his study investigated the dynamic relationship between money, prices and output in a multivariate structure of casualty analysis in Iran for the two period of 1969 to 2012 (entire period) and 1989 to 2012 (sub-period). This statistical framework has been projected for situations where causal links may have changed over the sample period. Results of a three-variable VectorErrorCorrectionModel (VECM) analysis were indicative for existence of one co-integrated relationship between money supply, price and real output at both periods. Although there was a long run relationship between money, output and prices for both periods, direction of casualty has changed for sub-period. Also errorcorrection terms showed that short run adjustment toward long run equilibrium was faster and stranger at sub-period, when Central Bank of Iran (CBI) adopted expansionary monetary policy and consequently rapid increase in liquidity. Finally money- output causality was not confirmed in this method and presence of correlation (not causality) between variables may just resulted from some other variables in economy as source of changes.
In term of causality, several studies find a bidirectional relationship between renewable EC and economic growth. Soytas and Sari (2003), for example, examined the causality relationship between EC and GDP in the top 10 emerging markets and G-7 countries, using ECM. They discovered bi-directional causality in Argentina, causality running from GDP to EC in Italy and Korea, and from EC to GDP in Turkey, France, Germany and Japan. Pao and Fu (2013) examine the casual relationship between economic growth and aggregated and disaggregated renewable EC in the case of Brazil. They found mixed results regarding the direction of causality between the variables. Ozturk and Acaravci (2011) studied the causality between EC and economic growth in the 11 Middle East and North Africa countries and found cointegration and causality relationship in four countries (Egypt, Israel, Oman and Saudi Arabia). Moreover, in their study on the short-run and long- run relationship between EC and economic growth for Turkey, Acaravci and Ozturk (2012) found evidence of unidirectional short-run and long-run causalities running from the EC per capita to real GDP per capita. Pei et al. (2016) examined the effects of electric consumption on three sectors, namely, manufacturing, agriculture and services in Malaysia. The results showed that electric consumption does not Granger causes manufacturing and services sectors, but does Granger cause the agriculture sector of Malaysia. Solarin et al. (2016) investigated the relationship
ABSTRACT:- This study investigates the spatial price transmission among major wheat and rice markets of Pakistan using their monthly retail prices. For analysis VectorErrorCorrectionModel and Co-integration approach were employed. Results showed that wheat and rice market prices are integrated. Some markets have positive or negative transmission shocks on each other due to the different geographical locations and transport infrastructure. All the wheat markets are adjusted to price changes in the long run equilibrium except few markets. Unidirectional and bidirectional causality exists between wheat and rice markets. Bad and poor infrastructure is a major impediment to price transmission among the markets. These market imperfections lead to food insecurity in the country. Government should formulate better policies and develop infrastructure towards better and efficient market function. The results of this study will help the policy makers to formulate a better policy to enhance marketing function to overcome food insecurity situation.
The aim of this paper is to study financial integration between emerging MENA countries and developed countries. We study short-term price series dynamics using Johansen’s (1991) multivariate cointegration test to determine the number of cointegration vectors and Granger’s (1987) causality test to determine causality direction across markets. The vectorerrorcorrectionmodel (VECM) model combines long-term cointegration modeling with short-term dynamics to determine equilibrium return rate. The results point to the presence of two long-term cointegration vectors between MENA and developed countries, while causality direction is bidirectional. The VECM results suggest the presence of a short-term cointegration between these countries. VECM’s residuals and the Wald test confirm the robustness of our model.
The paper examines the contribution of tourism towards poverty reduction in Tanzania for the period 1985 to 2015. Time series analytical method has been used in the analysis of data, by using vectorerrorcorrectionmodel and Granger causality tests, to examine the long run and causal relationship between tourism development and poverty reduction in Tanzania. The empirical results indicated a long-run relationship between tourism and poverty reduction also the Granger causality tests suggest unidirectional causal relation running from tourism earning to poverty reduction. Tourism as an industry can play very important roles in economic development including improved livelihoods and socio-cultural development that are critical for poverty alleviation. Therefore, in order to alleviate poverty in Tanzania through tourism, there is a need for more government regulating mechanism, aggressive promotion strategies, enhancement of skills and knowledge of the tourism sector, increasing effort in conserving and preserving heritage sites, and improvement of infrastructures and facilities.
This paper investigated the long run relationship between financial development and economic growth in South Korea using a four-variable Vector Autoregressive (VAR) model using time series data from 1961 to 2013. Applying unit root tests and co- integration analysis, the study revealed that real GDP per capita, financial development, real exports, and real imports were co-integrated with one vector. The empirical results from Granger causality tests based on vectorerrorcorrectionmodel (VECM) with one co-integrating vector suggested that financial development led to increase in economic growth and that there was unidirectional causality from financial development to economic growth but not from economic growth to financial development, supporting previous theoretical perspectives on the positive relationship between financial development and economic growth. This result emphasized the important role of financial development in South Korea’s recent economic growth.
If co-integration has been detected between the series, there exists a long term equilibrium relationship between them, and VECM is applied in order to evaluate the short run properties of the co-integrated series. In case of no co-integration, VECM is no longer required and directly proceeds to Granger causality test to establish causal links between variables (For detail, please see, Beketti,2013).
In Uganda, however, less effort has been made to study the connection between the budget deficit and inflation despite the fact that the country has been running deficit budgets over the years. This has been attributed to the low revenue mobilization com- pared to the increasing expenditure requirements. For example, in 2012, total revenue was at 17.2% of GDP compared to the expenditure requirements of 20.6% of GDP in the same period (MoFPED 2013). The economy therefore has been typified by relatively high budget deficit and inflation for a prolonged period of time. The few studies that have been conducted have also provided mixed results for the case of Uganda. For instance, Bwire and Nampewo (2014) examined the association between money creation, infla- tion and the budget deficit in Uganda over the period 1999Q4 to 2012Q3. Using vectorerrorcorrectionmodel (VECM) and a pairwise Engle–Granger causality test, a long- run relationship between the budget deficit, money supply, inflation and the nominal exchange rate was found to hold. However, their results showed that only money supply Granger causes inflation in the short run. Although results of Granger causality tests revealed a unidirectional causality running from inflation to the budget deficit, no sta- tistically significant causation was found from the budget deficit to inflation or from the budget deficit to money supply in the short run.
The following are the other studies that found that education positively impacts economic growth: Benosand Zotou (2014), Mekdad, Dahmani and Louadj (2014), Jalil and Idrees (2013) and Ageli and Moosa (2013). Moreover, Tomić (2015) found a positive correlation between public expenditure on education and GDP in the European Union and BRICS countries. Next, Mallick and Dash (2015) found that a long run equilibrium relationship exists between expenditure on education and economic growth and a unidirectional causality running from expenditure on education to economic growth in India. A different study by Mallick, Dash and Pradhan (2016) used panel data analysis on 14 major Asian countries and found the existence of long-run equilibrium relationships between expenditure on education and economic growth in all the countries. Using panel vectorerrorcorrectionmodel (PVECM) the study also found unidirectional Granger causality running from economic growth to expenditure on education in both the short- and the long-run. Next, they found that expenditure on education only Granger causes economic growth in long-run in all the countries. Considering all the countries as a group, their results show a positive impact of educational expenditure on economic growth. In addition, Yousif Khalifa Al- Yousif (2008) examined the nature and direction of the relationship between education expenditure as a proxy for human capital and economic growth in the six GCC economies using time-series data for the period 1977-2004 and found mixed results that vary across both countries and measures of human capital.
Tourism has been growing in Nepal. Tourism creates various direct, indirect and induced effects in the economy. This paper is designed to examine the role of tourism development on economic growth in Nepal. The study is based on annual data of gross domestic product, foreign exchange earnings from tourism and real effective exchange rate for the period spanning from 1975 to 2013. It examines the causality and long-run relationships between economic growth and Tourism development in Nepal using co-integration techniques and a VectorErrorCorrectionModel (VECM). The evidence confirms that tourism development causes economic growth in short run in Nepal. The result also indicates the causality runs from both sides i.e. tourism development to economic growth and economic expansion to tourism growth implying for the greater efforts to encourage both the activities in the economy.
The concept of cointegration was introduced by Granger and Lee (1989). This concept turned into a fundamental stride in the analysis of nonstationary time series. Regardless of the assumption that two or more variables are nonstationary, there exist a possibility that their combination is stationary(Esso, 2010).This definition prompts intriguing translations as the variables can then be interpreted to have a stable relationship (a long-run relationship), i.e. can be represented in a VECM, and share a typical stochastic pattern. Due to some adjustment costs, the conventional linear cointegration model and linear vectorerrorcorrectionmodel (VECM) might be inappropriate for testing the present-value model in the long run. To resolve this mystery, several financial and macroeconomic analysts introduced nonlinear models. Stigler (2010)among others recommended TVECM framework as it caters for nonlinear financial data. This cointegration method was first introduced by Balke and Fomby (1997) as a feasible approach to address nonlinearity. The method further captures asymmetries in the adjustment, where positive or negative deviations will not be corrected in the same manner. According to Hansen and Seo (2002), the model has produced remarkable associated enthusiasm, including the accompanying applications (Baum et al., 2001; Lo and Zivot, 2001; Taylor, 2001). In exploring nonlinear cointegration between the price of the international crude oil and stock market of India, Ghosh and Kanjilal (2016) employed a TVECM cointegration method. Along-run equilibrium relationship among the variables for the entire data was rejected. Surprisingly, Toda– Yamamoto Granger causality test revealed an impact of the international crude oil price movement on the Indian stock market with no feedback effect.
The study reveals that the variables under the study have unit root at level I(0), but after the variables are converted into first difference, they became stationary, I(1). The trace and Max- eigen value test statistics of Johansen’s Co-integration test indicated the existence of two co-integrating equations and exhibited a long-run equilibrium relationship exists between the study variables. In the VectorErrorCorrectionModel, the co-efficient of errorcorrection (co-integration) is found to be negative and significant indicating a long run causality running from import and export to GDP. The Wald test indicates the existence of short run causalities running from export to GDP and there is no short run causality running from import to GDP. The Granger Causality test reveals the existence of bidirectional causality between export and GDP and unidirectional causality running between import and GDP. Acknowledgment
Economists agree that countries that are close together may experience common shocks that affect growth; that a country’s growth rate depends not only on domestic investment but also on the investment of its neighbouring countries. On the negative point, common shock such as wars and political instability can also have an adverse effect on growth of neighbouring countries. First, regional instability disrupts trade flows. Second, regional instability forces increases in military outlays, and will have a negative effect on economic performance. The purpose of the present study is to determine whether the growth rate of the neighbouring provinces of Southern Thailand has an effect on the economic growth of the Northern states of Malaysia. Using annual data from 1983 to 2003, our results using the long-run Granger causality in the vectorerrorcorrectionmodel setting suggest that Songkhla and Yala Granger cause Kedah; Songkhla Granger cause Perlis; and Narathiwat Granger cause Kelantan. On the other hand, while Perak and Yala indicate Granger cause in both direction, Perlis and Satun are independent of each other.
This study investigates the relationship between International Trade, Foreign Direct Investment (FDI Inflows) and Economic growth in Ghana over the period 1983-2017. The study employed the Granger Causality test using the VectorErrorCorrectionModel in the Presence of an integrated series to explore the causal relationship amongst the variables under observation. The Johansen’s approach for cointegration was also used to explore the long run equilibrium relationship of the variables. The Cointegration analysis suggested that there is a long-run equilibrium relationship between economic growth, trade and FDI inflows in Ghana. The results of Granger causality test showed that there is a unidirectional causality from Economic growth to FDI, from International Trade to Economic growth and from International Trade to FDI inflows. We therefore recommend that, policy makers should keep focus on promoting international trade in Ghana, given that it causes Economic growth and enhances FDI inflows.
This paper investigates the relationship between industrial exports and economic growth in Tunisia. In order to achieve this purpose, annual data for the periods between 1969 and 2015 were tested using the Johansen co-integration analysis of VectorErrorCorrectionModel and the Granger-Causality tests. According to the result of the analysis, it was determined that there is a negative relationship between industrial exports and economic growth in the long run. Otherwise, and on the basis of the results of the Granger causality test, we noted the absence of a causal relationship between industrial exports and economic growth in the short term. These results provide evidence that industrial exports, thus, are not seen as the source of economic growth in Tunisia and suffer a lot of problems and poor economic strategy.
The fourth hypothesis, mentioned by Baghestani and McNown (1994) and highlighted by Darrat (1998), relates to the institutional separation of the expenditure and revenue decisions of the government. Here, expenditure would be defined on the basis of requirements expressed by the citizenry and revenue would depend on the maximum tax burden tolerated by the population. As a result, the achievement of fiscal equilibrium would merely be a matter of coincidence. The empirical literature on the tax-and-spend debate has gained mixed results, based on the various time periods analysed, specification of the lag length used, and methodology employed. Generally, the methodology used in these studies has been to test for granger causality within a vector autoregressive (VAR) model; however, some of the studies test for granger causality within an error-correction framework.
Upon obtaining, at least, one co-integrating vector among the variables used in the study, we shall proceed to specify and subsequently estimate an ErrorCorrectionModel (ECM). This procedure will allow us to correct for disequilibrium. The Granger-Causality Test will be used to gauge the possibilities of uni-directional and bi-directional relationships among the variables utilised in the study. Causality test procedures involve estimating two regression equations which are constructed through the use of variables that are related in some ways. Assuming that the two variables under consideration are inflation and economic growth; a causality test would want to know, if inflation causes economic growth or economic growth causes inflation (uni-directional) or the relationship is both ways (bidirectional relationship). The Granger Causality Test was employed in order to determine the nature of the relationship among the variables used in the study.
Note - GC: Granger causality, SGMM: system generalized method of moments estimator, ARDL: autoregressive distributive lag modeling, VECM: vectorerrorcorrection method, J–J: Johansen and Juselius cointegration test, DOLS: dynamic ordinary least squares, HH: Hacker–Hatemi bootstrap Granger causality, FMOLS: fully modified ordinary least squares, PTM: panel threshold model, M: Maki structural break cointegration, DFE: dynamic fixed effects, MG: mean group estimation, PFM: panel fully modified, PC: panel causality, PEC: primary energy consumption, FD: financial development measures by domestic credit to the private sector as a share of the GDP, ENC: energy consumption, EP: energy prices, SMD: stock market development measures by stock market capitalization, Y: economic growth measured by real GDP per capita, IND: industrial value added to GDP, U: urbanization, P: population, EC: electricity consumption, RP: relative prices, FDI: foreign direct investment, OP: trade openness, SMI: stock market index, I: investment, GC: government size measures by government consumption expenditure, IR: real interest rate measure of financial development.
which represent 6.11% of the total imports of Canada, followed by Crude Petroleum, which account for 4.77%. The aim of this paper, therefore, is to econometrically investigate the direct linkages between trade and economic growth of Canada, through employing yearly data for the period 1985-2015. In particular, this work tries to empirically find an answer for the question of whether exports lead economic growth or imports lead economic growth or economic growth leads exports and imports to achieve this objective the paper is structured as follows. In section 2, we present the review literature concerning the nexus between trade and economic growth. Secondly, we discuss the Methodology Model Specification and data used in this study in Section 3. Thirdly, Section 4 presents the empirical results as well as the analysis of the findings. Finally, Section 5 is dedicated to our conclusion.
Economic interpretation of these estimates is that, increasing real per capita income in Nigeria has a positive effect on nutritional status of Nigerians which also support earlier finding of the long-run equilibrium relationship between calorie intake and per capita income of Table 4. Similar observation was noted for responses of the demand for protein and fat intake to the shocks from the real per capita income which is presented in the left hand side of figure 3 and 4, respectively. For example, with initial effect of 0.018% and 0.04%, respectively for the demand for protein and fat, respectively, the responses increased to 0.11% for protein and 0.38% for fat before reaching equilibrium level in about 40 years and 31 years span. Meaning that, there is evidence that increase in real per capita income has a positive effect on the demand for protein and fat in Nigeria over the years. These results lend support to the conclusions of the work of Dawson and Tiffin (1998), Tiffin and Dawson (2002) and Mostiq et al., (2007) that calorie intake is determined by real per capita income in India, Zimbabwe and Pakistan , respectively. Conversely, we found no evidence that one standard error shocks in the demand for calorie, protein and fat presented in the right hand side of the figure 2, 3 and 4, respectively, have significant effect on the real per capita GDP in the present study.