Vector Error Correction Model Approach Research Articles

INVESTMENT AND ECONOMIC GROWTH NEXUS IN NIGERIA: A MODERATION ANALYSIS OF SECURITY THREATS

This study assessed the moderating effects of security threats on investment-economic growth nexus in Nigeria from 1986 to 2021 using the Vector Error Correction Model approach. Domestic investment and FDI were found to have a positive impact on Nigeria's long-term economic growth. The study also found that security threats have a strong negative effect on economic growth in Nigeria, and that the presence of security threats significantly reduced the positive influence of investment on economic growth in Nigeria. Thus, the marginal effects of investment when there are security threats in Nigeria was worsened. The study therefore emphasized that security threats significantly hinder the positive contributions of domestic and foreign investments to economic growth, especially foreign direct investment. Therefore, the study recommends that Nigerian government should enhance security measures to combat political instability, terrorism, and social unrest in order to create a more favourable business environment and encourage both domestic and foreign investment

Effect of macroeconomic indicators on stock price indices with the vector error correction model approach

The capital market as one of the important instruments in the economy requires indicators to determine growth in it. The Composite Stock Price Index (IHSG) is used as one of the capital market indicators with various influencing factors. This research was conducted to test and analyze the effect of inflation, exchange rate, the Bank Indonesia (BI) rate, and money supply (M2) on the Jakarta Composite Index (JCI) in the period from January 2017 to March 2022. In this study, quantitative descriptive research was carried out with JCI as the dependent variable and inflation, exchange rate, BI-rate, and money supply as independent variables. The research used the vector autoregression (VAR) method using the EViews 12 analysis tool. From the tests conducted it showed that between variables only had a one-way relationship, with the R squared value indicating that the independent variables in the model were able to explain changes in the dependent variable that occurred. The variables in the model are also indicated to have a simultaneous effect on the dependent variable; this is based on a high F-statistic value.

A multivariate causality analysis of CO2 emission, electricity consumption, and economic growth: Evidence from Western and Central Africa

The vector error correction model is used to examine the short- and long-run impacts of electricity consumption and economic growth on CO2 emissions in Western and Central Africa from 1970 to 2020. This paper adopted time series vector error correction model (VECM) approach to conduct stationarity test, cointegration test, stability test, and Granger causality test. Cointegration tests are used to examine the long-run impact of electricity consumption and economic growth on CO2 emissions. It was revealed that CO2 emission, electricity consumption and economic growth are co-integrated. Electricity consumption and economic growth have a significant and positive effect on CO2 emission. The study also revealed that the adjustment process is not driven by electricity consumption, and anytime there is a deviation from the long-run equilibrium, economic growth and CO2 emission adjust to restore the long-run equilibrium. From the short-run Granger causality, electricity consumption and economic growth do not Granger cause CO2 emissions. However, past values of CO2 emissions have an effect on the present value of economic growth. Generally, long-run dynamics of electricity consumption and economic growth were established to have a greater impact on CO2 emission than the short-run dynamics. Hence, it is important to promote green economic concepts in the area.

PUBLIC EXPENDITURE AND INFLATION RATE IN NIGERIA

This paper examined the relationship between inflation and government spending in Nigeria for the period 1990 to 2022. The study utilized Augmented Dickey-Fuller unit root test, Johansen cointegration; Granger causality Test and Vector Error Correction Model (VECM) approaches. The secondary data variables in consideration are government spending (GEXP), inflation rate (INF), exchange rate (EXR) and broad money supply (MS2) and they were soured from CBN Statistical Bulletins. Although the unit root tests showed that the variables possessed a unit root problem at their level but freed from this at their first order of integration, the Johansen co-integration result showed that the variables were co-integrated. The result indicated that there is a long-run and shortrun bilateral causal relationship between inflation and government spending. The regression estimate based on the short run and long run VECM showed that inflation rate has a positive significant influence on government spending in Nigeria over the study period. Money supply is positively related with government spending in the recent years. Meanwhile exchange rate over the study periods showed a significant reduction in government spending in Nigeria in the recent years because a rise in exchanger rate reduced the value of naira and hence affect the government expenditure negatively.

The covid-19 pandemic caused vulnerability and survival strategies of star hotels in Nepal

Background: The concept of banking sector development is multi-dimensional, and it is difficult to establish a single description for it because it is an interconnected process that encompasses increases in the number and quality of financial services. Objectives: The objective of the study is to examine the impact of macroeconomic determinants on banking sector development in Nepal. Methods: The study applied the vector error correction model (VECM) approach technique with economic time series data ranging from 1995 to 2020. The study employed the VECM model to avoid the spurious regression problem in the construction of contemporary time series econometrics. The co-integration analysis is used in the study to determine the long-run equilibrium relationship between the macroeconomic variable and the banking sector development of the model. Banking sector development is measured by the arithmetic average of the normalized values of banking depth, banking efficiency, and banking stability. Result: This study reveals that per capita GDP and remittances have a positive and significant impact on the banking sector development. Similarly, government expenditure and stock market capitalization have positive and statistically significant roles to explain banking sector development in Nepal. In addition, it demonstrates that trade openness and inflation have a marginally negative but insignificant impact on banking sector development. Conclusion: There is a long-term equilibrium relationship between macroeconomic variables and banking sector development. Macroeconomic policies and institutional quality play an important role in the banking sector development. Implications: For policymakers since it clarifies the significance of sound macroeconomic policies in the development of the banking industry while taking into account the quality of the existing institutional infrastructure.

ANALYSING UNEMPLOYMENT DETERMINANTS IN MALAYSIA USING THE VECM METHODOLOGY

This research examines the factors influencing unemployment in Malaysia, considering both short-term and long-term perspectives through the utilization of the VECM (Vector Error Correction Model) methodology. After reviewing relevant literature, various macroeconomic indicators such as GDP growth, foreign direct investment, inflation, interest rate, and exchange rate were selected for analysis. Quarterly time series data spanning from (Q1) 2010 to (Q1) 2020 was employed for this study. Applying the VECM approach, the findings uncovered distinct relationships between these variables and unemployment. Specifically, a noteworthy positive correlation was observed between GDP and unemployment, indicating that as GDP increases, unemployment tends to rise as well. Conversely, in the short term, inflation displayed a significantly negative impact on unemployment, suggesting that higher inflation rates might be associated with lower unemployment rates temporarily. In the long run, the study identified a significantly positive relationship between GDP growth and unemployment. Intriguingly, foreign direct investment exhibited a notable increase in unemployment over the long term. Additionally, the causality test highlighted a one-way causal relationship from the identified determinants (GDP, inflation, foreign direct investment) to unemployment. Overall, this research underscores the complex interplay between key macroeconomic indicators and unemployment in Malaysia. The study's outcomes emphasize the significance of considering both short-term and long-term effects when analyzing the impact of economic variables on unemployment.

The Role of Endogenous Technology in Making Sustained Economic Growth in Sub‒Saharan Africa: Panel GMM and VECM Approaches

This study examines the role of endogenous technology in making sustained economic growth in a panel of 36 Sub-Saharan Africa (SSA) countries over the period 1990-2020. We derive total physical capital, total employment productivity (TEP), total factor productivity (TFP) and terms of trade (TOT) growth rates using various concepts. In this sense, the panel of short-run vector error correction model (VECM) and panel of long–run generalized method of moments (GMM) are applied and the estimation results are obtained. The empirical results reveal that there are significantly positive impacts of the growth rates of TFP, TEP and terms of trade (TOT) on real GDP growth rate in the long -run. These are profoundly important indicators for SSA today that timely using endogenous technology can play the central role in succeeding economic growth. And hence, without a greater supply of home–grown talent in the areas of the economic sector, it may be hard to break down the vicious circle of poverty, build prosperous, inclusive and resilient economies that can be feeding the people and enabling the countries to compete with trade globally.

Public Expenses in Education and Youth Unemployment Rates—A Vector Error Correction Model Approach

In the last decade, much of the attention of public expenditures in education has been focused on improving the offer to the labor market to minimize unemployment rates among young people. Since education directly affects human capital, investing in higher education is considered a benefit to future employment. Therefore, it is the purpose of this paper to investigate whether the government-allocated share of funds to total public expenditures in education affects the unemployment rates of youth in Albania. A quantitative analysis of total public expenses in education and of the country’s economic growth rates is used to investigate their effects on youth unemployment rates in the country. This is followed by another deeper investigation of public expenses in higher education and the country’s economic growth rates analysis on the youth unemployment rates of tertiary education graduates in Albania. Time series data are used in a set of econometric analyses such as the Augmented Dickey–Fuller test, Johansen test, and vector error correction (VEC) model to test for short-run dynamics and long-run causalities among the variables. The study results reveal that there is a short-term causality between the real economic growth rate and the youth unemployment rate, while there is a long-term causality between total public expenditures in education and the youth unemployment rate. If total public expenditures in education increase by 1%, the youth unemployment rate would decrease by 10.81%. Similarly, but not so strong, there is a long-term causality between public expenditures in higher education and the graduated youth unemployment rate. If public expenditures in higher education increase by 1%, the graduated youth unemployment rate would decrease by 5.85%. The speed of adjustment from the short-run to long-run equilibrium, in a quarter time, of the youth unemployment rate is 22%, while of the graduated youth unemployment rate is 53%—showing a faster convergence.

On the Dynamic Relationship between the Housing Market, Stock Market, and Macroeconomic Variables in Hong Kong

The relationship between the housing market, stock market, and macroeconomic variables has long been a topic of concern to both academics and practitioners. This paper examines the short-run dynamics and long-run relationships between the residential property price index and the stock market index and four selected macroeconomic variables in Hong Kong. The Johansen (1991) cointegration approach and the Vector Error Correction Model (VECM) approach are used to examine the monthly time series during the sample period from 2004 to 2019. Our results show that there is a cointegration relationship between the residential property price index and the stock market index and selected macroeconomic variables. There is evidence that the Hang Seng index, money supply (M3), total loans, and unemployment rate are significantly associated with the residential property price index, while the consumer price index has no significant impact on the residential property price index in the short-run dynamics. Also, only the Hang Seng index and two macroeconomic variables have a long-run cointegration relationship with the housing market. This is the first attempt to shed light on both short-run and long-run relationships between two capital markets and macroeconomic variables in the context of Hong Kong. Our findings provide important implications for relevant government departments to stabilise the housing market and help practitioners form effective investment strategies.

Dynamic Model of The Impact of Macro Indicators and Islamic Monetary Policy Instruments on The Dual Banking System

Indonesia is the largest Muslim country with a unique monetary system that in its development tries to juxtapose two monetary systems that have different philosophies and still need to be deepened on the extent of their impact and effectiveness on the economy. The study explores the impact of macro indicators and monetary policy instruments on economic output in Indonesia. Using the time series analysis method with the Vector Error Correction Model (VECM) approach, the model shows the results that the Macro Capital Market or Stock Market indicators have a positive impact on the economy both in the short and long term. At the same time, inflation responds positively to short-term behavior but becomes economic constraints in long-term action. Meanwhile, in the Monetary policy instruments’ scope, the M1 variable consistently has positive implications both in the short and long term. In contrast, the M2 and SBIS variables give negative responses in the short time but become a driving force for the economy in the long term. Meanwhile, there is no positive correlation between Sharia, Monetary Operations with Economic Output. The research suggests focusing on innovating sharia monetary policy instruments by continuing to carry out monetary policy reforms in order to stimulate better economic conditions.

The Relationship Between Agricultural Value Added, Investment and Consumption: Vector Error Correction Model Approach

The purpose of this study was to determine the impact of the relationship between agriculture on investment and consumption in Indonesia. This study uses data from a period of 36 years, from 1985 to 2020 by vector modeling to understand causal relationships between variables. This research is based on secondary data from the world bank. We use the variables of value-added agriculture, consumption, and investment in Indonesia. We find that macroeconomic variables such as agricultural value-added, consumption to GDP, and non-financial investment have a mutually influencing relationship. Changes that occur in one variable will affect other variables. With the decline in the value-added of agriculture, the level of consumption of the total GDP in Indonesia will increase. This happens because in Indonesia the decline in agricultural value-added can make consumption increase due to imports of agricultural products which increase along with it. However, an increase in consumption will also increase the value-added of agriculture, an increase in investment in the non-financial sector will increase the value-added of agriculture, and an increase in investment will increase consumption.

Modeling Tea Export Earnings by Category in Sri Lanka: Vector Error Correction Model (VECM) Approach

Modeling Tea Export Earnings by Category in Sri Lanka: Vector Error Correction Model (VECM) Approach

THE AGRICULTURAL SECTOR AND NIGERIA’S ECONOMIC GROWTH: A VECTOR ERROR CORRECTION MODEL APPROACH

The study examined the impact of agriculture on Nigeria’s economic growth, using the vector error correction model approach. Secondary data were obtained from the Central Bank of Nigeria, FAOSTAT and National Bureau of Statistics between 1981 and 2019. Descriptive statistics, Augmented Dickey Fuller test for unit roots, Johansen test for co-integration test and vector error correction model were used. Pre-estimation test showed that variables were I(1); foreign direct investment to the agricultural sector had the highest coefficient of variation (2.50), with the least mean (N18,797.33) and gross domestic product had the least coefficient of variation (0.54). Both trace and maximum statistics of Johansen’s co-integration test showed that the variables had long-run relationship. Of the four optimal lag selection criteria used, the FPE, HQIC and SBIC recommended one lag. The chi-square statistics (1674.845, p<0.01) for the overall co-integrating equations confirmed long-run relationship. Findings also showed that the z-statistics (-15.19) of lnagdp was statistically significant (p<0.01) implying it would increase economic growth in the long-run. Similarly, the z statistic (-4.33) of lnnoe was statistically significant (p < 0.01) and would increase economic growth in the long-run. Also, the z-statistic (-5.89) of lnfdia was statistically significant (p<0.01), and would increase economic growth in the long-run. However, the z-statistics (5.56) of lnnoi (3.3) was positive and statistically significant (p<0.01) implying that it would reduce economic growth in the long-run. The error correction term (-0.2361) suggested that the long run equilibrium would be normalized back if there was any shock to the economic system; and that the speed of adjustment would be 23.61% annually towards equilibrium if the system is distorted. The study concluded that agriculture would be relevant to Nigeria’s economy in the long run. Consequently, efforts to attract foreign direct investment to the agricultural sector, increase growth in agricultural GDP and non-oil export and cut in non-oil import, should be sustained by the federal government.

DETERMINANTS OF NIGERIA GOVERNMENT AGRICULTURAL EXPENDITURE (1999-2020): EVIDENCE FROM VECTOR ERROR CORRECTION MODEL APPROACH

The study focused on the determinants of government agricultural expenditure in the long and short run from 1999-2020 using Vector Error Correction Model approach. Annual time series data on agricultural GDP, agricultural expenditure, inflation rate, exchange rate, interest rest, private investment, public investment and foreign direct investment collected from the records of Central Bank of Nigeria and National Bureau of Statistics database were analyzed using inferential statistics (ADF, Johansen co-integration and VECM). The results showed that all the variables co-integrate and were stationary at first difference. In the long run, inflation (1.118415) and private investment (0.004239) were the significant and important variables that determine agricultural expenditure. The coefficient of multiple determination (R2) was 0.925, indicating that 92.5% variation in agricultural expenditure was explained by the variables. The Error correction Term is statistically significant and negative (-0.0278) in the short run indicating a slow speed of adjustment of variables towards equilibrium. In the short run, inflation, private investment and public investment were the important variables that influenced government expenditure. The study concludes that inflation, private and public expenditures influenced government agricultural expenditure significantly and therefore recommend friendly policies to curtail inflation, conducive environment to catalyze private investment and stimulation of public investment to boost agricultural growth.

Determinant Analysis of Company Debt Policy with Vector Error Correction Model Approach

Purpose- This study uses a VECM model that aims to see the short-run and long-term effects of managerial ownership, sales growth, free cash flow, and asset structure against debt policy. Vector Error Correction Model (VECM) is a model that can be used for time series data that is not stationary but has a cointegration relationship where in the model included stationary exogenous variables as additional regressors.
 Research Method- The sample used in this research is quantitative data with a purposive sampling technique. Based on the criteria, the number of samples collected is 32 samples in the period 2013-2021.The data analysis techniques in this study use Vector Error Correlation Model (VECM) analysis, several stages that researchers must go through before determining the right model, namely data stationarity test, optimal lag length test, co-integration test, VAR model stability test, granger causality analysis, VAR/VECM empirical model, Impulse Response Function analysis and Variance Decomposition analysis.
 Findings- The results of the analysis show that in the short term only sales growth and asset structure have a significant influence on debt policy. Meanwhile, in the long-term free cash flow, asset structure and sales growth have a significant influence on debt policy, while managerial ownership has an insignificant effect on debt policy.
 Implication- For the company should reduce the proportion of funding from debt in the implementation of its operations so as to reduce financial distress, because funding from corporate debt causes financial distress and agency costs greater than tax savings from debt interest expense, as a result of which the company is very vulnerable to economic turmoil. For creditors who provide sources of debt funding, pay more attention to aspects of the company's asset structure to be used as collateral for debt, because the company usually uses loan funds for high-risk projects. For investors should take deeper considerations to invest in companies that have large free cash flow because companies that have large free cash flow tend to show good cash flow for the future.

Global financial crisis and variability in the stock price index in India: A vector error correction model approach

Global financial crisis and variability in the stock price index in India: A vector error correction model approach

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

Comparing the Effect of Intangible Assets and Macroeconomic Parameters on the Stock Prices in Firms Listed on the Stock Exchange of Iran, Saudi Arabia and Iraq

Market Efficiency in Agricultural commodities: Vector error correction model (VECM) Approach

The study was conducted in Elobied Crops Market to investigate the efficiency market hypothesis (EMH) for sesame, groundnut, and Arabic gum crops. The study used Augmented-Dickey Fuller (ADF) method, Johansen multivariate approach, and Vector error correction model (VECM), and co-integration method. Data was obtained from the Elobied Crops Market database for annual prices and quantities of trading commodities from 1990 to 2017.The study concluded that there is a weak form of EMH for sesame and groundnut and a semi-strong of EMH for Arabic gum.

IMPULSE RESPONSE FUNCTION ANALYSIS OF UNEMPLOYMENT RATE, INFLATION, POVERTY AND ECONOMIC GROWTH IN INDONESIA

The purpose of this study is to analyze how the shock or impulse response function of the variables of the unemployment rate, inflation and poverty rate on economic growth within the research period from 1998-2020. The method used is the Impulse Response Function (IRF) through the Vector Error Correction Model (VECM) approach. The results prove that the response given by the unemployment rate (UN) to economic growth due to shocks show a positive response up to the 8th period. The most influential variable on economic growth (PE) is the unemployment rate (UN). Therefore, it is suggestted for the government to provide adequate jobs (as needed) so as to reduce the relatively high unemployment rate and will have an impact on increasing poverty rates in Indonesia.

Short and Long-Run Causal Effects of CO2 Emissions, Energy Use, GDP and Population Growth: Evidence from India Using the ARDL and VECM Approaches

This paper investigates the nexus between CO2 emissions (CO2E), GDP, energy use (ENU), and population growth (PG) in India from 1980–2018 by comparing the “vector error correction” model (VECM) and “auto regressive distributed lag” (ARDL). We applied the unit root test, Johansen multi-variate cointegration, and performed a Variance decomposition analysis using the Cholesky approach. The VECM and ARDL-bound testing approaches to cointegration suggest a long-term equilibrium nexus between GDP, energy use, population growth and CO2E. The empirical outcomes show the existence of a long-term equilibrium nexus between the variables. The Granger causality results show that short-term bi-directional causality exists between GDP and ENU, while a uni-directional causality between CO2E and GDP, CO2E and ENU, CO2E and PG, and PG and ENU. Evidence from variance decomposition indicates that 58.4% of the future fluctuations in CO2E are due to changes in ENU, 2.8% of the future fluctuations are due to changes in GDP, and 0.43% of the future fluctuations are due to changes in PG. Finally, the ARDL test results indicate that a 1% increase in PG will lead to a 1.4% increase in CO2E. Our paper addresses some important policy implications.