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Article
Publication date: 14 June 2019

Shruti Shastri

The purpose of this study is to revisit the twin deficit hypothesis (TDH) and provide insights into the transmission mechanism connecting budget deficits and current…

Abstract

Purpose

The purpose of this study is to revisit the twin deficit hypothesis (TDH) and provide insights into the transmission mechanism connecting budget deficits and current account deficits for five major South Asian countries, namely, India, Bangladesh, Pakistan Sri Lanka and Nepal for the period 1985-2016.

Design/methodology/approach

This study uses a multivariate framework including real interest rate, real exchange rate and real gross domestic product to avoid the possibility of incorrect inferences caused by omission of relevant mediating variables. The long-run relationship and causality are investigated through the autoregressive distributed lag bounds testing approach and Toda Yamamoto approach, respectively, for each individual country. The robustness of the results is assessed with the help of Westerlund’s cointegration test and group mean fully modified ordinary least squares (GM-FMOLS), group mean dynamic ordinary least square (GM-DOLS) and common correlated effect mean group (CCEMG) estimators in the panel framework.

Findings

Both time series and panel evidences indicate long-run relationship between budget balance (BB) and current account balance (CAB) together with the mediating variables. The results indicate bi-directional causation between the two balances for India and Bangladesh, TDH for Pakistan and Sri Lanka and the reverse causation from CAB to BB for Nepal. Regarding the transmission mechanism, the results indicate the absence of the causal chain postulated by Mundell–Fleming, which predicts that BB causes CAB via interest rate and exchange rate. A CCEMG estimate of the import demand function reveals a positive government spending elasticity of imports suggesting that BB affects CAB by direct impact through demand.

Originality/value

This study augments the twin deficit literature on South Asian countries by providing insights into the transmission mechanism connecting the BB and CAB. Moreover, the study provides robust evidences on the TDH by using both time series and panel data techniques.

Details

Indian Growth and Development Review, vol. 12 no. 3
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 17 September 2019

Pami Dua and Niti Khandelwal Garg

The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components…

Abstract

Purpose

The study aims to empirically investigate the trends and determinants of labour productivity of the two broad sectors –industry and services – and their components, namely, manufacturing and market services sectors, in the case of major developing and developed economies of Asia-Pacific over the period 1980-2014 and make a comparison thereof.

Design/methodology/approach

The study uses econometric methodology of panel unit root tests, panel cointegration and group-mean full modified ordinary least squares (FMOLS).

Findings

The study finds that while capital deepening, government size, institutional quality, productivity of the other sector and financial openness affect productivity of all the sectors significantly, the impact of human capital and trade openness varies across sectors in the case of developing economies. Furthermore, the impact of technological progress becomes significant in the post-liberalization reforms period in the developing economies. The study further finds that capital deepening, human capital, government size, institutional quality, productivity of the other sector, government size and trade openness are significant determinants of productivity of all sectors of developed economies under consideration. However, the impact of technological progress is stronger for manufacturing sector than services and its components. Furthermore, while both equity and debt liabilities (as measures of financial openness) influence sectoral productivity of industry and manufacturing sectors positively and significantly in case of developed economies, only equity liabilities have a significant influence on the productivity of developing economies. This may indicate existence of more developed financial markets in the case of developed economies.

Originality/value

The study identifies important structural differences in determinants of productivity both across sectors and across developing and developed economies of Asia-Pacific.

Details

Indian Growth and Development Review, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 5 October 2010

Abdullahi D. Ahmed

The purpose of this paper is to use the recent development in unit root tests and cointegration as applied to panel data and dynamic time series, to estimate the…

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2010

Abstract

Purpose

The purpose of this paper is to use the recent development in unit root tests and cointegration as applied to panel data and dynamic time series, to estimate the relationship between financial liberalization, financial development and growth.

Design/methodology/approach

The paper assesses the dynamics of the relationship between financial development, financial liberalization and growth using the latest dynamic panel data framework and time series analyses comprising up to 15 Sub‐Saharan African countries with annual observations over the period of 1976‐2005. The research uses various measures of, or proxies for, financial intermediary development, including ratio of private sector credit and share of domestic credit to income.

Findings

The results obtained from a heterogenous panel investigation and time series methodology such as Granger causality, indicate a long‐run equilibrium relationship between financial development and economic growth. This is consistent with the view that financial development can act as an “engine of growth” and plays a crucial role in the process of economic development. However, there is little evidence to support the hypothesis that financial liberalization directly “leads” growth.

Originality/value

Group mean panel fully modified ordinary least squares (FMOLS) and country‐by‐country time series investigations show evidence of causality running from financial development to growth. The analysis yielded limited evidence of financial liberalization Granger‐causing economic growth. However, this is not to say that financial liberalization does not promote growth, as it could do so indirectly through fostering financial development.

Details

Studies in Economics and Finance, vol. 27 no. 4
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 15 August 2018

Abubakar Hamid Danlami, Sirajo Aliyu and Ismail Aliyu Danmaraya

The persistent rise in the global discharges of carbon (CO2) emissions and the likely undesirable consequences of this practice on the global atmosphere attracts the…

Abstract

Purpose

The persistent rise in the global discharges of carbon (CO2) emissions and the likely undesirable consequences of this practice on the global atmosphere attracts the attention of policy makers and researchers to argue on the causes and perpetrators of CO2 emissions at international level. The purpose of this paper is to examine the relationship between economic growth, energy production, capital formation, foreign direct investment (FDI) and CO2 emissions in the LMI and Middle East and North African (MENA) countries for the period 1980–2011.

Design/methodology/approach

Two separate autoregressive distributed lag (ARDL) models were estimated for both the LMI and MENA countries, for the period 1980–2011. Furthermore, a fully modified OLS (FMOLS) was estimated for the two regions over the same period.

Findings

The results indicated that for the lower-middle income countries, there is a positive significant relationship between energy production and CO2 emissions. In the long run while in the short run, FDI and EGP are positively related to CO2 emissions while gross capital formation (GCF) has a negative impact on the CO2 emissions in the short run over the same period. Similarly, for the MENA countries, there is a positive relationship between EGP, GCF and CO2 emissions in both the short run and the long run. Furthermore, the estimated group mean FMOLS indicated that apart from GDP, all other variables have significant positive impact on CO2 emissions.

Research limitations/implications

The study covers only the period 1980–2011. This was because of limited available data during the study.

Practical implications

The study recommended the adoption of green technology by FDI firms and also in the process of energy production such as in crude oil production.

Originality/value

The study carried out a complex analysis where simultaneously all the countries of LMI and MENA regions where considered. Furthermore, separate analysis where conducted for each of the LMI and MENA regions using ARDL model. Variable representing energy production was included in the analysis which was not considered by previous studies. Lastly, FMOLS was estimated for the pooled of LMI and MENA countries which further distinguished the study from the relevant previous studies.

Details

International Journal of Social Economics, vol. 46 no. 1
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 29 April 2014

P.S. Nirmala, P.S. Sanju and M. Ramachandran

– The purpose of this paper was to examine the long-run causal relations between share price and dividend in the Indian market.

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Abstract

Purpose

The purpose of this paper was to examine the long-run causal relations between share price and dividend in the Indian market.

Design/methodology/approach

Panel vector error correction model is estimated to examine the long-run causal relations between share price and dividend. Prior to this, panel unit root tests and panel cointegration tests are carried out to test the unit root properties of the data and test for the existence of long-run cointegrating relationship between the variables, respectively.

Findings

The results of empirical investigation reveal that there exists bi-directional long-run causality between share price and dividends.

Research limitations/implications

For the chosen sample, data on share price are available only for limited years. This limits the time dimension of the sample. Hence, in the future, the analysis can be extended to cover longer time series.

Practical implications

The interplay between share prices and dividends needs to be given due consideration by firms while framing their policies. A change in dividend policy would have an effect on the market value of the firm; hence, firms need to frame dividend policy in such a way that it would enhance their market value. Similarly, investors need to take into consideration the influence of share prices and dividends on each other. While making investment decisions, they need to consider the dividend history of shares, as better dividends would lead to better share prices.

Originality/value

To the best of the authors' knowledge, this study is the first attempt in the Indian market to examine the long-run causal relations between share price and dividend. The results of this study would be helpful to the investors in taking wise investment decisions. It would also enable firms in formulating appropriate dividend policies.

Details

Journal of Asia Business Studies, vol. 8 no. 2
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 2 August 2011

Abdullahi D. Ahmed and Abu N.M. Wahid

This paper aims to use the newly developed panel data cointegration analysis and the dynamic time series modeling approach to examine the linkages between financial…

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2483

Abstract

Purpose

This paper aims to use the newly developed panel data cointegration analysis and the dynamic time series modeling approach to examine the linkages between financial structure (market‐based vs bank‐based) and economic growth in African economies.

Design/methodology/approach

The research investigates the dynamic relationship between financial structure and economic growth in a panel of a group of seven African developing countries over the period of 1986‐2007. The paper uses various indicators/measures of financial structure and financial system, and employs the traditional time‐series analysis for causality as well as the newly developed panel unit root and cointegration techniques and estimated finance‐growth relationship using FMOLS for heterogeneous panel.

Findings

From the dynamic heterogeneous panel approach, the paper firstly finds that market‐based financial system is important for explaining output growth through enhancing efficiency and productivity. Second, the authors' empirical evidence supports the view that higher levels of banking system development are positively associated with capital accumulation growth and lead to faster rates of economic growth.

Originality/value

Panel cointegration, group mean panel FMOLS and country‐by‐country time series investigations indicate that the market‐based financial system is important for explaining output growth through enhancing efficiency and productivity, whereas the development of banking system is significantly associated with capital accumulation growth. Further results from the time‐series approach show evidence of unidirectional causality running from market‐oriented as well as bank‐oriented financial systems to economic growth.

Details

Journal of Economic Studies, vol. 38 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 28 September 2010

Chandan Sharma and Sanjay Sehgal

The purpose of this paper is to provide an empirical evaluation of the impact of infrastructure development on industry‐level productivity, output and efficiency in India…

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1785

Abstract

Purpose

The purpose of this paper is to provide an empirical evaluation of the impact of infrastructure development on industry‐level productivity, output and efficiency in India over the period 1994‐2006.

Design/methodology/approach

The first stage, estimated total factor productivity (TFP) and technical efficiency of eight important industries. In the next stage, the effects of infrastructure were estimated on TFP, output, labor productivity and technical efficiency. Fully modified ordinary least squares procedure was utilized to generate consistent estimates of the relevant panel variables in the cointegrated frameworks.

Findings

The results of this study are mixed. On the one hand, TFP, output and technical efficiency appear to be positively and largely affected by infrastructure. On the other hand, the effect of infrastructure on the labor productivity is somewhat negligible. In addition, the effects of information and communication technology on the industrial performance are found to be very weak.

Originality/value

This is the first study of its kind in the related literature which attempts to investigate the role of infrastructure in industrial performance, using alternative frameworks, namely, growth accounting and production function approach. The paper uses appropriate techniques to account for the potential endogeneity of regressors as well as for multicollinearity among infrastructure variables.

Details

Indian Growth and Development Review, vol. 3 no. 2
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 1 July 2014

Olusegun Felix Ayadi, Solabomi Ajibolade, Johnnie Williams and Ladelle M. Hyman

The financial economics literature points to the likelihood that transparency affects the inflows of direct foreign investments. The purpose of this paper is to examine…

Abstract

Purpose

The financial economics literature points to the likelihood that transparency affects the inflows of direct foreign investments. The purpose of this paper is to examine the relationship between degree of transparency in an economy and the level of foreign direct investment (FDI) inflows using cross-section and time series data from 13 Sub-Saharan African countries from 1998 through 2008.

Design/methodology/approach

The paper employed a panel unit root and panel cointegration tests to data from 13 Sub-Saharan countries from 1998 through 2008. The long-run equilibrium relationship is estimated by the fully modified ordinary least squares (FMOLS) method. The cointegration framework employed in this study accounts for individual as well as time effects by adjusting for potential heterogeneity and serial correlation existing in the data panel.

Findings

The results imply that the level of transparency and size of FDI inflows into Sub-Saharan Africa have a long-run equilibrium relationship.

Research limitations/implications

The role of multinational corporations in increasing the levels of corruption in host countries is supported in this study.

Practical implications

The role of multinational corporations in contributing to the absence of transactional transparency in host countries is supported in this study. The OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions should be endorsed by African countries. African countries should make efforts to transform their domestic political and economic environments in order to enhance transparency and allow rule of law to apply.

Originality/value

This paper is the first to empirically test the aforementioned long-run equilibrium relationship by isolating the role of transparency in international capital flows.

Details

African Journal of Economic and Management Studies, vol. 5 no. 2
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 18 June 2018

Hway Boon Ong

The purpose of this paper is to study how the foreign currency account (FCA) is affected by the domestic fixed deposit (FD) rate, the FCA rate, the expected exchange rate…

Abstract

Purpose

The purpose of this paper is to study how the foreign currency account (FCA) is affected by the domestic fixed deposit (FD) rate, the FCA rate, the expected exchange rate and exchange rate risk.

Design/methodology/approach

This paper analyses the causal relationship between the domestic FD rate, the FCA rate, the expected exchange rate on a set of foreign currency deposits and exchange rate volatility, based on the theory of portfolio choice. Based on the theory, the panel vector autoregressive regression of fully modified ordinary least squares and dynamic ordinary least squares are modelled.

Findings

There is no cointegrating relationship for the three-month FCA deposits, the domestic FD rate, the FCA rate and the expected exchange rate. Only the six-month FCA business deposits are affected by the domestic FD rate, the FCA rate and the expected exchange rate. The FCA depositors are not affected by exchange rate volatility.

Research limitations/implications

This study is conducted based on the FCA rate quoted by the leading commercial banks in Malaysia, Maybank. Thus, the FCA rate is used as a proxy for the FCA rate of commercial banks in Malaysia.

Originality/value

Individual depositors have to save in more than the three-month FCA to realise their expected return. For individuals, the FCA deposit is not an alternative choice to domestic FD. Exporters may use the FCA deposit to finance their foreign purchases to save the cost of foreign exchange conversion but it is still not an appropriate hedging tool against foreign exchange fluctuations as compared to the existing forward foreign exchange facility.

Details

International Journal of Bank Marketing, vol. 36 no. 7
Type: Research Article
ISSN: 0265-2323

Keywords

Open Access
Article
Publication date: 11 August 2020

Chukwuebuka Bernard Azolibe

This study empirically assessed the influence of foreign direct investment on the manufacturing sector growth in the Middle East and North African region using panel data…

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1482

Abstract

Purpose

This study empirically assessed the influence of foreign direct investment on the manufacturing sector growth in the Middle East and North African region using panel data of 18 countries covering the period of 1975–2017.

Design/methodology/approach

The study employed Levin et al. (2002) test (LLC) and Im et al. (2003) panel unit root test. Furthermore, Kao’s cointegration test was applied to examine the long-run relationship between the variables. Both the Dynamic OLS and Fully modified OLS were used in estimating the short-run relationship.

Findings

The results of the DOLS and FMOLS indicate that both inward and outward FDI influence the manufacturing sector growth positively. This shows that much of the manufacturing sector growth in the MENA region is driven by both inward and outward FDI. Our findings made a strong new proposition that aside from the negative influence proposed by Stevens and Lipsey (1992), outward FDI could also have a positive influence on the manufacturing sector of a country through effective utilization of domestic raw materials that are produced locally for production of goods in a foreign country.

Practical implications

MENA countries should concentrate more on making policies that will encourage the effective utilization of domestic resources for outward foreign direct investment in other countries of the world as it has the capacity to boost the manufacturing sector growth. Also, policies that will attract more inflows of FDI in the region should be encouraged. Both inward and outward FDI should be considered as an integral part of MENA economic policy in order to spur the manufacturing sector growth.

Originality/value

Previous empirical studies on the relationship between FDI and manufacturing sector growth have focused much on the influence of inward FDI. Thus, very little attention has been paid to the contribution that the outward FDI makes to the growth of the manufacturing sector of the host country. Our empirical study focused on the influence of both inward and outward FDI on the manufacturing sector growth with specific emphasis on the MENA region that remains the center of attraction of inward FDI and a source of inward FDI to most nonoil producing developing and developed countries given the oil-rich nature of the region.

Details

International Trade, Politics and Development, vol. 5 no. 1
Type: Research Article
ISSN: 2586-3932

Keywords

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