Unrestricted Error Correction Model Research Articles

THE POSITIVE INFLUENCE OF URBANIZATION ON ENERGY CONSUMPTION IN LATIN AMERICAN COUNTRIES: AN APPROACH WITH ARDL AND NARDL MODELING

The impact of urbanization on energy consumption was investigated in eight Latin American countries from 1970 to 2015. The Autoregressive Distributed Lag (ARDL) in the form of Unrestricted Error Correction Model (UECM) to decompose the total effect of variables into it is short- and long-run components, and the Non-Linear Autoregressive Distributed Lag (NARDL) to examine the asymmetric responses of variables were applied. The results of preliminary tests indicated the existence of low multicollinearity, and existence of cross-section dependence. The results showed that in the ARDL model the economic growth in the short-and long-run increase the energy consumption, and the variable urbanization in the short-and long-run have a positive impact on energy used. Furthermore, the outcomes of NARDL model showed that in the short-and long-run asymmetric responses the economic growth (positive/negative asymmetric) have a positive impact on energy. The variable urbanization in the short-and long-run have a positive on energy consumption. Moreover, the specification tests showed the presence of cross-section dependence, the first-order autocorrelation, the heteroscedasticity in the residuals, and the first-order correlation in the disturbance, and serial correlation in the disturbance. Finally, this study points to the necessity to creates conservation policies oriented to reduces the energy consumption, with the introduction of new technologies that reduces the energy consumption in the industries and households, change the current energy matrix to a more sustainable.

The decline of environmental degradation by renewable energy consumption in the MERCOSUR countries: an approach with ARDL modeling

The impact of consumption of renewable energy on CO2 emissions was investigated, in five MERCOSUR’s countries from 1980 to 2014. The autoregressive distributed lag (ARDL) in the form of Unrestricted Error Correction Model to decompose the total effect of variables into it is the short- and long-run components. The results of preliminary tests showed the presence of cross-sectional dependence between the variables, the stationarity of all variables in the first differences, and the homogeneity in panel data. Moreover, the specification tests pointed to the presence of cross-sectional dependence, non-correlation between the crosses, serial correlation in the panel data model, and the existence of heteroskedasticity. The results of semi-elasticities (short run) and elasticities (long run) of ARDL model pointed that the economic growth and consumption of fossil fuels increase the CO2 emissions in the short and long run, while the consumption of renewable energy reduces them. Despite the consumption of renewable energy reducing the environmental degradation in the MERCOSUR countries, its impact is small. Finally, this study proved that the consumption of renewable energy is able to reduce the CO2 emissions, which is responsible for the environmental degradation in the MERCOSUR countries, and that the economic growth of these same countries increases the CO2 emissions, along with the fact that all MERCOSUR countries are highly dependent of fossil fuels.

Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria

This study estimates the impact of Foreign Capital Inflows on economic growth in Nigeria from 1986Q1 – 2014Q4. For empirical analysis, the paper adopts the Auto-Regressive Distributed Lag- Unrestricted Error Correction Model (ARDL-UECM). Empirical evidence from the ARDL-bounds Co-integration Test shows there is co-integration between Economic Growth (proxied by Growth rate of Real Gross Domestic Product) and Foreign Capital Inflows (disaggregated into Foreign Direct Investment, Foreign Portfolio Investment and Workers’ Remittances) in Nigeria. The results also show that apart from remittances, other components of Foreign Capital Inflows have significant impact on Economic Growth in Nigeria. The study therefore recommends that Government should, alongside other economic activities, provide an enabling economic environment for more Foreign Capital Inflows. Also the financial sector should be improved so that workers’ remittances can be efficiently tracked through the banking channels and also put to productive use. This is how to minimize the negative impact of workers’ remittance inflows into Nigeria.

Has Financial Liberalisation Promoted Economic Growth in Nigeria? Evidence from Auto-Regressive Distributed Lag (ARDL) Approach

This study attempted to ascertain whether or not financial liberalisation policies promoted economic growth in Nigeria for the period spanning 1986 –2014, using Auto-regressive Distributed Lag (ARDL)-bounds testing approach and unrestricted error correction model (UECM) to cointegration analysis. Macroeconomic time series data were obtained from Central Bank of Nigeria (CBN) Annual Statistical Bulletins, National Bureau of Statistics (NBS) Bulletins, and World Bank Development Indices. Three alternative measures of financial liberalisation (FINDEX1, FINDEX2, FINDEX3) and six intervening variables were incorporated into the study. The empirical findings show that the impact of financial liberalization on economic growth varied for different measures of financial liberalization undertaken; and were significant both in the short run and the long run: FINDEX1 promoted economic growth significantly, and corroborates the growth-stimulating effect of financial liberalization; while FINDEX2 and FINDEX3 exerted significant negative impacts on economic growth. Real exchange rate, degree of openness, consumer price index, increase in life expectancy of labour, and debt service ratio significantly influenced economic growth in the short run and long run. None of the measures of financial liberalisation Granger-caused economic growth, but a one-way causation ran from FINDEX2 to FINDEX1, and from FINDEX3 to FINDEX1.The study recommends increased financial deepening, reduction of lending rates, removal of bottlenecks in the banking and stock markets institutions in Nigeria.

Does female human capital contribute to economic growth in India?: an empirical investigation

PurposeThe purpose of this paper is to examine the impact of female human capital on economic growth in the Indian economy during 1970-2014.Design/methodology/approachThe paper employs Ng-Perron unit root test to check the order of integration of the variables. The study also used ARDL-bounds testing approach and the unrestricted error-correction model to investigate co-integration in the long run and short run; Granger’s causality test to investigate the direction of the causality; and variance decomposition test to capture the influence of each variable on economic growth.FindingsThe study constructed a composite index for both male and female human capitals by taking education and health as a proxy for human capital. The empirical findings reveal that female human capital is significant and positively related to economic growth in both short run and long run, while male human capital is positive but insignificant to the economic growth; same is the case for physical capital, it implies that such investment regarding female human capital needs to be reinforced. Further, there is an evidence of a long-run causal relationship from female human capital, male human capital and physical capital to economic growth variable. The results of variance decomposition show the importance of the female human capital variable is increasing over the time and it exerts the largest influence in change in economic growth.Research limitations/implicationsThe empirical findings suggest that the Indian economy has to pay attention equally on the development of female human capital for short-run as well as long-run growth of the economy. This implies that the policy makers should divert more expenditure for developing support for female education and health.Originality/valueTo the best of authors’ knowledge, this is the first attempt to study the relationship between female human capital and economic growth in the context of the Indian economy.

Residential property price-stock price nexus in Hong Kong: new evidence from ARDL bounds test

PurposeThis study aims to investigate the cointegration and causality relationships between Hong Kong’s residential property price and stock price, using quarterly data, from the 1st quarter of 1980 to the 3rd quarter of 2015.Design/methodology/approachIn contrast to other studies, the cointegration test used is the autoregressive distributed lag (ARDL) cointegration (bounds testing) approach of Pesaran et al. (2001) that based on the estimation of an unrestricted error correction model and the causality test is based on non-causality test of Granger et al. (2000). Moreover, this research employs recursive least square procedures and Chow (1960) breakpoint test to detect unknown structural break and variation of relationships between residential property and stock price over the whole sample period.FindingsThe results of ARDL cointegration tests running from stock to residential property markets provide strong evidence to support the hypothesis that the stock and residential properties are cointegrated. The results of Granger et al. (2000) non-causality test support the view of wealth effect that stock price has an important causal effect on residential property price in Hong Kong but not vice versa. In addition, the results of recursive ordinary least squares coefficients estimates and Chow (1960) test (breakpoint test) for structural instability confirm the variation of the relationships between stock and residential property markets over the sample period.Research limitations/implicationsThe empirical results from cointegration and causality tests suggest that the residential asset returns are better predicted by including the lagged difference values of stock price.Originality/valueThis is the pioneering study to examine the cointegration and causality study of stock and residential property price in Hong Kong by employing Pesaran ARDL cointegration approach and Granger non-causality approach. Investors are able to perform an effective evaluation to assist in allocating investment funds, and the government bodies can implement supplement housing policy in response to the public needs.

Examining The Relationship Between Inequalities In Gender Wage And Economic Growth In Pakistan

Gender equality is not only a policy reform agenda for developing countries but also an important goal of Millennium Development Goals. With respect to all socio-economic indicators, the development history demonstrates extremely gloomy image of gender inequality in Pakistan. With this background this paper investigates the nexus between wage inequality and economic growth and detects co-integration between gender wage differential and economic growth using ARDL bound test. It is confirmed from the empirical results that there exists long-run relationship between economic growth and wage differential. The findings of unrestricted error correction model indicate that the wage inequality showed negative and significant impact on economic growth in the long run. The results of this study showed dissimilarity with the findings of Seguino (2000) that there is existed constructive association between wage inequality and economic growth. An important finding from the present examination is that the gender wage gap is detrimental for the process of growth in long run. Policies should be made to reduce gender wage gap. Such government policy should be designed which could address and adjust economic priorities in the face of changing global economic realities and provide comprehensive framework for conducive environment for gender.

The economic opportunity cost for countries located in crisis zones: Evidence from the Middle East

Whether the Middle East is a blessed or damned region is a matter of perspective and evidence. This paper investigates the effect of regional instability on countries caught in such conflict solely because of their location. By use of an interrupted time series model, an unrestricted error correction model, and the incremental capital output ratio (ICOR), the indirect economic costs of regional unrest are estimated for Jordan, as an exemplar of Middle Eastern countries. Jordan has lost during 24 years of regional turmoil the equivalent of 40–72% of its 2012 gross domestic product (GDP), or US$12.6 billion to US$22.7 billion. Furthermore, it has lost US$2.3 billion of foreign direct investment (FDI) and its return, which are higher than the annual FDI inflows in most of the years covered by this study. This substantial loss is a warning sign that should be seriously considered by politicians and economists in the Middle East, especially for countries whose resources are already constrained.

The nexus of financial deepening, economic growth, and poverty: The case of Pakistan

This study investigates the nexus of financial development, economic growth, and poverty for Pakistan over a prolonged period of time, 1960- 2012. Autoregressive Distributed Lag (ARDL)-Bounds testing approach to co integration and Unrestricted Error Correction Model (UECM)along with VECM Granger causality have been applied to examine the long-run dynamic relationship among financial development, economic development and poverty. For that purpose, we have developed two models and adopted a new and relatively strong proxy for financial development. The results suggest that financial development negatively affects both long-run and short-run economic growth. However, financial development is found to be positively affecting per capita consumption in the long run.

Inflation, Exchange Rates and Interest Rates in Ghana: an Autoregressive Distributed Lag Model

This paper investigates the impact of exchange rate movement and the nominal interest rate on inflation in Ghana. It also looks at the presence of the Fisher Effect and the International Fisher Effect scenarios. It makes use of an autoregressive distributed lag model and an unrestricted error correction model. Ordinary Least Squares regression methods were also employed to determine the presence of the Fischer Effect and the International Fisher Effect. The results from the study show that in the short run a percentage point increase in the level of depreciation of the Ghana cedi leads to an increase in the rate of inflation by 0.20%. A percentage point increase in the level of nominal interest rates however results in a decrease in inflation by 0.98%. Inflation increases by 1.33% for every percentage point increase in the nominal interest rate in the long run. An increase in inflation on the other hand increases the nominal interest rate by 0.51% which demonstrates the partial Fisher effect. A 1% increase in the interest rate differential leads to a depreciation of the Ghana cedi by approximately 1% which indicates the full International Fisher effect.

Examining the exchange rate regime–monetary policy autonomy nexus: Evidence from Malaysia

Some studies suggest that Asian countries can be exempted from the impossible trinity. We examined the empirical relevance of this argument by reviewing the experience of Malaysia. We defined monetary autonomy by analyzing the interaction between the Malaysian and US interest rates. We used the Unrestricted Error Correction Model Pesaran Bounds test to analyze the interaction between the Malaysian and US interest rates during three different sub periods. Our empirical results showed that there is no cointegration evidence during the managed floating exchange rate periods. However, we found that there was a level relationship between the Malaysian and US interest rates during the period when Malaysia had a fixed exchange rate and an open capital account regime. In contrast with other existing studies, we conclude that Malaysia is not exempted from the impossible trinity. Our study has also highlighted that the Pesaran Bounds test must be interpreted carefully when applied to series with mixed orders of integration.

Export-Led Growth Hypothesis: Evidence from Cote D'Ivoire

This paper re-examine the export-led growth hypothesis for Cote d’Ivoire using the Bounds test analysis: unrestricted error correction model (UECM) for the period 1980-2007. Based on the model, exports, labor force and economic liberalization policies have stimulated economic growth, whereas, imports and exchange rate negatively impacted on economic growth. The results indicate that there exists a long-term relationship between economic growth and its determinants in our model. In addition, the VAR Granger/Block-exogeneity Wald tests reveal an evidence of bi-directional causality between exports and economic growth. Thus findings have important messages for policy makers given that export sector dominance in Cote d’Ivoire economy.

The Growth and Employment Impacts of the 2008 Global Financial Crisis on Pakistan

This study examines the impact of the 2008 global financial crisis on economic growth and employment in Pakistan. We conduct a time series analysis of quarterly data for 1997–2011, applying the autoregressive distributed lag bounds-testing approach and an unrestricted error correction model. Our analysis suggests that the impact of the crisis was transmitted primarily through two channels—the financial sector and trade—with a corresponding negative effect on economic growth and employment. Of the two channels, the magnitude of the trade effect is larger than that of the financial sector.

Exchange Rate Pass-Through into Export and Import Prices: A Bounds Testing Analysis on the Case of Korea

This study empirically examines the nature of the exchange rate-pass through (ERPT) into export and import prices in the case of a small open economy of Korea by using a bounds testing approach. The estimation results obtained from the unrestricted error correction model (UECM) using data on Korea and its major trading partners, Japan and the U.S., provide new evidences showing that statistical significances in the degree of pass-through vary with respect to industries. The study also reveals that there is heterogeneity across sectors in their reaction to exchange rate as well as its asymmetry and persistence. The evidence indicate that the raw materials sector has a difference in the ERPT between the short and the long run effects, suggesting that the incomplete exchange rate pass-through seems to be persistent within the sector. In particular, the evidence for agriculture does support the hypothesis of asymmetric response to the ERPT in the long run. This result supports that of previous findings, but also provides more insight for the exchange rate theory and trade policy.

English

  A strong and an efficient agricultural sector would enable a country to feed its growing population, generate employment, earn foreign exchange and provide raw materials for industries. This study makes a modest contribution to the debates by empirically analyzing the relationship between Nigeria government expenditure on the agricultural sector and its contribution to economic growth, using time series data from 1980 to 2011, obtained from the Central Bank of Nigeria Annual Report and Statement of Account, Journal of Food Research and Federal Office of Statistics. It employs the Engle-Granger two step modeling (EGM) procedure to co-integration based on unrestricted Error Correction Model and Pair wise Granger Causality tests.  From the analysis, our findings indicate that agricultural contribution to GDP (Gross domestic product) and total government expenditure on agriculture are cointegrated in this study. The speed of adjustment to equilibrium is 88% within a year when the variables wander away from their equilibrium values. Based on the result of granger causality, the paper concludes that a very weak causality exist between the two variables used in this study. Therefore, the policy implication of these findings is that any reduction in government expenditure on agriculture would have a negative repercussion on economic growth in Nigeria.   Key words: Agriculture, causality, gross domestic product, total expenditure.

Foreign aid and economic growth in South Africa: An empirical analysis using bounds testing

South Africa is classified as one of the wealthiest countries in Africa, yet half of its population lives below the poverty line and over a quarter of its labour force is unemployed. Foreign aid was one of the major sources of capital for the country. It poured in from many developed countries and it was very successful in promoting a stable society, especially during the first few years after apartheid ended in 1994. Thus, South Africa is a good case study for determining the relationship between and the effect of foreign aid on growth. The data on aid flow as a percentage of gross domestic product (GDP) in South Africa was only available from 1980, thus limiting the data from 1980 to 2009. Given the limitations in the data, a co-integration analysis of the autoregressive distributed lag (ARDL) was adopted, using the method of the conditional unrestricted error correction model (UECM), which accommodates small samples. The result shows that the relationship between aid and growth is negative both in the short and the long run.

Remittance and economic development: Evidence from Bangladesh using unrestricted error correction model and Engle-Granger cointegration approach

Remittance is one of the popular issues in the development economics especially for the developing countries. This paper attempted at finding the relationship between remittance flow and economic development using time series data of 1976�2007. The two modern time series econometric approachesbound testing Autoregressive Distributed Lag Models or Unrestricted Error Correction Model and EngleGranger two step procedures for cointegration testwere exand this study finds that remittance is not significant contributing factor for the GDP per capita both in the short and long run. However, the foreign direct investment is found significant factor in the short, though it is not significant factor in the long run. This study suggests adopting necessary actions to ensure that remittances work as a contributing factor of economic development.

Telecommunications investment and economic growth in ASEAN5: An assessment from UECM

This paper examines the impact of telecommunications investment on the economic growth of the ASEAN5 countries namely, Malaysia, Indonesia, Philippines, Singapore and Thailand, over the period 1975–2007. The unrestricted error correction model (UECM) and bounds testing approach are employed where a positive and significant long-run relationship is identified in the cases of Malaysia and Singapore. This is not the case for the other ASEAN5 countries. Granger non-causality testing indicates that telecommunications investment causes ASEAN5 economic growth but not vice versa.

The Effect of Income Inequality on Property Crime: Evidence from Iran

The main purpose of this study is to examine the relationship between income inequality and property crime rate, including auto theft, burglary and larceny, in Iran from 1984 to 2009. Income inequality measures include Gini coefficient and Atkinson index, with 1 and 2 degrees of inequality aversion (e=1, 2). Unrestricted error correction model (UECM)is employed to do bounds test and to examine the presence of cointegration. The results indicate that there is not any long-run relationship between income inequality and property crime rate.

Estimating demand elasticities for intra-regional tourist arrivals to Hong Kong – the ‘bounds’ testing approach

The aim of this study is to develop econometric models for estimating tourism demand elasticities using the Autoregressive Distributed Lag (ARDL) approach to cointegration analysis, and to explain the effects of economic determinants on inbound tourist flows to Hong Kong from four major short-haul markets. The cointegration test used is the ‘bounds’ test of Pesaran et al. (2001) that is based on the estimation of an Unrestricted Error-Correction Model (UECM). This article addresses one of the major problems of how to use a relatively small sample to estimate tourism demand elasticities using cointegration approaches, which is faced by many researchers in modelling tourism demand. The results show that permanent income is the most important explanatory variable for all origin countries, but there are substantial variations between countries with the long-run elasticity ranging between 1.74 for China and 3.05 for Australia. Price elasticity is the next most important variable with the long-run elasticities ranging from 0.35 (Australia) to 0.98 (Taiwan). The findings are consistent with economic theory and have implications for government policies and strategies on investment, marketing and promotion and pricing.