Two-step Generalized Method Of Moments Research Articles

DETERMINANTS OF GREENHOUSE GAS EMISSIONS REVISITED: A GLOBAL PERSPECTIVE

This study examines the determinants of emissions for a global sample of 120 countries during the 1995–2012 period using panel data analysis. Specifically, an extended version of the STIRPAT model combined with the EKC was employed to examine the determinants of emissions for the full sample and three subsamples of countries at different income levels. Three proxies for emissions are used, including CO2, N2O and CH4 emissions. The two-step generalized method of moments (GMM) is employed as the estimation technique. The empirical results indicate the evidence of EKC for the global sample and all subgroups of countries for CO2 emissions. On the other hand, U-shaped relationships between income and emissions are found for all three subsamples in the cases of N2O and CH4 emissions. Energy intensity appears to be the major driver of CO2 emissions for all groups of countries as well as for N2O and CH4 emissions for high-income and upper-middle-income countries. The effects of industrialization and urbanization vary across different types of emissions and different income country groups. The global environmental policy should focus on encouraging energy efficiency, enhancing the use of eco-friendly energy resources, as well as incorporating the impacts of industrialization and urbanization on emissions.

EFFICIENT TWO-STEP GENERALIZED EMPIRICAL LIKELIHOOD ESTIMATION AND TESTS WITH MARTINGALE DIFFERENCES

This paper considers two-step generalized empirical likelihood (GEL) estimation and tests with martingale differences when there is a computationally simple $\sqrt n$-consistent estimator of nuisance parameters or the nuisance parameters can be eliminated with an estimating function of parameters of interest. As an initial estimate might have asymptotic impact on final estimates, we propose general $C(\alpha )$-type transformed moments to eliminate the impact, and use them in the GEL framework to construct estimation and tests robust to initial estimates. This two-step approach can save computational burden as the numbers of moments and parameters are reduced. A properly constructed two-step GEL (TGEL) estimator of parameters of interest is asymptotically as efficient as the corresponding joint GEL estimator. TGEL removes several higher-order bias terms of a corresponding two-step generalized method of moments. Our moment functions at the true parameters are martingales, thus they cover some spatial and time series models. We investigate tests for parameter restrictions in the TGEL framework, which are locally as powerful as those in the joint GEL framework when the two-step estimator is efficient.

Dynamic linkages between poverty, inequality, crime, and social expenditures in a panel of 16 countries: two-step GMM estimates

The study examines the relationship between growth–inequality–poverty (GIP) triangle and crime rate under the premises of inverted U-shaped Kuznets curve and pro-poor growth scenario in a panel of 16 diversified countries, over a period of 1990–2014. The study employed panel Generalized Method of Moments (GMM) estimator for robust inferences. The results show that there is (i) no/flat relationship between per capita income and crime rate; (ii) U-shaped relationship between poverty headcount and per capita income and (iii) inverted U-shaped relationship between income inequality and economic growth in a panel of selected countries. Income inequality and unemployment rate increases crime rate while trade openness supports to decrease crime rate. Crime rate substantially increases income inequality while health expenditures decrease poverty headcount ratio. Per capita income is influenced by high poverty incidence, whereas health expenditures and trade factor both amplify per capita income across countries. The results of pro-poor growth analysis show that though the crime rate decreases in the years 2000–2004 and 2010–2014, while the growth phase was anti-poor due to unequal distribution of income. Pro-poor education and health trickle down to the lower income strata group for the years 2010–2014, as education and health reforms considerably reduce crime rate during the time period.

Corporate Governance and Capital Structure: Evidence from Sustainable Institutional Ownership

Because corporate sustainability enhances corporate governance principles, firms are increasing their efforts to provide transparency and public disclosure. These efforts inform the public about the relationship between corporate governance and sustainability. Well-informed shareholders know about this relationship, which is becoming more apparent over time. In this study, we empirically examined the possible bilateral relationships between institutional ownership and a firm’s capital structure. Methodologically, we used an instrumental variable approach and the two-step generalized method of moments. The implications of this study are two-fold. First, we found that a firm’s debt level was low if its institutional ownership level was high. Institutional monitoring may substitute for external debt monitoring, leading firms to employ low leverage. Second, we found that the level of institutional ownership was high if a firm’s debt level was high. This association suggests that institutional investors prefer high-leveraged firms because institutional owners decrease their monitoring costs through debt monitoring. In the long run, sustainable institutional ownership materially impacts the capital structures of firms.

Estimating Demand With Unobserved No-Purchases on Revenue-Managed Data

Discrete-choice models such as the multinomial-logit (MNL) model are increasingly being used to model customer purchase behaviour in hotels, airlines, fashion retail and e-commerce. Their estimation however has proved difficult in practice. One reason for this difficulty is well-known: most firms in retail do not, or unable to, record customers who were interested in purchasing but did not buy the product (``no-purchasers). Estimating demand even with the simplest discrete-choice model such as the MNL becomes challenging then as we do not know the fraction that have chosen an outside option (not purchased). Indeed, the parameters of the MNL model may not be identifiable with such data. Some previous approaches have proposed using ``market-share to pin down the parameter associated with the outside option. However, in many industries, market-share data is difficult to obtain, and for some, such as fashion products, has little meaning. In this paper we point out an additional difficulty that arises in practice: Many firms constantly monitor sales and optimize their prices and assortments based on partially observed demand. This leads to an optimization-induced endogeneity as the input used for estimation has been processed by optimization that takes both past data as well as future demand trends in setting controls. As we demonstrate, methods that work well on randomly generated assortments may do badly on optimized assortment data. In this paper we propose a robust method when the firm cannot observe no-purchases, has no market-share information, and the optimization-induced endogeneity exists in the data. The method is a two-step GMM (Generalized Method of Moments) procedure for which we show the estimates are consistent, and we give intuition for its robustness. In Monte-Carlo simulations the performance of our method matches existing methods on randomly generated controls, and is superior in accuracy and robustness when optimization-induced endogeneity is present. On a large real-world data set from the fashion industry --- subject to markdowns as well as stock-outs and unknown management controls --- our method provides very reasonable and robust estimates compared to existing methods.

Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy

In this study, the effect of sectoral loan portfolio concentration on bank stability is investigated in the Ghanaian banking sector between 2007 and 2014. Specifically, we investigate the linearity and non-linearity effects of sectoral loan concentration on bank stability given the limited exploration of this nexus. Employing a two-step generalized method of moments (GMM) robust random and fixed effects panel models of 30 banks, the study provides evidence showing that sectoral loan concentration weakens the stability of banks. This confirms the concentration-fragility hypothesis and the diversification theory of traditional banking but may promote bank stability beyond a certain threshold point. This implies that bank sectoral loan concentrate has a direct non-linear U-shape effect on bank stability in Ghana. We argue that although sectoral loan concentration may weaken stability of banks in the short run, it may however enhance the stability of banks in the long run through prolonged expert knowledge, experience and understanding of sectors. From these findings, policymakers, regulators and bank managers must not only develop and design policies and regulations that prohibit sectoral loan concentration but should also incorporate plans and policies that encourage banks to develop core competence and competitive advantage to take advantage of advancing bank stability through sectoral loan concentration. JEL Codes: G10; G18; G41

The repercussions of foreign direct investment, renewable energy and health expenditure on environmental decay? An econometric analysis of B&RI countries

To achieve the objectives of the study, we have analyzed the repercussions of income, foreign direct investment, health expenditure and renewable energy consumption on environmental pollution (CO2) in a panel of Belt and Road Initiative (B&RI) countries over the time span 1995–2016. The study employed a second-generation unit root test, panel co-integration, two-step generalized method of moments (GMM), fully modified least squares (FMOLS), symmetric and asymmetric causalities for robust inference. The cointegration results established the long-run relationship between the variables. Empirical results indicated the effectiveness of renewable energy in combatting CO2 emissions, the negative sign of FDI with CO2 emissions negates the existence of the pollution haven hypothesis for the B&RI panel. Where income and health expenditure accelerates CO2 emissions, which degrades the environment, these results in the case of individual countries differ in various stages. Varieties of symmetric and asymmetric causalities are also discussed in the study. The study concludes with long term policies, which are necessary for the sustained growth of B&RI countries.

UTJECAJ TERORISTIČKIH NAPADA NA PRILJEV IZRAVNIH STRANIH ULAGANJA U TRANZICIJSKIM ZEMLJAMA

The main aim of the paper is to empirically measure the impact of terrorism and other (institutional, economic, natural) factors on the foreign direct investments (FDI inward stock) of transition economies in the world. Methodology includes the application of two-step system GMM (Generalized Method of Moments) estimator of dynamic panel analysis. The research covers a group of 16 countries from 2000 to 2016. Research findings confirm that terrorist incidents, economic and institutional variables affect FDI inward stock of transition economies. It can be concluded that institutional variables (Government effectiveness, control of corruption) recorded the most significant impact on the inward FDI stock in the transition economies of the global economy. From the results, we can see the international competitiveness of transition countries about the influence of the variables of terrorism and other relevant model variables on foreign direct investments (FDI).

Impact of Disagregated Public Expenditure on Unemployment Rate of Selected African Countries: A Panel Dynamic Analysis

The study examined the impact of disaggregated public expenditure on unemployment rate in Angola, Benin, Botswana, Cameroun, Central African Republic, Chad, Egypt, Equatorial Guinea, Ethiopia, Ghana, Kenya, Mauritius, Morocco, Namibia, Nigeria, South Africa, Sudan, Tanzania, Togo and Tunisia with panel data spanning from 2000 to 2017. The data were majorly sourced from the World Bank Indicator. The study employed Generalized Method of Moments (GMM) techniques for empirical analysis. The findings of two-step system GMM showed that expenditure on infrastructure and education reduce unemployment rate, while expenditure on defense and health increase unemployment rate in the region. The short-run elasticity estimate showed that infrastructure and education expenditures reduce unemployment rate by 9% and 1.83%. A unit rise in defense and health expenditure increase unemployment rate by 5.2% and 84.5%. The long-run elasticities of infrastructure and education expenditure reduce unemployment rate by 3.8% and 7.89%, while the long-run defense and health expenditure elasticities increase unemployment rate by 22.22% and 364.58% in Angola, Benin, Botswana, Cameroun, Central African Republic, Chad, Egypt, Equatorial Guinea, Ethiopia, Ghana, Kenya, Mauritius, Morocco, Namibia, Nigeria, South Africa, Sudan, Tanzania, Togo and Tunisia. The policy implication is that, the positive relationship between expenditure on health and unemployment could be attributed to mismanagement of government funds due to corruption, while that of defense and unemployment could be high rate of insecurity and crimes in the region.Therefore, the study recommended among others a drastic measure to further improve the education sector through adequate investment in education that will help in skills, development and training.

Impact of Disaggregated Public Expenditure on Unemployment Rate of Selected African Countries: A Panel Dynamic Analysis Approach

The study demonstrated the impact of disaggregated public expenditure on unemployment rate in selected African countries with panel data spanning from 2000 to 2017. The data were majorly sourced from the World Bank Indicator. The study employed Generalized Method of Moments (GMM) techniques for empirical analysis. The findings of two-step system GMM showed that expenditure on infrastructure and education reduce unemployment rate, while expenditure on defense and health increase unemployment rate in the region. The short-run elasticity estimate showed that infrastructure and education expenditures reduce unemployment rate by 9% and 1.83%. A unit rise in defense and health expenditure increase unemployment rate by 5.2% and 84.5%. The long-run elasticity of infrastructure and education expenditure reduce unemployment rate by 3.8% and 7.89 %, while the long-run defense and health expenditure elasticity’s increase unemployment rate by 22.22% and 364.58% in the selected African countries. The policy implication is that, the positive relationship between expenditure on health and unemployment could be attributed to mismanagement of government funds due to corruption, while that of defense and unemployment could be high rate of insecurity and crimes in the region. Therefore, the study recommended among others a drastic measure to further improve the education sector through adequate investment in education that will help in skills, development and training. DOI: https://doi.org/10.5281/zenodo.3377972

Energy consumption, environmental degradation, economic growth and financial development in globe: Dynamic simultaneous equations panel analysis

We use a panel data set of 193 countries over 1990–2017 period, by employ the Seemingly unrelated regression (SUR), three stage least squares regression (3SLS), dynamic model two-step generalized method of moments and two-step system generalized method of moments approach to investigate the impacts of financial development, economic growth, energy consumption, and carbon emission on each other. The empirical results suggested that financial development, economic growth, energy consumption, and carbon emissions are affected one another but with high pollution spread, except for consumption of energy which decreases financial development. All models confirm the Environmental Kuznets Curve for the global panel. The implications of all results for carbon emissions, financial development, economic growth, and energy policy are discussed.

Asymmetric information phenomenon in the link between CEO pay and firm performance

PurposeThe purpose of this paper is to examine the asymmetric behavior between CEO pay and firm performance in Nigeria.Design/methodology/approachThe study adopts a two-step dynamic panel generalized method of moments (GMM) to reveal asymmetric responses of CEO pay to positive and negative shocks in firm performance.FindingsThe research outcomes of a two-step dynamic panel GMM) adopted reveal asymmetric responses of CEO pay to positive and negative shocks in firm performance. This implies that CEOs are handsomely compensated for good performance, but not punished for poor performance.Originality/valueThe study, therefore, suggests that CEO pay fails to serve as an internal corporate governance mechanism to alleviate agency problem in Nigeria’s listed firms.

Two-stage least squares as minimum distance

SummaryThe two-stage least-squares (2SLS) instrumental-variables (IV) estimator for the parameters in linear models with a single endogenous variable is shown to be identical to an optimal minimum-distance (MD) estimator based on the individual instrument-specific IV estimators. The 2SLS estimator is a linear combination of the individual estimators, with the weights determined by their variances and covariances under conditional homoskedasticity. It is further shown that the Sargan test statistic for overidentifying restrictions is the same as the MD criterion test statistic. This provides an intuitive interpretation of the Sargan test. The equivalence results also apply to the efficient two-step generalized method of moments and robust optimal MD estimators and criterion functions, allowing for general forms of heteroskedasticity. It is further shown how these results extend to the linear overidentified IV model with multiple endogenous variables.

Structural characteristics of extended alliance portfolio configuration and firm innovation

So far, the scope of alliance portfolio configuration (APC) studies has included only one degree, namely direct alliances or partners of a focal firm. Based on the sociological concept of 'three degrees of influence rule', this study extends the scope of the APC of a focal firm to three degrees, and two structural variables (clustering coefficient and closeness centrality) are extracted from the extended APCs of 31 Korean bio-pharmaceutical firms. Then, the effects of these variables on firm innovation performance are analysed using the two-step generalised method of moments (GMM) estimates. The results show that the more clustered the extended APCs are, and the closer their average distance from a focal firm, the more favourable the innovation performance of the firms. Additionally, the average distance was found to moderate the clustering effect in the extended APC for the innovation performance. Attempting to interpret the APC with such an expanded concept is expected to accelerate further research in the future.

Does a Higher Level of Capital Ensure Lower Risk for a Bank? Evidence from the Vietnamese Banking System

The relationship between bank capital and risk is one of the conventional and highly debatable issues in banking literature. In the context of this paper, we apply the two-step generalized method of moments (GMM) technique for dynamic panels for the Vietnamese banking sector over the 1999-2014 period to investigate how risk is sensitive to capital regulations. As controlling both bank-specific characteristics and macroeconomic variables, we found a negative relationship between capital and risk which is proxied by two alternative Z-score measurements. Our findings not only support the moral hazard hypothesis where banks have incentives to exploit explicit and implicit deposit insurance schemes but also reveal the first direct beneficiaries from the regulations following Basel I standards in Vietnam that domestic banks with a higher capital level are more likely to avoid default and risk. However, increasing capital and improving operations management should be complementary criteria to ensure financial system safety.

The Boosting Effect of E-WOM on Macro-level Consumption: A Cross-Industry Empirical Analysis in Japan

In this study, we carry out an empirical analysis on how electronic word-of-mouth (hereinafter “e-WOM”) marketing on e-WOM websites and electronic-commerce websites on the Internet boosts consumption on a macro-level. In our analysis, we conduct a model analysis of consumer behavior using data composed of more than 30,000 questionnaire surveys and quantitatively find the elasticity coefficient of the boost to consumption by performing a two-step GMM (generalized method of moments), which uses instrumental variables. The results of the analysis show e-WOM significantly increased expenditures in six fields: computers, electrical appliances, etc.; music; hobbies; clothing, accessories, etc.; beauty products, etc.; and goods for everyday life, etc. Furthermore, there was no field that had a significantly negative value. These results showed that, in the majority of the target fields, e-WOM had not only the effect of winning customers from the competition, but also the effect of boosting consumption on a macro-level. In addition, even from people’s subjective evaluations, there were many in all the generational groups who said that e-WOM boosted expenditures.

The effect of corruption on FDI and its modes of entry

PurposeThe purpose of this paper is to empirically investigate the impact of corruption on foreign direct investment (FDI) and its two major modes of entry: greenfield investment (greenfield) and cross-border mergers and acquisitions (M&As).Design/methodology/approachData are collected from 131 countries. Modern econometric techniques, including the generalized method of moments (GMM) estimator, two-stage least square estimator and two-step system GMM estimator, are used to evaluate the impact of corruption on FDI activities.FindingsThe empirical results illustrate that corruption is a deterioration factor that significantly hinders FDI inflows. However, this finding turns out to be contradictory when the two major components of FDI – greenfield investment and cross-border M&As – are separately examined. Specifically, while corruption consistently discourages cross-border M&As over time, it appears to exert positive effect on greenfield investments.Originality/valueThis is among the first to empirically examine the impact of corruption on FDI and its modes of entry in a number of countries spanning different time windows. In this sense, this paper also captures the changing nature of societies and economic conditions overtime and, therefore, enable academic researchers, policy-makers and business practitioners to draw broad inferences from the empirical results.

Should we go one step further? An accurate comparison of one-step and two-step procedures in a generalized method of moments framework

According to conventional asymptotic theory, the two-step generalized method of moments (GMM) estimator and test perform at least as well as the one-step estimator and test in large samples. The conventional asymptotic theory completely ignores the estimation uncertainty in the weighting matrix, and as a result it may not reflect finite-sample situations well. In this paper, we employ the more accurate fixed-smoothing asymptotic framework to compare the performances of the one-step and two-step procedures. We show that the two-step procedures outperform the one-step procedures only when the squared long-run canonical correlation coefficients between two blocks of transformed moment conditions are larger than the thresholds established in this paper. The thresholds depend on the criteria of interest. A Monte Carlo study lends support to our asymptotic results.

Intellectual capital efficiency and corporate book value: evidence from Nigerian economy

PurposeThe purpose of this paper is to examine the value relevance of intellectual capital (IC) by analysing the relationship between IC efficiency (ICE) and corporate book value of listed firms on main board of Nigeria Stock Exchange.Design/methodology/approachThis study applies the resource-based theory in formulating two hypotheses that guide the results analysis. By employing a two-step dynamic system generalised method of moments (GMMs), and controlling for the possible endogeneity effect on the parameters estimated, for a sample of 91 listed firms on main board of Nigeria Stock Exchange, this study investigates the association of ICE and corporate book value, namely, cash flow from operation and economic value added (EVA), using data over the 2010 to 2014 financial years.FindingsThe results show a significant positive relationship between overall ICE and corporate book value (cash flow from operation and EVA). This study contributes to recent evidence concerning the value relevance of IC information to investors and other interested stakeholders.Research limitations/implicationsThe generalisation of the results to smaller firms, in the alternative securities market, may be inappropriate as study sampled listed firms on the main board of Nigerian Stock Exchange.Practical implicationsThose charged with governance should be concerned with the investment and management of IC as it enhances the economic value and operating cash flow in line with the resource-based theory.Originality/valueThis study is first to consider the ICE study across all sectors in the Nigerian economy using modified Pulic value added intellectual capital. The study controls for heteroscedasticity and endogeneity issues by adoption of two-step dynamic system GMMs.

The determinants of intermediation margins in Islamic and conventional banks

Purpose The distinctive feature of Islamic financial intermediation is its foundation on profit-and-loss sharing which reinforces solidarity and fraternity between partners. Thus, the bank margin and its determinants may differ between Islamic and conventional banks (CBs). The purpose of this paper is to empirically assess the main factors that explain the bank margin in a panel of Islamic and CBs operating in the Middle East and North Africa (MENA) region. This study will permit to identify the common and the specific determinants of the intermediation margins in dual banking systems. Design/methodology/approach The authors use a dynamic panel approach. The empirical analysis is carried out for a sample of 50 Islamic banks (IBs) and 126 CBs from 14 MENA countries. Findings The results reveal that net profit margins of IBs may be explained for the most part by risk aversion, inefficiency, diversification and economic conditions. With regard to CBs, their margins depend positively on market concentration and risk aversion and negatively on specialization, diversification, inefficiency and liquidity. Practical implications The significant impact of the degree of diversification on margins suggests that any policy analysis of the pricing behavior of banks should rely on its whole output. The high levels of margins in Islamic and CBs based in the MENA region may represent an obstacle to these countries to pursue their development process. Thus, policy makers in these countries should consolidate the role of capital markets and nonbanking financial institutions to provide alternative sources of funding and stimulate more competition. Social implications The positive relationship between concentration and net interest margins requires that policy makers should create competitive conditions if they want to lower the social cost of financial intermediation. The creation of competitive conditions may be achieved through encouraging the establishment of new domestic banks or the penetration of foreign banks. Originality/value The present study aims to contribute to the existing literature on the determinants of bank margins in three ways. First, the authors identify the factors that most explain bank margins for both conventional and IBs. The majority of previous studies examine the determinants of the profitability or the overall performance of banks and in particular conventional ones. Second, this paper employs two generalized method of moments (GMM) approaches introduced by Arellano and Bover (1995) and Arellano and Bond (1991). It differs from Hutapea and Kasri (2010) who employed the co-integration technique to examine the long-run relationship between Islamic and CB margins and their determinants in Indonesia. Third, unlike previous studies focusing on MENA region that use a small number of countries and a short sample period, the period of study covers 16 years from 1999 to 2014 and a large sample of countries (14 countries). This paper differs from Lee and Isa (2017) who applied the dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) to study the determinants of intermediation margins of Islamic and CBs located in Malaysia.