Top PDF Which comes first—urbanization or economic growth? Evidence from heterogeneous panel causality tests

Which comes first—urbanization or economic growth? Evidence from heterogeneous panel causality tests

Which comes first—urbanization or economic growth? Evidence from heterogeneous panel causality tests

On the other hand, urbanization may not so much be a catalyst for economic growth, as be evidence of economic progress. Indeed, Henderson (2010) argued that the relationship between urbanization and development “… is an equilibrium not causal relationship” (p. 518). Furthermore, urbanization is a transitory process in which, at some level of population living in urban areas, nearly all countries will cease to urbanize any more—i.e, they become “fully urbanized” (Henderson 2003). At the same time, the structure of the economy and GDP per capita may, and usually will, continue to change/rise. Furthermore, taking OECD countries as an example, the level of urbanization for fully urbanized countries varies considerably. For example, the level of urbanization has changed very little since 1950 for both Austria and Belgium (having increased by only 6% since then or 0.1% per year); yet, their current urbanization levels are substantially different, 68% and 97%, respectively. Another way to appreciate the different paths urbanization and economic development have taken in different countries is to consider Figure 1, which shows the GDP per capita (in log form)-urbanization paths for Africa, Asia, Latin America and Caribbean (LAC), and Western Europe as a whole, over the long-term (from the 19 th century to present). Figure 1 indicates that there were rather extended periods for Africa and Latin America where urbanization was experienced but was unaccompanied by economic growth. By contrast, periods of sustained economic growth appear always to be accompanied by urbanization. Also, Asia and Africa currently are at similar levels of urbanization, but Asia has a substantially higher GDP per capita; whereas, LAC has only a slightly higher GDP per capita than Asia, but LAC is considerably more urbanized. These phenomena have led some to question whether Africa and LAC are over-urbanized (e.g., Todaro 1995; Fay and Opal 2000).
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Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests

Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests

To analyze the importance of financial reforms on the performance of any economy, researchers applied two different methods. The first group of researchers used different proxies of financial sector development to analyze the utilization of different financial reforms features and characteristics on the performance of the economy (e.g. Ahmed, 2007; Bittencourt, 2010; Hye, 2011). The second group of researchers deals with constructing a synthetic financial sector development index by applying the principal component analysis (PCA) method on the major measures of financial development (e.g. Batuo et al. , 2010; Hye and Islam, 2013). Following, Batuo et al. (2010) and Hye and Islam (2013), we construct a composite financial sector development index for the Brazil, Russia, India, China, and South Africa economies by applying the principal component analysis (PCA) method on the our main measures of financial development, namely; domestic credit to private sector to GDP ratio, domestic credit given by banks sector to GDP ratio, broad money supply (M2) to GDP ratio and stock market capitalization to GDP ratio. The PCA is a multivariate statistical technique which usually used for analyzing the inter-correlation linking several quantitative variables. In terms of methodology, for each dataset with p quantitative variables, we can evaluate at most p principal components (PC), each being a linear combination of the original variables, where the coefficients are equal to the eigenvectors of the correlation covariance matrix. The PC is then arranged by descending order of the eigenvalues which are equal to the variance of the components.
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Financial Development and Economic Growth: Evidence from Heterogeneous Panel Data of Low Income Countries

Financial Development and Economic Growth: Evidence from Heterogeneous Panel Data of Low Income Countries

This paper examines empirical relationship between financial development and economic growth while incorporating the inflation rate effect on financial development for low income countries. The study focuses on both the indirect finance and the direct finance, separately as well as collectively. We apply most appropriate econometric methodology of Weinhold (1999) and Nair-Reichert and Weinhold (2001) for causality analysis in heterogeneous panel data. Two sets of results are reported. First, the relationship between financial development and economic growth from contemporaneous non-dynamic fixed effects panel estimation can at best be interpreted as mixed. Negative and statistically significant estimates of coefficient of the inflation and financial development interaction variable indicate that financial sector development is actually harmful for economic growth when inflation is rising. Second, in contrast with the recent evidence of Beck and Levine (2003), use of more appropriate econometric methodology of dynamic heterogeneous panel for causality analysis and a refined model reveal that there is no definite indication that finance spurs economic growth or growth spurs finance. Our findings are in line with the Lucas (1988) view on finance that the importance of financial matters is very badly over-stressed in popular and even much professional discussion.
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A Dynamic Causality Study between Electricity Consumption and Economic Growth for Global Panel: Evidence from 76 Countries

A Dynamic Causality Study between Electricity Consumption and Economic Growth for Global Panel: Evidence from 76 Countries

This paper attempts to empirically examine the short-run and long-run causal relationships between electricity consumption and economic growth for five panels namely high income, upper middle income, lower middle income and low income panels based on World Bank income classification and for global panel of 76 countries using the time series data for the period from 1960 to 2008. Also this study attempts to estimate the long-run and short-run elasticities of economic growth with respect to electricity consumption in order to examine the Narayn and Narayn (2010) new approach. Before testing for any causal relationship between the variables within a VEC model structure at the first stage panel unit root tests and at the second stage panel cointegration analysis are done. Three different panel unit root tests, IPS (2003), MW (1999), and Choi (2006) results support that both the panel variables are integrated of order one for high income, upper middle income, lower middle income and also for global panels but only the variable economic growth is integrated of order 1 for low income panel. The Kao (1999) and Johansen Fisher panel cointegration tests results support that both the panel variables are cointegrated for high income and upper middle income panels and also for global panel but for lower middle income and low income panels both the variables are not cointegrated.
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Military expenditure and economic growth : evidence from a heterogeneous panel of African countries

Military expenditure and economic growth : evidence from a heterogeneous panel of African countries

Since MILEX comes with a developed finance and government fiscal policy, there is need to provide a brief theoretical discussion on the finance-led growth and fiscal policy-growth nexuses and how it relates to MILEX. The Wagner’s and the Keynesian school of thought argued the possible direction of causal relationship that may exist between government expenditure and economic growth, that is, whether government expenditure is as a result of a growing economy or vice versa. In 1883, Wagner argued (known as Wagner’s Law) that during the industrialisation process, as the per capita income of a country increases, the share of the government expenditures increases as well, implying that causality runs from economic growth to government expenditure. However, the Keynesians postulates that public expenditure is a compo- nent of fiscal policy and can be used as a policy instrument to promote growth. Hence, the causal relationship runs from public expenditure to growth. It is import- ant to also note that MILEX is a component of government expenditure among other expenditures such as education, health, social and income security, administration and general government. In other words, government expenditures can be classified into two broad categories - defence and non-defence. Large body of literature have provided studies on the different components of government expenditure and it impact on growth; and finance-led growth relationship (inter alia: Abu-Bader & Abu-Qarn, 2003 ; Ahmad, Ali, & Iram, 2011 ; Katircioglu, 2010 , 2012 ; Sodeyfi &
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The Relationship between Renewable and Nonrenewable Energy Consumption and Economic growth in G7 countries:  Evidence from Bootstrap Panel Causality Test

The Relationship between Renewable and Nonrenewable Energy Consumption and Economic growth in G7 countries: Evidence from Bootstrap Panel Causality Test

This study examined the relationships between renewable and nonrenewable energy consumption and economic growth for G7 countries using Kónya’s (2006) bootstrap panel Granger causality test that takes account of cross-sectional dependence and heterogeneity. First, cross-sectional dependence and heterogeneity tests were performed. Their results indicated that the countries have different structures and any energy and economic growth shock in any of the countries could affect other G7 countries. The results of the causality test confirmed the validity of the feedback hypothesis for Japan. This validation was that, the conservation hypothesis for the UK and Germany and the growth hypothesis for Canada and the US reflect a relationship between nonrenewable energy consumption and economic growth. In terms of the relationship between renewable energy consumption and economic growth, the feedback hypothesis was found to be valid in France, Italy and the United Kingdom, while the growth hypothesis was valid in Japan and Germany. The findings also confirmed the validity of the neutral hypothesis for France and Italy for nonrenewable energy consumption and for Canada and the US for renewable energy consumption.
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Energy consumption and economic growth: evidence from nonlinear panel cointegration and causality tests

Energy consumption and economic growth: evidence from nonlinear panel cointegration and causality tests

Although several plausible nonlinear models have been used in the empirical economics literature, we prefer smooth transition regression (STR) modelling approach. The STR modelling approach has several advantages over other nonlinear models (see, for example, Teräsvirta and Anderson, 1992; Granger and Teräsvirta, 1993). First, STR models are theoretically more appealing over simple threshold and Markov regime switching models, which impose an abrupt change in coefficients. Instantaneous changes in regimes are possible only if all economic agents act simultaneously and in the same direction. Second, the STR model allows for modelling different types of nonlinear and asymmetric dynamics depending on the type of the transition function. In particular, a STR model with a first-order logistic transition function is more convenient for modelling the interaction between energy consumption and output growth rate if the dynamic interrelationships between the variables depend on the phases of business cycles. On the other hand, a STR model with an exponential or second-order logistic transition function is more convenient if, for example, the interaction between the variables depend not on the sign but on the size of fluctuations in variables. Finally, STR modelling approach allows one to choose both the appropriate switching variable and the type of the transition function unlike other regime switching models that impose both the switching variable and function a priori.
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Intra-industry trade and economic distance : causality tests using panel data.

Intra-industry trade and economic distance : causality tests using panel data.

For developed countries, the conclusions are similar to those obtained in the complete sample: the homogenous non causality (HNC) between ECOD and GLI is never rejected at a 5% signi…cant level, whatever the direction of causality and whatever the lag. However, for emerging and developing countries, results are a little bit di¤erent. As far as the emerging countries sample are concerned, we can observe that the HNC hypothesis from ECOD to GLI is strongly and robustly rejected when the inference is based on the asymptotic moments properties and when a lag of 3 periods is chosen (tables 6). It implies that the past values of di¤erences in real GDP per capita are useful to forecast intra-industry trade between EU and emerging economies of that sub-sample.
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Foreign Reserves and Economic Growth: Granger Causality Analysis with Panel Data

Foreign Reserves and Economic Growth: Granger Causality Analysis with Panel Data

This paper will investigate the Granger causality between foreign reserves and economic growth in twenty largest reserves-holding countries ranging from 1980 to 2008. The method of first-differencing each variable is used to estimate the panel data VAR equations for Granger causality test. The results show the foreign reserves unilaterally Granger cause economic growth only in the emerging countries. In the advanced countries, there is no Granger causal relation between foreign reserves and economic growth.

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Asymmetric Panel Causality Tests with an Application to the Impact of Fiscal Policy on Economic Performance in Scandinavia

Asymmetric Panel Causality Tests with an Application to the Impact of Fiscal Policy on Economic Performance in Scandinavia

Tests for conducting asymmetric Granger causality within a panel system are introduced in this paper. It is shown how the cumulative sums of negative and positive shocks can be constructed to investigate whether the potential causal effects of these shocks are asymmetrical or not within a panel system. These tests can be based on asymptotic or bootstrap distributions. The tests are applied to assess the impact of contractionary as well as expansionary fiscal policy on the economic performance of the three Scandinavian countries. The results show that allowing for asymmetry in the panel causality testing has important repercussions for the underlying causal inference.
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Relationship between Tourism and Economic Growth: A Panel Granger Causality Approach

Relationship between Tourism and Economic Growth: A Panel Granger Causality Approach

This paper investigated the causal relationship between tourism revenue and gross domestic product (GDP) using the panel data of 135 countries for the period 1995–2008. For this purpose, Panel Granger causality analysis was applied to 11 groups of countries. This classification was created as America (30 countries), Asia (34 countries), Europe (37 countries), East Asia (13 countries), South Asia (6 countries), Central Asia (5 countries), Latin America & Caribbean (28 countries), Oceania (7 countries), Middle East & North Africa (11 countries), Sub Saharan Africa (24 countries) and the world (135 countries). Results indicated bidirectional causality in Europe between tourism revenue (TR) and gross domestic product (GDP). Findings showed that there is a unidirectional causality in America, Latin America & Caribbean and World from GDP to tourism revenue. While in case of East Asia, South Asia and Oceania the reverse direction of causality was found from tourism revenue to GDP. No causal relationship was found in Asia, Middle East and North Africa, Central Asia and Sub Saharan Africa.
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Causality between Electricity Consumption & Economic growth : Empirical Evidence from India

Causality between Electricity Consumption & Economic growth : Empirical Evidence from India

This study has investigated the relationship between economic growth and electricity consumption in India during 1960 2006..To estimate results Granger Engel method was used in which our findings indicate, that electricity causes higher economic growth. This implies that the increase in electricity consumption can be viewed as a leading indicator of growing economy. This implies that the supply of electricity is vitally important to meet the growing electricity consumption ,hence to sustain economic growth in India and achievement of various other objectives like human welfare goals, millennium development goals ,higher growth, there is an urgent need to remove the power sector inefficiencies. To remove administrative bottlenecks steps should be taken towards unification of various policies at centre and state level and to ensure effective implementation of these policies .At the same time various other alternatives like public private partnership ,clean technologies and diversified energy resources should also be explored in effective manner.
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GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH: EVIDENCE FROM TRIVARIATE CAUSALITY TESTING

GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH: EVIDENCE FROM TRIVARIATE CAUSALITY TESTING

Finally, Table 3 gives estimation results for inflation as a third variable in the system for all countries in the sample. Comparing these results with those of the bivariate systems (Table 1) we observe three remarkable points that are worth mentioning. First, perhaps the more salient aspect of our findings is that, while in the UK our tests reveal no causal link between economic growth and public spending at the bivariate level, in the case of trivariate system with inflation as third variable, we do discern a causal chain. That is, inflation explains the causation. This finding validates Wagner’s Law, because real output seems to be an important determinant of long and short-run government size growth. An important implication of the reported reciprocity is that the estimates of the coefficients of national income used in public finance studies and those of the public expenditure reported in macro-econometric models would be asymptotically biased as well as inconsistent. Second, the results for Greece and Ireland support, like the bivariate ones, unidirectional causality
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Government expenditure and economic growth: Evidence from panel data

Government expenditure and economic growth: Evidence from panel data

kerajaan dianggap sebagai kesan kepada aktiviti ekonomi. Walau bagaimanapun, hipotesis Keynesian bersetuju arah kesan (causality direction) adalah daripada perbelanjaan kerajaan kepada aktiviti ekonomi. Kajian ini adalah penting untuk mendedahkan pemahaman yang jelas kepada pembuat dasar dan kerajaan tentang perkaitan antara perbelanjaan kerajaan dengan pertumbuhan ekonomi. Menggunakan pendekatan Data Panel, kajian ini mengkaji impak perbelanjaan kerajaan ke atas pertumbuhan ekonomi bagi negara ASEAN-5 dan menyiasat hubungan (causal relationship) antara pemboleh ubah berkenaan. Keputusan menunjukkan bahawa perbelanjaan kerajaan mempunyai hubungan ketara yang positif dengan pertumbuhan ekonomi. Kerajaan perlu memastikan bahawa perbelanjaan kerajaan diuruskan dengan baik. Pengurusan bajet kerajaan yang bagus akan memberi manfaat kepada produktiviti sesebuah negara. Bagi kajian selanjutnya, kedua-dua data kuantitatif dan kualitatif perlu digunakan untuk menerangkan hubungan antara perbelanjaan kerajaan dan pertumbuhan ekonomi.
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Financial development and economic growth: evidence from panel data

Financial development and economic growth: evidence from panel data

In presenting this project paper in partial fulfillment of the requirements for the postgraduate degree from Universiti Utara Malaysia, I agree that the Universiti Library may make it freely available for inspection. I further agree that permission for copying of this project paper in any manner, in whole or in part, for scholarly purposes may be granted by my supervisor(s), or in their absence by the Dean of the College of Business or the Dean of Research and Innovation. It is understood that any copying or publication or use of this project paper or parts thereof for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and Universiti Utara Malaysia for any scholarly use which may be made of any material from my project paper.
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Causality Nexus of Electricity Consumption and Economic Growth: An Empirical Evidence  from Ghana

Causality Nexus of Electricity Consumption and Economic Growth: An Empirical Evidence from Ghana

The primary conversion of energy resources and wind energy leads to the generation of electricity. Coal is the largely used resource for the generation of electricity. Fur- thermore, the use of natural gas and nuclear power is gradually gaining share in elec- tricity generation whiles the use of oil is fast declining due to the burgeon increment in stock prices over the years [4]. It is reported that the demand for electricity in OECD counties is minimizing than that of the non OECD countries [5]. Most academic think tanks have been thinking deeply about sustainable energy. The establishment of a cau- sality nexus between electricity consumption and economic growth is of colossal relev- ance to countries that bank on electricity as the primary source of energy. The causality between electricity consumption and economic growth might cause various challenges that need to be addressed with meticulous measures. For example, if economic growth Granger causes electricity, then the implementation of policies for the conservation of electricity needs to be tackled with extreme care [6]. However, the stipulation of enough evidence that electricity-Granger-causes economic growth poses threat of detrimental consequences of economic policies to economic growth which intrinsically shrinks the creation of jobs as well as enhancing poverty [7].
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Causality and cointegration between export, import and economic growth: evidence from Morocco

Causality and cointegration between export, import and economic growth: evidence from Morocco

Ahmad and Kwan (1991) have analyzed, using Granger causality tests, relationship between exports and growth national income from a consistent data set for 47 developing countries in Africa. The tests were applied first to the full sample of 47 countries (including Morocco) over the seven-year period 1981-87. Then, it was disaggregated into two subsets: the one comprising 30 low-income countries and the other comprising 17 high and middle income countries. This classification was done in order to test as to whether causality and its direction are liable to vary with the stage of development of countries as proxied by their per capita income. They concluded that "the causality inferences indicate no causal link from exports to economic growth, or vice versa. Some subsets of sample countries provide weak support for causation running from economic growth to exports".
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Financial Development and Economic Growth in ASEAN: Evidence from Panel Data

Financial Development and Economic Growth in ASEAN: Evidence from Panel Data

countries from year 1960 until 2009 and finds significant positive relationship between financial development and economic growth. He suggests that the financial development promotes the economic growth. Similar results of positive relationship between financial depth and growth for Malaysia and Thailand but negative relationship are reported by Majid and Mahrizal (2007). On the other hand, Lucas (1988), argued that financial development and economic growth are independent and not causally related.
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Openness, Institutions, and Economic Growth: Empirical Evidence from Panel Estimation.

Openness, Institutions, and Economic Growth: Empirical Evidence from Panel Estimation.

Now we turn our analysis to our main variable of interest i.e. openness and institutional quality. In first column, we use ICRG’s Law and Order rating as proxy measure of institutional quality, while in the second column, a combined ICRG index has been used which is sum of four ICRG’s political risk components. Using ICRG’s Law and Order ratings as measure of institutional quality is not new in literature and this indicator were used as measure of institutional quality in Acemoglu and Johnson (2005) and Dollar and Kraay (2003a). Along with Law and Order rating, ratings on investment profile, corruption and democratic accountability were used to generate ICRG variable to have an close proxy measure of institutional quality variable used in previous literature (see Alcala and Ciccone, 2004; Rodrik at.el., 2004) 8 . In our preferred specifications (shaded), real openness appeared to be statistically significant at conventional 5 percent level with correct sign. Coefficients of 0.084 and 0.078 imply that 1 percentage point increase in real openness could cause raise in per-capita real GDP growth by 0.084 percent and 0.078 percent respectively.
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Internet and Economic Growth—Evidence from Chinese Provincial Panel Data

Internet and Economic Growth—Evidence from Chinese Provincial Panel Data

Pohjola (2000) studied the effects of information technology investment on economic growth in a transversal section of 39 countries during a period from 1980 to 1995 by applying an explicit economic growth model through an extended version of the neoclassical Solow growth model. The results indicated that physical capital is a key factor of economic growth for both developed and developing countries [5]. Chu (2005) claim there ex- ists significant positive correlation between profits produced by I CT service and its GDP growth in New Zeal- and based on the cross-section data of 1987-2001, therefore increasing I CT investment has a great significance on economic growth [6]. Neira (2007) performed a study of 19 OECD countries during a period from 1965 to 1990 and analyzed the direct effects of education on the production function per capital via a Cobb-Douglas production function, which considered GDP per capital and the educational level of the population and found that human capital had a doubly positive effect on the GDP per capital and that education also affected labor productivity [7]. West (2011) studied two representations of technology, the generation of innovation and the creation of economic prosperity and find that an innovative economy can be created and long-term prosperity can be sustained [8]. Salahuddin and Alam (2015) examine the short- and long-run effects of the Internet usage and economic growth on electricity consumption using annual time series data for Australia for the period 1985- 2012 [9].
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