computed in a twofold manner: baseline standard deviations and standard errors (standard deviations of residuals after first-order autoregressive processes). An endogeneity robust system GMM empirical strategy is employed. The findings broadly show that foreign aid volatility does not adversely affect the demand-side choices of lifelong learning in Africa. As a policy implication, when faced with aid uncertainty, the demand for education would increase. This may be explained by the need for more self-reliance in order to mitigate income risks or/and the use of education as means of coping with uncertainty. More policy implications are discussed.

Foreign aid volatility and lifelong learning

This paper has put a demand-side empirical structure to the hypothesis that foreign aid volatility adversely affects choices to lifelong learning in recipient countries. Lifelong learning is measured as the combined knowledge acquired during primary, secondary and tertiary educational enrolments. Three types of aggregate foreign aid volatilities are computed in a twofold manner: baseline standard deviations and standard errors (standard deviations of residuals after first-order autoregressive processes). An endogeneity robust system GMM empirical strategy is employed. The findings broadly show that foreign aid volatility does not adversely affect the demand-side choices of lifelong learning in Africa. As a policy implication, when faced with aid uncertainty, the demand for education would increase. This may be explained by the need for more self-reliance in order to mitigate income risks or/and the use of education as means of coping with uncertainty. More policy implications are discussed.

Foreign Aid Volatility and Lifelong Learning

This paper has put a demand-side empirical structure to the hypothesis that foreign aid volatility adversely affects choices to lifelong learning in recipient countries. Lifelong learning is measured as the combined knowledge acquired during primary, secondary and tertiary educational enrolments. Three types of aggregate foreign aid volatilities are computed in a twofold manner: baseline standard deviations and standard errors (standard deviations of residuals after first-order autoregressive processes). An endogeneity robust system GMM empirical strategy is employed. The findings broadly show that foreign aid volatility does not adversely affect the demand-side choices of lifelong learning in Africa. As a policy implication, when faced with aid uncertainty, the demand for education would increase. This may be explained by the need for more self-reliance in order to mitigate income risks or/and the use of education as means of coping with uncertainty. More policy implications are discussed.

Institutional quality and its impact on the facilitation of foreign direct investment

Purpose Improvements in the facilitation of foreign direct investment (FDI) through institutional quality play a significant role in the establishment of an open economy. However, the impact of institutional quality on the facilitation of FDI along the Belt and Road countries is not well explored. This study aims to empirically investigate the influence of institutional quality on the degree of FDI facilitation and explore the impact mechanism using national-level panel data from countries along the Belt and Road. Design/methodology/approach For the data set, all variables have been normalized, and principal component analysis has been used. For the empirical models, robust standard errors and dynamic GMM method have been used to alleviate heteroscedasticity and endogeneity. Findings The empirical results indicate that institutional quality has a significantly positive effect on the degree of FDI facilitation. Furthermore, the impact mechanism involves the mediating mechanism. In other words, the effect of institutional quality that promotes FDI facilitation is influenced by factors such as laws and regulations. In addition, the implementation of the Belt and Road Initiative (BRI) has significantly enhanced the promotional effect of institutional quality on the facilitation of FDI. Practical implications Policymakers should focus on improving the institutional quality and the influence of mediating mechanisms, such as policies and regulations, in the institutional environment. Originality/value This study contributes to extant literature on the impact of institutional quality on FDI facilitation of significance to China, the BRI countries, and other countries to facilitate openness in international investment. This study also contributes to the extant literature on the influence of the BRI on the development of BRI countries. This will inform policy makers, investment institutions and enterprises about the development of effective policies to aid the development of BRI countries and improve the efficiency and the returns on FDI.

What is the investment loss due to uncertainty?

We investigate the effect of uncertainty on investment. We employ a unique dataset of 25,000 Greek firms' balance sheets for 14 years covering the period before and after the eurozone crisis. A dynamic factor model is employed to proxy uncertainty. The investment performance of 14 sectors is examined within a dynamic investment model. Robust GMM estimates of the investment rate model reveal a high degree of heterogeneity among these sectors. Overall uncertainty affects negatively investment performance and this effect substantially increased in the years of crisis. Agriculture and Mining are the least affected and the most affected ones include Manufacturing, Real Estate and Hotels. Focusing on the response of investment to uncertainty, it emerges that (relative) smaller firms are affected more compared to larger ones.

Universities' Efficiency and Regional Economic Short-Run Grownth: Empirical Evidence from Russia

This paper analyses the link between the efficiency of regional higher education systems and the rates of regional economic development between 2012 and 2015 in Russia. The efficiency scores are calculated at the institutional level using a double-bootstrap data envelopment analysis (DEA) procedure, taking into account the different internal characteristics of universities which may affect their production process, and the scores are then aggregated at the regional level. We formulate a regional economic growth model that considers the efficiency of regional higher education systems as one of the explanatory variables. As an econometric method, we employ a robust GMM estimator. The model also includes spatial interactions between regional economies and between regional higher education systems in neighboring regions. The findings highlight a positive, substantial and statistically significant effect of HEI efficiency on the regional economic growth rate. We also found negative spillover effects indicating that efficient regional higher education systems may extract resources from neighboring regions.

GMM estimation of the spatial autoregressive model in a system of interrelated networks

This paper considers efficient estimation of spatial autoregressive models in a system of interrelated networks. An example describes a market situation with several chain stores competing against each other. The strategy of a store in the chain does not only involve coordination with the other stores in the same chain, but also competition against opponent stores in other chains. To estimate the system, we extend the generalized method of moments framework based on linear and quadratic moment conditions proposed by Lee (2007) and Lin and Lee (2010). We show that under some regularity assumptions the proposed GMM estimator is consistent and asymptotically normal. We derive the best GMM estimator under normality and propose a robust GMM estimator against unknown heteroskedasticity. Monte Carlo experiments are conducted to study the finite sample performance of the GMM estimation. We also provide an empirical application of the model on the spatial competition between chain stores in the market of prescription drugs.

Do Microprudential Regulations and Supervision Affect the Link Between Lending and Capital Ratio in Economic Downturns of Large Banks in the EU?

This paper extends the literature on the capital crunch effect by examining the role of public policy for the link between lending and capital in a sample of large banks operating in the European Union during economic downturns. Applying Blundell and Bond (1998) two-step robust GMM estimator, we show that restrictions on bank activities and more stringent capital standards weaken the capital crunch effect, consistent with reduced risk-taking and boosted bank charter values. Official supervision also reduces the impact of capital ratio on lending in downturns; however, its effect is only marginally significant in the sample of unconsolidated banks. Private oversight seems to be related to thin capital buffers in expansions, and therefore the capital crunch effect is enhanced in countries with increased market discipline. We thus provide evidence that neither regulations nor supervision at the microprudential level is neutral from a financial stability perspective. Weak regulations and supervision seem to increase the pro-cyclical effect of capital on bank lending.

Robust estimators and robust tests for the slightly contaminated stochastic logistic population models

ABSTRACTThis article introduces the robust indirect technique for the slightly contaminated stochastic logistic population models. Based on discrete sampled data with a fixed unit of time between two consecutive observations, we not only construct the robust indirect inference generalized method of moments (GMM) estimator for the model parameters, but also propose a likelihood-ratio-type indirect statistic and a robust indirect GMM saddle-point statistic for testing the parameters of interest. In addition, we develop the robust exponential tilting estimator and the robust exponential tilting test to improve their small sample performances. Finally, their finite-sample properties are studied through Monte Carlo experiments.

Stability and profitability in the Chinese banking industry: evidence from an auto-regressive-distributed linear specification

The important role played by the Chinese commercial banks in the development of China’s economy has made the government and banking regulatory authority concerned about the performance of these banks.Indeedthe stability of the banking sector has attracted greater attention since the financial crisis of 2007-2009. The principal objective of this study is to investigate the inter-relationships between profitability and stability in the Chinese banking industry. Using a sample of Chinese commercial banks over the period 2003-2013, the study examines the inter-relationships under an auto-regressive-distributed linear model. Both Z-score and stability inefficiency were used as measures of stability, while Return on Assets (ROA) was used as the indicator of profitability. Different types of Generalized Method of Moments (GMM) estimators including difference GMM, one-step system GMM, two-step system GMM as well as two-step robust GMM were used. In order to the check the robustness of the results, alternative econometric techniques were used, such as ordinary least square (OLS) estimator, between effect estimator, as well as fixed effect estimator. The results show that higher insolvency risk/lower bank stability leads to higher profitability of Chinese commercial banks and also that higher profitability leads to higher bank fragility. Keywords: bank profitability, bank risk, China. JEL classification: G21, C23