Structural Break Unit Root Test Research Articles

Analysis of the Effects of the Economic Crises and Pandemic on Foreign Trade in 1994-2022 with RALS-LM Structural Break Unit Root Test Method: The Case of Türkiye

Türkiye commenced adopting export-led growth model by 1980. Via policies prioritizing the increase in export revenues, such as tax refunds, export credits, tax exemptions, and other subsidies, Türkiye targeted economic development by engaging in international trade and becoming a global economic agent. On the other hand, Türkiye gradually liberalized its financial markets starting in 1983 and completed the process of full liberalization of capital movements in 1989. However, adopting those liberal policies, Türkiye suffered many economic crises (1994, 2001, the 2008 global financial crises), paving the way to a sudden downturn in GDP, a decline in real income per capita, and employment. Also, the 2016 coup attempt, the 2018 Pastor Brunson crisis with the United States, and the COVID-19 pandemic in 2020, which created a severe global economic slowdown, negatively affected Türkiye’s economy. In this respect, within this paper, we aim to evaluate the impacts of those financial crises and the COVID-19 pandemic between the years 1994-2022 on Türkiye’s foreign trade and to find out if the effects of those crises on Türkiye’s foreign trade are temporary or permanent.
 For this reason, we utilized the RALS-LM Structural Break Unit Root Test Method. The results underline that the 2008 global financial crisis substantially affected Türkiye’s exports and imports. However, the results also underline that the effects of the 2008 global financial crisis on Türkiye’s foreign trade were temporary.

Kırılgan Piyasa Ekonomileri Arasında Döviz Kurları Yakınsıyor mu? LM ve RALS-LM Birim Kök Testlerinden Yeni Kanıtlar

Global financial integration causes the economic consequences of economic crises, wars, or pandemics to be felt more in developing countries and triggers high exchange rate volatilities in these economies. In such an integrated financial environment, it is an interesting research domain how and why the exchange rate volatilities of countries are not affected similarly but tend to diverge from each other. This study investigates whether the exchange rate volatilities of fragile market economies converge in the stochastic convergence framework. To answer this question, we analyzed the stochastic behavior of the series using the traditional and structural break unit root tests besides RALS unit root tests, which consider the information of non-normal errors. The discussions regarding the size and power properties of test procedures in the unit root testing literature have formed a crucial part of the implications of the test results. In light of these discussions, we conclude that the stochastic convergence assumption is valid for Brazil, South Africa, India, and Hungary, whereas it is not valid for Argentina, Mexico, and Türkiye. The policy implications of our findings are that fragile market economies have different fragility levels among themselves and countries with high fragility levels show higher volatility than others.

Why Did Housing Prices Rise to a Record Level in Turkey? An Empirical Analysis

Abstract Turkey is one of those countries where housing market has been most severely affected by COVID-19 pandemic. Today the effects of the outbreak have been eliminated significantly. This study retrospectively looks at the days when the world faced a widespread outbreak of a pandemic and investigates the effect of the pandemic and the changes in consumer confidence on housing prices and the volatility of housing prices. Considering the structural breaks in the analysis period (2010:q1-2022:q4 quarterly), we used the Lee and Strazicich structural break unit root test as a research method. The results show that an increase in costs due to a break in the supply chain and containment measures forcing the workforce to stay at home affected the housing supply adversely. It is observable that expansionary economic policies and social assistance programs have a positive effect on housing demand. In this regard, negative supply shock and positive demand pressure are seen to be the determinants of the recent housing price increases in Turkey. However, while there is a positive relationship between consumer confidence and house prices, the effect of house prices on the volatility is statistically insignificant.

Neo-Fisher Yaklaşımından Döviz Kuru, Faiz ve Enflasyon Spiralinin Değerlendirilmesi: Türkiye Örneği

In this study, it has been determined whether the Neo-Fisher effect is valid in Turkey, and an examination has been made of the exchange rate, inflation, export, and import effects within the framework of the applied interest policies. In the study, structural break time series analysis was used to examine the consumer price index, nominal interest rates, real effective exchange rate, and export-import linkages in Turkey with monthly data in the period 2003:M1-2021:M9. Lee-Strazicich unit root test was used for multiple structural break unit root test, and the ARDL (Autoregressive Distributed Lag Bound Test) method with dummy variables was used for long and short term relationships between series. In the analysis findings, the existence of long-term and short-term cointegration between exports, imports, exchange rates, interest rates and inflation has been determined. Exports and imports are most affected by the exchange rate in both the long and short run. Inflation is affected by both the exchange rate and interest rates in the long and short run. The effect of the exchange rate on inflation is much greater than that of interest rates.

Asymmetric environmental performance under economic complexity, globalization and energy consumption: Evidence from the World's largest economically complex economy

In spite of the constraint for better environmental defense and the realization of the Sustainable Development Goals (SDGs), natural gas, coal, and oil consumption holds to dictate Japan's power mix. Considering this concern, this study scrutinizes the impact of globalization, economic complexity, and renewable and fossil fuel energy consumption on ecological footprint for the period of 1990–2020 with various systematic methods (e.g. structural break unit root and cointegration tests and long-run and short-run nonlinear relationship). The empirical findings of this study reveal that positive shocks in structural changes, globalization, and renewable energy significantly protect environmental quality in Japan by reducing the country's ecological footprint. Similarly, a negative shock in renewable energy also increases environmental quality in the long-run. However, negative shocks in globalization and fossil fuels cause to increase the level of environmental pollution. Similarly, a positive shock in fossil fuel energy also increases ecological footprint level in the long-run. Likewise, the short-run coefficient signs are also similar to the long-run coefficient sign but different in significance level and magnitude. This has paved the way for a well-designed policy structuring from the policymakers and government of Japan with the spotlight on the processes of structural change and energy consumption in the globalized world.

Does Environmental Degradation-Led Remittances Flow? Nexus between Environmental Degradation, Uncertainty, Financial Inclusion and Remittances Inflows in India and China

The motivation of the study is to gauge the role of economic policy uncertainty (EPU), environmental degradation (ED), and financial inclusion (FI) on remittances in India and China for the period 2003Q1-2022Q1. The study performed several econometrical tools such as both conventional and structural break unit root tests, long-run cointegration between variables investigative by performing the novel combined cointegration test, augmented autoregressive distributed lagged (AARDL) implemented for exploring long-run cointegration and explanatory variables magnfititutes on remittances both in the long-run and short-run and directional causality performed with Fourier TY causality test. Combined cointegration and the AARDL test ascertained the long-run association in the empirical equation. Refers to long-run coefficients of EPU, ED, and FI, it revealed a positive and statistically significant linkage with remittance inflows in the economy. In addition, the causality test reveals directional effects available between FDI, GLO, and remittances, but the direction differs from among economics. Furthermore, the study performed a robustness test by implementing dynamic OLS, fully modified OLS and CC regression and supported the earlier model established relationship, especially in the long-run the coefficients of  EPU, ED, and FI.

The asymmetric impact of financial development on ecological footprint in Pakistan.

The current research aims to investigate the impact of financial development on the ecological footprint in Pakistan from 1980 to 2018 by controlling economic growth, the square of economic growth, and energy consumption. The structural break unit root test results show that all variables are stationary at first difference. The bound F-test for cointegration affirmed the indications of a long run connection between the parameters in the discussion. Moreover, we use the non-linear autoregressive distributed lag model to check the non-linear links in establishing the associations between financial development and ecological footprint. The outcomes suggest an asymmetric connection between financial development and ecological footprint because positive and negative shocks in financial development have different effects on ecological footprint. The findings reveal that the impact of the positive shock on financial development is negative but insignificant. Besides, the impact of the negative shock on financial development is positive and statistically significant. It implies that a 1% increase in the negative shock of financial development causes a 0.0877% rise in ecological footprint. The coefficient of economic growth is significant at a 1% level of significance. In the long run, a 0.4471% increase in ecological footprint is associated with a 1% increase in economic growth. However, the coefficient of the square of economic growth is negative but insignificant. Thus, the environmental Kuznets curve hypothesis is not valid in Pakistan. Likewise, energy consumption positively affects the ecological footprint. The results of short run estimates correspond to the long run estimates. As a policy suggestion, the current study suggests expanding green financial development in Pakistan by emphasizing more on Sustainable Development Goals.

Do changes in land use, water bodies, and grazing pastures have a detrimental influence on environmental quality? Opportunities and threats to long-term growth

Land use activities mainly for economic and agricultural purposes have converted one third to one half of our planet's land surface into urban expansion and agricultural practice, which has had significant impacts on natural ecosystems, food production, and environmental quality, attracting the attention of researchers and policymakers. Consequently, land use is emerging as a fundamental issue in global environmental change and sustainable development. This study represents an addition to the prevailing literature by investigating the asymmetric impacts of land-use and land-cover changes on environmental quality in Pakistan using time series data from 1961 to 2016. Carbon dioxide (CO2) emissions were deemed a dependent variable (a proxy for environmental quality), whereas built-up land, cropland, water bodies, and grazing land were considered independent. A nonlinear ARDL bound testing technique (NARDL) was used to investigate dynamic cointegration among the study variables. Moreover, this study used the BDS test and structural break unit root test to confirm nonlinearity and stationarity of the data set. The results confirm that the variables exhibit asymmetrical co-integration. There is a symmetric unidirectional causation, running from built-up land and grazing land towards CO2 emissions with coefficients of 10.570 and 17.045, respectively. Furthermore, asymmetric causality shows that any positive shocks to built-up land (6.134) and water bodies (20.335) significantly cause CO2 emissions. Similarly, a negative shock to grazing land (16.470) also causes CO2 emissions. By contrast, a neutral effect was found between cropland and CO2 emissions.

Nexus between FDI and globalization-led energy diversification in BRICS: Fresh evidence from a newly constructed Energy diversification index

The motivation of the study is to gauge the role of foreign direct investment and globalization on energy diversification in BRICS (Brazil, Russia, India, China and South Africa) for the period 1985–2019 by utilizing a newly constructed energy diversification index. The study performed several econometrical tools such as both conventional and structural break unit root tests, long-run co-integration between variables investigative by performing the novel combined co-integration test, augmented autoregressive distributed lagged (AARDL) implemented for exploring long-run co-integration and explanatory variables coefficients on energy diversification both in the long-run and short-run and directional causality performed with Fourier TY causality test. Stationary tests established variables are integrated in mixed order, suggesting variables become stationary at a level or after the first difference but neither for the second difference. Combined co-integration and the AARDL test ascertained the long-run association in the empirical equation. Refers to long-run coefficients of FDI and GLO, it revealed a positive and statistically significant linkage with energy diversification. In addition, the causality test reveals directional effects between FDI, GLO and energy diversification index, but the direction differs from among economics. Furthermore, the study performed a robustness test by implementing dynamic OLS, fully modified OLS and CC regression. It is found to the sign of long-run coefficients, especially FDI and GLO, as in the same line of robust tests. On policy grounds, it is undoubtedly established that to ensure energy sustainability through energy source diversifications, the critical role of FDI and globalization have to grab with a serious note in BRICS nations.

Linking shadow economy and CO2 emissions in Nigeria: Exploring the role of financial development and stock market performance. Fresh insight from the novel dynamic ARDL simulation and spectral causality approach

First and foremost, the present study seeks to traverse the informal sector characterized by a shadow economy in the presence of financial development, economic growth, and stock market performance on environmental pollution in Nigeria from 1981 to 2019. The dynamic autoregressive distributed lag (DARDL) approach was used to measure the short- and long-run elasticities, while spectral causality is applied to categorize the causal directions. Findings from the study revealed that the structural break unit root test revealed that all variables are stationary at first difference. The ARDL bound test confirmed the existence of long-run association among the used variables. The ARDL long-run results reveal that economic growth, financial development, and stock market performance are significantly responsible for carbon emission in Nigeria, while the shadow economy significantly improves environmental quality in Nigeria. Findings from the spectral causality results show a unidirectional causal relationship between financial development, economic growth, trade, stock market performance, and shadow economy to carbon emission in Nigeria. The empirical findings of this study provide some perceptive policy recommendations to overcome the adverse effect of carbon emissions in the environment.

THE EFFECTS OF CHANGES IN EXCHANGE RATE ON FOREIGN HOUSİNG DEMAND: IN TURKEY

Çalışmamızın amacı reel döviz kurundaki değişimlerin yabancı konut talebi üzerindeki etkisinin araştırılmasıdır. Bu amaçla yabancılara yapılan konut satışlarına döviz kurunun etkisi incelenmek istenmiştir. Bu çalışmada ülke uyruklarına göre yabancılara yapılan konut satış rakamları 2015 yılı itibariyle yayınlandığı için 2015-2021 dönemini kapsayan ülke uyruklarına ait aylık yabancılara yapılan konut satış verileri kullanılmıştır. Bu doğrultuda yapısal kırılmalı birim kök ve eşbütünleşme testleri kullanılmıştır. Zaman serisi analizinin kullanıldığı modelde bağımlı değişken yabancılara konut satışı olup bağımsız değişkenler olarak reel efektif döviz kuru ve konut fiyat endeksi rakamları kullanılmıştır. Gregory-Hansen eşbütünleşme testi sonuçlarına göre yabancılara konut satışı ile reel efektif döviz kuru ve konut fiyat endeksi arasında uzun dönemli eşbütünleşme ilişkisinin varlığı görülmektedir. Eşbütünleşme ilişkisi bulunan değişkenler arasında uzun dönemli ilişkinin analizi yapısal kırılmaların kukla değişken olarak analize dahil edildiği FMOLS katsayı yöntemi ile araştırılmış ve reel efektif döviz kurundaki %1’lik azalış (TL’nin değer kaybetmesi) yabancı konut satışını %3.43 arttırdığı sonucu elde edilmiştir. Konut fiyat endeksi değişkeninin katsayısı ise istatistiksel olarak anlamsız çıkmıştır.

Transition to Renewable Energy Production in the United States: The Role of Monetary, Fiscal, and Trade Policy Uncertainty

Renewable energy has emerged as a key to attain higher economic growth without any detrimental impact on the environment. Therefore, the entire world is in the transition phase from non-renewables to renewables. To improve the levels of production of renewable energy, it is inevitable to discern its determinants. Hence, this study aims to probe the impact of monetary, fiscal, and trade policy uncertainty on renewable energy production in the United States. To this end, the novel smooth and sharp structural breaks unit root test is used to scrutinize the order of integration. Next, we also apply the novel augmented autoregressive distributed lag methodology for discerning cointegration. The findings note that, in the long- and short-run, monetary policy uncertainty plunges the production of renewable energy, whereas fiscal policy uncertainty upsurges it. Further, trade policy uncertainty does not affect renewable energy production. Based on these results, we propose policy suggestions that could expedite the transition to renewables.

Determinants of Public Healthcare Investment: Cointegration and Causality Evidence from Pakistan

A healthy population and human capital are essential for the emerging countries to achieve faster but more sustainable development, which can only be achieved by investing exclusively in health. The need to probe cause-and-effect relationship between the factors influencing the public health expenditures is the driving force behind this investigation. This study empirically investigates the cointegration and causal relationship between healthcare expenditures (HCE), income, healthcare infrastructure (HCI), and healthcare services (HCS) in Pakistan from 1974 to 2017. Lee-Strazicich and Clemente-Montanes-Reyes structural break unit root tests are employed in addition to standard unit root testing. The Bayer-Hank, Gregory-Hansen, and Hatmei-J cointegration tests consistently show that HCE, income, HCI, and HCS are cointegrated. The short-run Granger causality inferences show unidirectional causalities from HCE to HCI and HCS, from income to HCE, whereas bidirectional causality is observed between HCI and income and between HCI and HCS. Similarly, Long- run casualty results show unidirectional causality from income to HCE, from HCE, income, and HCS to HCI, and bidirectional causality between HCS and HCE.  The findings suggest that the government may play an obligatory role in healthcare financing and must pay special attention to the equitable distribution of healthcare facilities, infrastructure, and services across Pakistan.

The effect of renewable energy consumption on economic growth in KSA: A bootstrap causality test

The majority of studies analyzed show a positive and statistically significant impact of renewable energy consumption on economic growth. Nevertheless, some studies suggest a limited effect, while others find no statistically significant effect. Faced with this problem, we conducted a study aimed at analyzing the impact of renewable energy consumption on economic growth in the Kingdom of Saudi Arabia for the period 1990–2020. To determine the integration properties of the variables, we utilized the sharp and smooth structural breaks unit root test developed by Shahbaz, Omay and Roubaud (SOR). We also used the bootstrap approach of testing ARDL limits to examine the cointegration between variables. Using the VECM model, we studied the causal relationship between economic growth and its determinants. The results show, in the short and long run, the existence of a bidirectional causality between renewable energy consumption and economic growth (Feedback Hypothesis). Thus, there is a bidirectional relationship between GDP and capital and also between GDP and labor, in the long run. Therefore, an important policy implication resulting from this analysis is that renewable energy can be considered as an important factor for sustainable economic development in Saudi Arabia. The findings for Saudi Arabia may also be relevant for oil exporting countries to achieve efficiency and promote the renewable energy sector beyond oil.

Does Tourism Induce Sustainable Human Capital Development in BRICS Through the Channel of Capital Formation and Financial Development? Evidence From Augmented ARDL With Structural Break and Fourier-TY Causality

The motivation of the study is to explore the nexus tourism-led sustainable human capital development (HCD) in Brazil, Russia, India, China, and South Africa (BRICS) for the period 1984–2019. The study applied several econometrical techniques for exposing the empirical association between tourism and HCD, such as the conventional and structural break unit root test, the combined cointegration test, long-run and short-run coefficients detected through implementing the Augmented Autoregressive Distributed Lagged (AARDL), and directional causality by following Toda-Yamamoto with Fourier function. The unit-roots test established variables are integrated in mixed order, wherein variables are stationary at a level or after the first difference. The estimated test statistics from the combined cointegration test and AARDL confirmed the long-run association between tourism, gross capital formation, financial development, and HCD. Tourism revealed a positive and statistically significant tie with HCD in the long run. Moreover, the joint effects of interactive terms TOR*GCF and TOR*FD (TOR, GCF, and FD denoting tourism development, gross capital formation, and financial development, respectively) established a positive and statistically significant relationship with HCD. In addition, the causality test revealed the feedback hypothesis available between tourism and HCD in all sample countries except India. In conclusion, the role of tourism development is critically important for sustainable HCD in BRICS. Therefore, in case of a policymaking concern, it is inevitable to address the tourism issues with care for capitalizing on the benefits for tourism development.

Do Sectoral Growth Promote CO2 Emissions in Pakistan? Time Series Analysis in Presence of Structural Break

This study has examined the impact of sectoral growth on CO2 emissions in the case of Pakistan from 1970 to 2019. ADF and PP unit root tests have been applied to check the stationarity of the data series, whereas the Zivot-Andrew structural break unit root test has been applied to check the existence of structural break. The results of the unit root test show there is mixed order of integration among the selected variables, Zivot-Andrew unit root test also highlights the point of a structural break in the data series. The autoregressive distributed lag model has been applied for checking the cointegration among the variables of the model. The results show that industrial growth, population density, and time trend are positively and significantly contributing to CO2 emissions in Pakistan. Whereas services sector growth is responsible for reducing CO2 emissions in Pakistan. The results show that agricultural growth and globalization are reducing CO2 emissions but this relationship is insignificant over the selected time. In the short-run industrial growth, agricultural growth, and service sector growth are reducing the level of CO2 emissions in Pakistan. Likewise long run, trend time is promoting CO2 emissions in the short run in Pakistan. The government of Pakistan can control CO2 emissions by improvement in industrial production methods, reducing population density, and promoting services sector growth. There must be some dynamic policies are required to control the time trend impact on CO2 emission in Pakistan.

Does overseas eco‐friendly innovation collaboration matter for environmental quality sustainability in India?

AbstractThe nexus between technological innovations and environmental quality has been much discussed in the field of energy economics and policy. However, the role of overseas eco‐friendly innovation collaboration on environmental quality in India remains unaddressed. In such a line, our study raises the question of whether overseas eco‐friendly innovation collaboration and total technological innovations collaboration are important towards health protection of the natural environment in India. This motivates us to study their effects on India’s carbon dioxide emissions function in the presence of energy consumption and economic growth as important control variables. The usage of annual data from 1985 to 2016 permits us to use traditional and structural break unit root tests before the application of ARDL model to evaluate the long‐run relationship between the variables. Besides confirming the long‐run relationship among the variables, we find that eco‐friendly innovation and total innovation collaborations drive health of the natural environment while energy consumption impedes it. The adverse effect of economic growth on environmental quality becomes ineffective. These findings are robust to the usage of alternative techniques, urging climate policymakers in India to house greater overseas eco‐friendly innovation collaboration with other advanced and emerging economies to drive environmental quality sustainability in the long run.

A Symmetry and Asymmetry Investigation of the Nexus Between Environmental Sustainability, Renewable Energy, Energy Innovation, and Trade: Evidence From Environmental Kuznets Curve Hypothesis in Selected MENA Countries

The motivation of the study is to gauge the role of renewable energy consumption (REC), energy innovation (EI), and total trade (TR) on environmental sustainability (ES) in selected MENA (Middle East and North Africa) countries for the period 1980–2018 under the assumption of environmental Kuznets curve (EKC). The study implemented several econometrical tools, including structural break unit root test, Bayer–Hanck combined cointegration test, autoregressive distributed lag (ARDL), nonlinear ARDL, and Granger causality test under error correction term. Variables properties test detected that all the variables are stationary after the first difference but neither exposed to stationary after the second difference. The test statistics of the combined cointegration test documented a long-run association between ES, RE, EI, and TR, which is valid for both countries concerned. Regarding EKC concern, study findings with ARDL and nonlinear ARDL validated the EKC hypothesis for Tunisia and Morocco. Finally, the direction causality test documented unidirectional causality between renewable energy and ES, trade and ES, but the feedback hypothesis holds between EI and ES. We can advocate for specific sectoral environmental reforms in Tunisia and Morocco and suggest continuous environmentally friendly technologies by combining study findings. At the same time, subsidies on nonrenewable energy should be reduced, and green trade policies to help advance sustainable development should be implemented.

A validity of environmental Kuznets curve under the role of urbanization, financial development index and foreign direct investment in Pakistan

Purpose This research aims to inspect the existence of the “environmental Kuznets curve” (EKC) in the presence of foreign direct investment (FDI), financial development (FD) and urbanization throughout 1972–2018 for Pakistan. Design/methodology/approach For time series analysis, Phillips and Perron (PP) and Augmented Dickey–Fuller (ADF) unit root tests are used to confirm the level of integration. For robustness, Kim and Perron (2009)’s structural break unit root test is employed, which identifies the order of integration in the presence of structural break years. Further, combined cointegration analysis is performed to confirm the existence of a long-run association between underlying variables. Furthermore, autoregressive distributed lag (ARDL) analysis is employed for the robustness of the cointegration approach. Findings The cointegration analysis confirms the existence of a long-run association among variables. The authors find a positive and significant impact of urbanization, FD and foreign development on environmental degradation in the long run. Similarly, only FDI increases environmental degradation in the short run. In addition, the authors find an inverted U-shape relationship between economic growth and environmental quality which, further, confirms the presence of EKC in Pakistan. Originality/value This research contributes to applied economics in many ways: the combined effect of urbanization, FD, FDI and economic growth on carbon dioxide (CO2) emission is checked simultaneously. To avoid ambiguity, this study constructs the FD index through the principal component analysis (PCA). Moreover, the role of structural breaks has been considered through the analysis. Novel Bayer-Hanck combined cointegration analysis is employed to detect the existence of long-run relationships among underlying variables.

The Nexus between Agricultural Productivity, Oil Prices, Economic Growth, and Financial Development in the USA

Purpose. The study aims to examine the nexus between agricultural productivity by connecting oil prices, economic growth, and financial development. Design/Methodology/Approach. A newly formulated ARDL model was used to estimate an agricultural productivity nexus model using annual time-series data from 1962 to 2016. Innovation and additive structural break unit root tests were applied to determine the existence of unit roots, and the results reaffirmed that all the variables were stationary at first difference. The Chow Breakpoint test was applied to confirm a structural break in the year 2008 caused by the effects of the 2008 financial crisis. Findings and Implications. The results depicted a long-run relationship linking agricultural productivity, oil prices, economic growth, financial development and a financial crisis. The results also showed that financial development and economic growth have positive effects on agricultural productivity. The empirical findings further suggested that an increase in oil prices and the prevalence of a financial crisis have severe adverse effects on agricultural productivity. Originality. The study provides a novel viewpoint of agricultural productivity by connecting oil prices, economic growth, and financial stability and development. The study successfully demonstrated that the financial sector and oil price stability are pivotal for enhancing agricultural productivity initiatives. This study highlights the policy implications of the estimated results for policymakers seeking to boost agricultural productivity by addressing economic misfortunes induced by oil shocks and a financial crisis.