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This study takes a disaggregated approach to investigate the impacts of long-run GDP on changes in total government expenditure in the Eastern Caribbean Currency Union (ECCU) economies. An understanding of the relationship between changes in total government expenditure and GDP (by sector categories) is expected to provide a working tool to understand the growth debt nexus of Caribbean countries. The purpose of the paper is to use an auto regressive distributed lag (ARDL) and error correction model (ECM) to examine and analyse short- and long-run dynamics of disaggregated approach to both output and government expenditure in a dynamic model to identify the growth in the Eastern Caribbean Countries.

In an attempt to examine the long-run dynamics, data for the period 1970-2015 were used in an ARDL and ECM framework. The authors examine the long-run GDP impacts of changes in total government expenditure and in the shares of different spending categories for the ECCU countries to establish and analyse short and long-run dynamics.

The results suggest that total fiscal expenditure and disaggregated expenditure including debt services have both positively and negatively contributed to economic growth in the agriculture, manufacturing and mining sectors. Among others, the study found that high national debt in the region resulted primarily from increases in government expenses and diminishing income sources.

This paper is the first to take a disaggregated approach to investigate the relationship between economic growth and government expenditure in the Eastern Caribbean States. The authors’ empirical results suggest that debt servicing reduces economic growth both in the short and long run. The greatest impact being felt in the mining and manufacturing sectors, namely, 1 per cent increase in debt service will bring about 7.90 and 1.67 per cent decrease in economic growth. These results offer fairly strong support to the view that expenditure share variables can weaken sectoral growth, and hence force the overall growth to decline.

This chapter advances a panel vector autoregressive/vector error correction model (PVAR/PVECM) framework for purposes of examining the sources and determinants of cross-country variations in macroeconomic performance using large cross-country data sets. Besides capturing the simultaneity of the potential determinants of cross-country variations in macroeconomic performance and carefully separating short- from long-run dynamics, the PVAR/PVECM framework advanced allows to capture a variety of other features typically present in cross-country macroeconomic data, including model heterogeneity and cross-sectional dependence. We use the PVAR/PVECM framework we advance to reexamine the dynamic interrelation between investment in physical capital and output growth. The empirical findings for an unbalanced panel of 90 countries over the time period from at most 1950 to 2000 suggest for most regions of the world surprisingly strong support for a long-run relationship between output and investment in physical capital that is in line with neoclassical growth theory. At the same time, the notion that there would be even a long-run (let alone short-run) causal relation between investment in physical capital and output (or vice versa) is strongly refuted. However, the size of the feedback from output growth to investment growth is estimated to strongly dominate the size of the feedback from investment growth to output growth.

This paper aims to examine the dynamics between trade openness, foreign direct investment (FDI) and economic growth in India over the period 1979 to 2017. This study further considers the role of pre and post-economic reforms in the analysis of these dynamics.

The authors apply the autoregressive distributed lag model to investigate the possible long-run associations among the variables. Zivot-Andrew unit root test was applied to detect the structural breaks present in the data series. Toda-Yamamoto causality approach has been applied to examine the direction of causality among the variables.

Findings show that trade openness exerts a negative impact on economic growth in the long-run. Although FDI inflow promotes economic growth in the long-run, FDI inflow does not seem to affect growth in the short-run. As far as causality analysis is concerned, findings confirm a unidirectional causality is flowing from FDI inflow and labour force to per capita gross domestic product growth in India.

The negative impact of trade openness on growth suggests that policymakers should implement more export-oriented policies to boost economic growth in the long-run. The ratio of exports to the total volume of trade has not increased satisfactorily over the years. Additionally, appropriate policies should aim at extracting the benefits of FDI inflow in the long-run.

Although several theoretical and empirical literature has investigated the nexus between FDI (or trade) and growth, this study, as a fresh attempt, investigates the long-run dynamics between trade openness, FDI, capital formation, labour force and economic growth in India.

In this paper, it is argued that previous estimates of the expected cost of equity and the expected arithmetic risk premium in the UK show a degree of upward bias. Given the importance of the risk premium in regulatory cost of capital in the UK, this has important policy implications. There are three reasons why previous estimates could be upward biased. The first two arise from the comparison of estimates of the realised returns on government bond (‘gilt’) with those of the realised and expected returns on equities. These estimates are frequently used to infer a risk premium relative to either the current yield on index‐linked gilts or an ‘adjusted’ current yield measure. This is incorrect on two counts; first, inconsistent estimates of the risk‐free rate are implied on the right hand side of the capital asset pricing model; second, they compare the realised returns from a bond that carried inflation risk with the realised and expected returns from equities that may be expected to have at least some protection from inflation risk. The third, and most important, source of bias arises from uplifts to expected returns. If markets exhibit ‘excess volatility’, or f part of the historical return arises because of revisions to expected future cash flows, then estimates of variance derived from the historical returns or the price growth must be used with great care when uplifting average expected returns to derive simple discount rates. Adjusting expected returns for the effect of such biases leads to lower expected cost of equity and risk premia than those that are typically quoted.

Globalization occupies a central research activity and remains an increasingly controversial phenomenon in economics. This phenomenon corresponds to a subject that can be criticized through its impact on national economies. On the other hand, the world economy is evolving in a liberalized environment in which foreign direct investment plays a fundamental role in the economic development of each country. The advent of financial flows – foreign direct investment, remittances and official development assistance – can be a key factor in the development of the economy. The purpose of this study is to analyze the effect of financial flows on economic growth in developing countries. Empirically, different approaches have been used. As part of this study, an attempt was made to use a combined autoregressive distributed lag (ARDL) panel approach to study the short-term and long-run effects of financial flows on economic growth. The results indicate ambiguous effects. Economically, the effect of financial flows on economic growth depends on the investor’s expectations.

To study the short-run and long-run effects of financial flows on economic growth, this paper considers an empirical approach based on the panel ARDL. This model makes it possible to distinguish between the short-run effect and the long-run one. This type of model is based on three estimators, namely, mean group, pooled mean group (PMG) and dynamic fixed effect.

Results confirm the existence of a long-run relationship because the adjustment coefficient (error correction parameter) is negative and statistically significant. This paper finds that the PMG estimator is more consistent and more efficient. In the short-run, foreign direct investment do negatively affect economic growth, the effect is no significant in the long-run. On the other hand, the effect of remittances on economic growth is significant in the short-run. However, it is no significant in the long-run. Finally, the results suggest that the effect of official development assistance on economic growth is insignificant; both in the long-run and in the short-run.

To study the interaction between financial flows and economic growth, some empirical methodology are used such as the dynamic panel data and the autoregressive vector (VAR) model. In this study, we apply the panel ARDL model to analyze the short-run and the long-run effect for each financial flow on economic growth. The objective is to study the heterogeneity on dynamic adjustment in the short-term and long-term.

Despite the importance of high-technology firms to the global economy, relatively little is known about factors contributing to these firms’ long-run growth. We examine these factors using a unique longitudinal dataset combining two waves of detailed surveys of 345 UK high-tech firms with performance data from UK official datasets. Overall we conclude that the early strategic decisions made by firms have long-run impacts on their subsequent growth, and we suggest that policy measures targeted at shortfalls faced by these firms may have positive long-term consequences.

The authors test the effect of expenditure decentralization and fiscal equalization on short- and long-run economic growth and estimate two-step generalized method of moment (GMM) simultaneous equations models, using panel data for China and India for the period 1985 to 2005. The authors estimate two simultaneous equations: a growth equation and equalization equation and find that expenditure decentralization has a negative and statistically significant effect at conventional levels on short-run economic growth for both China and India. However, the authors also find that this result is sensitive to the set of included explanatory variables. This leads the authors to conclude that expenditure decentralization has no effect on short-run economic growth for either country. The authors also find that expenditure decentralization has a positive and statistically significant effect on fiscal equalization for both countries but find no evidence that fiscal equalization affects short-run economic growth for either China or India. In contrast, the authors find that expenditure decentralization has a positive effect on long-run economic growth in the case of India, but not in the case of China. Finally, the authors report evidence that fiscal equalization has no effect on long-run economic growth in the case of China; however, the authors find that equalization has a positive and statistically significant at conventional levels effect on long-run economic growth in India.

The authors estimate two-step GMM simultaneous equations models, using panel data for China and India for the period 1985 to 2005. To examine the effect of fiscal decentralization (FD) policies on economic growth in China and India, the authors estimate two equations: a growth equation and an equalization equation. For the growth equation, the authors adopt a production-function-based model that is widely used in the empirical literature on growth; however, the authors do make some compromises with this specification due to the unavailability of certain data. For the equalization equation, the authors include variables that economic theory and empirical evidence suggest influence fiscal disparities among subnational governments which in turn influence the demand for horizontal fiscal equalization (HFE). To the extent possible, the authors employ the same econometric specification, variable constructions and sample periods for both China and India. The authors believe this strategy provides a more rigorous test of the FD hypothesis.

The authors find that expenditure decentralization has a negative and statistically significant effect at conventional levels on short-run economic growth for both China and India. However, the authors also find that this result is sensitive to the set of included explanatory variables. This leads to conclude that expenditure decentralization has no effect on short-run economic growth for either country. The authors also find that expenditure decentralization has a positive and statistically significant effect on fiscal equalization for both countries but find no evidence that fiscal equalization affects short-run economic growth for either China or India. In contrast, the authors find that expenditure decentralization has a positive effect on long-run economic growth in the case of India, but not in the case of China. Finally, the authors report evidence that fiscal equalization has no effect on long-run economic growth in the case of China; however, the authors find that equalization has a positive and statistically significant at conventional levels effect on long-run economic growth in India.

Due to the importance of FD policies, especially to many developing countries that are currently pursuing decentralization reforms, future research should examine the effect of FD on economic growth for other countries. Furthermore, although it would be difficult to do so, future research should examine whether FD promotes political stability on ethnically diverse countries.

To the best of the authors’ knowledge, no one has examined the effect of FD policies on India's growth experience. What is more is that this is also the first of its kind to have a comprehensive empirical investigation into these two major developing countries with very interesting similarities and differences in FD policies. It is thus of great importance to examine the effect of expenditure decentralization and HFE on economic growth in China and India.

The objective of this study is to explore the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka over the period of 1960–2018.

Both exploratory and inferential data analysis tools have been employed to examine the objective of this study. The exploratory data analysis covered the scatter plots, confidence ellipse with kernel fit. The inferential data analysis included the augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests, the autoregressive distributed lag (ARDL) Bounds co-integration technique and the Granger causality test.

The test result of exploratory data analysis indicates that there is a positive relationship between foreign aid and economic growth. The ADF and PP unit root tests results indicate that the variables used in this study are stationary at their 1st difference. The co-integration test result confirms the presence of long-run relationship between foreign aid and economic growth in Sri Lanka. The estimated coefficient of foreign aid in the long-run and the short-run shows that foreign aid has a positive relationship with economic growth in Sri Lanka. The estimated coefficient of error correction term indicates that approximately 26.6% of errors are adjusted each year and further shows that the response variable of economic growth moves towards the long-run equilibrium path. The Granger causality test result shows that foreign aid in short-run Granger causes economic growth in Sri Lanka which means that one-way causality from foreign aid to economic growth is confirmed. Further, the estimated coefficient of error correction term confirms that there is the long-run Granger causal relationship between foreign aid and economic growth in Sri Lanka.

The findings of this study have some important policy implications for the design of efficient policy related to foreign aid and economic growth, the knowledge of which will help follow sustainable foreign aid and growth nexus.

This study contributes to the existing literature by using the newly introduced ARDL Bounds cointegration technique to investigate the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka.

The main purpose of this study is to investigate the short-run and long-run asymmetric effects of fiscal policy, namely government spending on economic growth over the sample period 2004Q2 up to 2018Q1 for the South African economy.

Nonlinear autoregressive distributive lag model is used to examine the short-run and long-run asymmetric effects of government spending on economic growth.

The results exhibit the negative change effect of government spending is found to be greater than the positive change effect of government spending on economic growth. Real effective exchange rate is found to have a positive and significant effect on economic growth both in the short run and long run. Whereas, inflation rate affects economic growth negatively and significantly in the short run and long run.

Previous empirical studies on the effect of fiscal policy on growth, at least for South Africa, consider only the asymmetric short-run effect while this paper extends the literature by incorporating asymmetries into the long-run effect. It provides a detailed analysis to the recent controversies on the effects of fiscal policy on growth.

Using annual data from 1970 to 2013 for China and India, this paper aims to examine the impact of globalization and financial development on economic growth by endogenizing capital and inflation and drawing comparisons between the two fastest growing emerging market economies.

In the long run, co-integration test results indicate that financial development increases economic growth in China and India.

The results also reveal that globalization accelerates economic growth in India but, surprisingly, impairs economic growth in China, as it increases competition for exports. The results furthermore disclose that acceleration in capitalization and inflation, as a proxy for aggregate demand, are positively linked to economic growth in China and India.

Causality test results indicate that both financial development and economic growth are interdependent. In contrast, causality runs from higher economic growth to increased globalization in India, while the results do not support long-term causality between globalization and economic growth in China.