Simultaneous Equation Estimation Research Articles

E-government, Economic Growth and Trade: A Simultaneous EquationApproach

Does e-government promote trade and economic growth? This paper attempts to answer this question by employing simultaneous equation estimation approach and using a crosssection data of 147 countries. This is first study which has empirically estimated the bilateral relationships between economic growth and e-government, trade and e-government and trade and economic growth. The findings indicate that e-government is a stimulant of both economic growth and trade. The results predict the presence of a bilateral relationship between egovernment and economic growth, trade and e-government, and unilateral causality exists from trade to growth.

The paradox of human resource investment in smoking households

This research aims to analyze the effects of cigarette expenditure on human resource investment in smoking households. Independent variables used besides cigarette expenditure were income and the level of education of the head of the family. The control variables used were poverty, residence location, the number of working family members, and the number of family members. The method of data analysis used in this study was Simultaneous Equation Estimation. This method was used due to the interplay between dependent and independent variables. The parameter estimation process in a simultaneous equation model employs the two-stage least squares (2SLS) method due to model identification indicating over-identification. The observed analytical units are two-generation smoking households, making the observations in this research intergenerational in character. The results of the study indicate that cigarette expenditures will reduce human resource investment in smoker households in the long term. A bigger impact was apparently found when the condition occurred in poor families. Poor smoking households will be trapped in a vicious cycle of poverty that is worsened by the addictive trait of cigarettes, which will reduce other essential expenditures in the household (such as education and health). The situation of poor smoking households will also infect the next generation (children’s households), where intergenerational influences have taken place. A situation where cigarettes become an expenditure that cannot be displaced but rather will displace expenditures for education and health investment.

Cross-listing, capital structure and firm performance: A simultaneous equation estimation

This paper investigates the relationship between cross-listing, capital structure and performance jointly for non-US firms cross-listed in the US. Using a sample of 703 companies over the period ranging from 1980 to 2019, we show a simultaneous significant effect of cross-listing on capital structure and performance and find bi-directional causality between the two later variables. Cross-listed firms issue more equity and exhibit better valuation. The legal bonding associated with the reasons for cross-listing finds its support. Firms that originated from a poor legal environment issue more equity and exhibit better performance when they cross-list their shares in the US, given that they better protect minority shareholders’ interests. Our results were robust to the use of several control variables.

Coefficient estimation of simultaneous equations in the case of stochasticity of exogenous variables

The paper deals with the question of obtaining such an estimate of the parameters of the model of simultaneous equations, which would have better statistical properties in comparison with the estimates of both the usual method of least squares and two-, three-step methods of least squares, as well as the method of fixed point and other methods of evaluating the coefficients of the equations considered in the system simultaneously. The main drawback of methods based on minimization of the sum of squares of deviations of real observations from some theoretical dependence is that the sum of squares of errors that correlate with the values of variables included in the expression for these errors is minimized. A violation of the basic assumption of least-squares methods about the independence of predetermined variables and errors leads to the fact that least-squares estimation methods in this case lose their best properties: unbiasedness, efficiency, and consistency. The paper proves the theorem about the efficiency of estimates obtained using two-step least squares methods and that of estimates obtained using the method of factorization of simultaneous equations.

Determinant of Capital Efficiency and Its Impact on Economic Growth: Empirical Evidence in East Java

East Java is the engine of Indonesia’s economic growth. Nevertheless, this region is still faced with the performance of industrial development, which has yet to increase consistently, thereby worsening efficiency and economic growth. As a result, this paper aims to investigate the causes and consequences of capital efficiency in the context of East Java. This paper produces three results by employing the 3SLS simultaneous equation estimation method. First, this paper demonstrates that industrial development in East Java improves efficiency. Second, improving the education level has a positive effect on capital efficiency. Lastly, an increase in capital inefficiency leads to a negative effect on economic growth in East Java. This study suggests three key policies for accelerating economic growth in East Java: providing incentives to industries that can increase capital efficiency, developing innovations to increase capital efficiency, and improving education quality to encourage increased human resource productivity.JEL Classification: D24, O14, O4How to Cite:Santoso, D. B., & Suman, A. (2023). Determinant of Capital Efficiency and Its Impact on Economic Growth: Empirical Evidence in East Java. Signifikan: Jurnal Ilmu Ekonomi, 12(1), 1-10. https://doi.org/10.15408/sjie.v12i1.29965.

Determinants of demand and supply of microcredit among fish farmers in Osun State

With the help of microcredit, a farmer’s way of life could be transformed from one of utter destitution to one of greater dignity. For the poor and disadvantaged, especially rural farmers, it unlocks potential and increases productivity and well-being. This study investigated the determinants of demand and supply of microcredit among fish farmers in Osun State. A multi-stage sampling procedure was used to select 150 fish farmers and 50 microcredit providers for the study. Data were analyzed using descriptive statistics and a simultaneous equation model. The result revealed that many fish farmers are males (86.5%), married (77%), and educated (95%). Simultaneous equation estimates revealed that farmers’ income, age, interest rate, and educational level determine microcredit demand among fish farmers whereas liquidity, experience in lending, and interest rate determine the microcredit supply in the study area. The findings of the study revealed that microcredit suppliers consider several factors before supplying credit to fish farmers.

How does the construction of China’s ecological civilization affect the health burden of urban and rural residents?

Accelerating the construction of ecological civilization and promoting the management of health environment problems is one of the core elements of the implementation of the “Beautiful China” and “Healthy China” strategies with Chinese characteristics in the new era. Based on the scientific connotation of ecological civilization, this paper systematically assesses the level of interprovincial ecological civilization construction in China using the combined CRITIC empowerment method and explores the impact of ecological civilization construction on the health burden of urban and rural residents using interprovincial panel data from 2003 to 2018 with the help of panel feasible generalized least squares, simultaneous equation estimation, and the extended regression model. It is found that there is a significant inverted U-shaped relationship between provincial ecological civilization construction and urban and rural residents’ economic health burden, as well as a significant U-shaped relationship between ecological civilization construction and urban and rural residents’ disease burden. Fiscal decentralization, urbanization, and industrialization are the three important indirect mechanisms through which ecological civilization affects the health burden of urban and rural residents, and fiscal decentralization plays a typical role in crowding out the health effect of ecological civilization. In the eastern and central regions, ecological civilization construction has effectively reduced the health burden of urban and rural residents, but it is more significant for improving the economic health burden of rural residents. While the “catching-up trend” of the progress of ecological civilization construction in the western region is obvious, ecological civilization plays an important role in alleviating the economic health burden of urban residents. After the robustness test, the conclusion still holds. This study provides an important empirical basis for local governments to improve the accuracy of their policies in promoting the “Beautiful China” and “Healthy China” strategies.

The Relationship between Foreign Direct Investment and Environmental Pollution in Developing Countries: Evidence from simultaneous equations estimation

The Relationship between Foreign Direct Investment and Environmental Pollution in Developing Countries: Evidence from simultaneous equations estimation

Air Pollution, Environmental Regulations and Economic Growth — Estimation of Simultaneous Equations Based on Panel Data of Prefecture-Level Cities

Abstract The article selects the panel data of 289 prefecture-level and above cities in China from 2003 to 2017, establishes simultaneous equations and uses the 3SLS estimation method to study the relationship between air pollution and economic growth. On the whole, industrial sulfur dioxide and soot emissions have an inverted U-shaped relationship with per capita GDP, and the increase in sulfur dioxide emissions has played a significant role in hindering economic growth. From a regional perspective, the sulfur dioxide emissions in the eastern and western regions conform to the environmental Kuznets curve, and the per capita GDP at the turning point in the western region is significantly lower than the overall national level. The smoke and dust emissions in the eastern, central and western regions all conform to the environmental Kuznets curve, while the per capita GDP at the turning point in the western region is significantly lower than that in the eastern and central regions. In the eastern region, both sulfur dioxide and smoke and dust emissions significantly hinder economic growth, and this hindrance is mainly caused by the spatial transfer of labor. Through further analysis, it is found that environmental regulations can significantly suppress the negative impact of air pollution on economic growth. Finally, the article puts forward some suggestions, such as environmental governance according to local conditions and strengthening environmental regulations.

Renewable energy, urban primacy, foreign direct investment, and value-added in European regions

This study examines the relation among renewable energy consumption, urban primacy, net FDI inflow, and value-added in manufacturing, construction and mining, services, and agriculture sectors from 2000 to 2019 in four-panel of European regions, Western Europe (WE), Eastern Europe (EE), Northern Europe (NE), and Southern Europe (SE). This research uses the 3SLS simultaneous equation estimation as the main methodology and the panel data cointegration test to check the stationarity. The results show the causality among the renewable energy consumption and agriculture sectors is positive in NE and SE region and negative in EE and WE region. Construction and mining sectors have no causality in SE and EE regions, and, bidirectional causality in NE and WE regions with renewable energy. Finally, the service sector and agriculture sector have bidirectional causality with renewable energy consumption in EE, WE, NE, and SE regions.

Informational role of futures volume for spot volatility

PurposeThe paper aims to explore the informational role of futures volume in the simultaneous relationship between option volume and spot volatility to forecast the volatility of the underlying asset.Design/methodology/approachThe generalized method of moments is used to estimate the simultaneous equations of endogeneity between spot volatility and option volume. Futures volume is specified as an exogenous variable in both legs of the estimation of simultaneous equations. However, the future volume is also tested as a dependent variable to prove preference for investment by informed investors in futures along with options.FindingsThe result indicates that futures volume has a significant association with the bi-directional simultaneous equation estimation between spot volatility and option volume. Moreover, the result of this paper proves that informed investors also prefer futures markets over the spot market. However, there is no change observed in the relationship between option volume and spot volatility due to either call or put options or moneyness.Originality/valueThe possible role of futures volume in the simultaneous equations between spot volatility and option volume has not yet been researched. This paper pioneers in demonstrating that futures volume is an exogenous variable in the simultaneous equation modeling between spot volatility and option volume. Moreover, in the contemporaneous as well as predictive relationships between spot volatility and option volume, futures volume as an exogenous variable is significant in forecasting spot volatility. In addition to this, the current paper uniquely provides evidence of investment in futures also over the spot market by informed investors.

Simultaneous Equation Estimation in Finance and Corporate Financial Decision: Empirical Evidence from Pakistan Stock Exchange

Simultaneous Equation Estimation in Finance and Corporate Financial Decision: Empirical Evidence from Pakistan Stock Exchange

Cash flow uncertainty and IPO underpricing: evidence from income guarantee in Thai REITs

PurposeThe purpose of this article is to investigate the relationship between cash flow uncertainty and the underpricing of real estate investment trust (REIT) initial public offerings (IPOs) using hand-collected data on income guarantee in Thailand from January 2005 to December 2019.Design/methodology/approachThis article uses linear regression to determine the relationship between underpricing (initial return) and proxy for cash flow uncertainty (income guarantee), controlling for other factors. Because issuers can use several actions to signal their quality under asymmetric information, the joint decisions are analyzed as simultaneous equations and estimated using three-stage least square (3SLS) to address potential endogeneity concern.FindingsThis article finds that underpricing, on average, is negatively related to income guarantee, which is a proxy for ex ante cash flow uncertainty. The relationship is economically and statistically significant and robust to simultaneous equations estimation. Further investigation shows that REITs with income guarantee tend to have lower systematic risk (measured by CAPM beta) and returns, making the nature of some REITs more debt-like than equity-like.Practical implicationsFor issuers, the result suggests that offering income guarantee (which is more costly for assets with lower quality) can be a useful signal of asset quality to investors and reduce IPO discount. For institutional and retail investors, the results are informative about the risk-return tradeoffs in REIT IPO investment opportunities. Income guarantees makes REIT exposure more fix income-like, so there is a need to consider the credibility of the guarantor as well.Originality/valueThis article is the first to use income guarantee as an ex ante measure of cash flow uncertainty and explicitly investigates its linkage to IPO underpricing. This aspect of uncertainty and IPO underpricing remains little-studied in the academic literature. It also contributes to the growing literature of REIT IPOs in Asia.

Renewable Energy, Urban Primacy, Foreign Direct Investment, and Value-Added in European Regions

This study examines the relation among renewable energy consumption, urban primacy, net FDI inflow, and value-added in manufacturing, construction and mining, services, and agriculture sectors from 2000 to 2019 in four-panel of European regions, Western Europe (WE), Eastern Europe (EE), Northern Europe (NE), and Southern Europe (SE) using 3SLS simultaneous equation estimation as the main methodology and panel data cointegration test to check the stationarity. The results show the causality among the renewable energy consumption and agriculture sectors is positive in NE and SE region and negative in EE and WE region. Construction and mining sectors have no causality in SE and EE regions, and, bidirectional causality in NE and WE regions. Finally, service sector value addition has bidirectional causality with renewable energy consumption in EE, WE, NE, and SE regions.

Oversight or Representation? Public Opinion and Impeachment Resolutions in Argentina and Brazil

Why do legislators introduce impeachment resolutions against the president, even though most of these resolutions never succeed? We explore two possible answers to this puzzle, which are linked to the legislative functions of oversight and representation. First, legislators initiate impeachment procedures to expose (real or alleged) presidential misdeeds, an action that may weaken the president’s approval rates, even if an impeachment process remains unlikely. Second, legislators introduce impeachment resolutions to express their constituents’ outrage in the context of corruption scandals or poor economic performance—that is, in response to an exogenous decline in presidential approval. To test these hypotheses, we analyze 274 impeachment resolutions introduced against the presidents of Argentina and Brazil since the transition to democracy. We estimate models predicting presidential approval and impeachment resolutions using time‐series and simultaneous equations estimators. Our results strongly support the representation hypothesis.

Correlated Shocks, Hysteresis, and the Sacrifice Ratio: Evidence from India

ABSTRACT In an emerging market with frequent shocks output sacrifice from disinflation depends not only on the Phillips curve slope but also on shifts in demand and supply. Introducing shocks and correlations between shocks in a Kalman filter-based estimation, the slope flattens, correlation between permanent supply and gap demand shocks is negative and a new decomposition of output between trend and output gap shocks is obtained. The slope is robust to parameter changes and business cycle turning points are tracked well, but the decomposition varies. More stable inflation expectation and rise in forward-looking behavior increase the volatility of trend growth and reduces the output gap. Inflation targeting had such effects in India. Estimated sacrifice ratio varies with the period and method, but it rises to 6.7 over 2011–17 if such hysteresis is included. Simultaneous equation estimation corroborates the results. In the estimation period, inflation targeting affected expectations but not inflation.

L1‎‎ Norm Based Data Analysis and Related Methods

This paper gives a rather general view on the L1‎‎ norm criterion on the area of data analysis and related topics. We tried to cover all aspects of mathematical properties, historical development, computational algorithms, simultaneous equations estimation, statistical modeling, and application of the L1‎‎ norm in different fields of sciences.

The IPO initial returns-aftermarket risk question revisited: evidence from firms in Taiwan

The purpose of this study is to utilize the Three Stage Least Squares (3SLS) of the simultaneous equation estimation approach to revisit the possible cross relationship between IPO initial returns and aftermarket risk. A structural form equation system of IPO initial returns and aftermarket risk equations is estimated first to obtain the structural form coefficients. The analytically derived reduced form coefficients are then calculated to analyze the net effects of each exogenous variable on two endogenous variables. Major findings of this study are as follows. First, the signs of net effects of all exogenous variables on IPO initial returns and aftermarket risk are the same. In other words, any change in exogenous variables, IPO initial returns and IPO aftermarket risk will change in the same direction, i.e., the higher (lower) the IPO initial returns, the higher (lower) the IPO aftermarket risk. Second, the less the degree of corporate governance, the higher the IPO initial returns and aftermarket risk. Third, the higher the market risk or return before IPO, the higher the IPO initial returns and aftermarket risk.

Corporate Social Responsibility and Rule 144A Debt Offerings: Empirical Evidence

Rule 144A allows a firm to issue securities without a public registration statement with the Securities and Exchange Commission, and only qualified institutional investors can purchase such securities. In this study, focusing on corporate bonds issued under Rule 144A, we empirically investigate the relationship between the corporate social responsibility (CSR) of issuing firms and the bond yield spread at issuance. We document a significant and positive relation between CSR concerns, whereas CSR strengths seem to play an insignificant role in determining bond yield spread. Our main findings are robust to the instrumental variable approach and simultaneous equation estimation to address the potential endogeneity issues. We further explore the time-series changes in issuing firms’ CSR profiles, and report that institutional investors demand a higher bond yield spread when issuing firms’ exposure to higher social, environmental, and stakeholder concerns. Our analyses reveal that the main sources of such risk exposure are stakeholder conflict and concerns from primary stakeholder groups.

Foreign Direct Investment and Growth Symbiosis: A Semiparametric System of Simultaneous Equations Analysis

AbstractWe characterize the types of interactions between foreign direct investment (FDI) and economic growth, and analyze the effect of institutional quality on such interactions. To do this analysis, we develop a class of instrument-based semiparametric system of simultaneous equations estimators for panel data and prove that our estimators are consistent and asymptotically normal. Our new methodological tool suggests that across developed and developing economies, causal, heterogeneous symbiosis and commensalism are the most dominant types of interactions between FDI and economic growth. Higher institutional quality facilitates, impedes or has no effect on the interactions between FDI and economic growth.