Although, the coefficient of the natural gas consumption was found significant with a negative sign for the 1977-1982 period, indicating a negative relationship with economicgrowth; the results for the following periods gave positive values, but with declining effects. Measuring the effect of energy consumption on the economicgrowth of Turkey, Halıcıoğlu (2011) found a positive and significant result. However, this study is consistent with some studies on the impact of particularly natural gas on economicgrowth of Turkey. Thus, Işık (2010), in the bivariate study, found; a significant and positive effect of natural gas on the economicgrowth of Turkey in the short term, and an opposite negative effect in the long term. Doğan (2015), after introducing capital and labor into the bivariate model estimated by Işık (2010), acquired a significant and negative impact of natural gas on the economicgrowth of Turkey for both short and long runs. However, studies for other countries have found positive impact of natural gas on economicgrowth, for example Apergis and Payne (2010), Shahbaz et al. (2013), and Öztürk and Al-Mulali (2015). Ignorance of the presence of structural shifts may create different results. The negative impact of natural gas consumption on the economicgrowth of Turkey may be due to its inefficient use and rising prices which increase the costs of production; thereby, leading to a decline in it. Turkey is dependent on imported natural gas that has prices, which are dependent not only on the price decisions of the producers but also on the changes in the exchange rates. Natural gas is used in both the residences and the industrial sectors where prices of output may not always rise at the same speed; hence, leading to a decline in production. Therefore, one of important implication of this result for Turkey is to introduce policies directed to decrease the import dependency of natural gas supply. Trade openness was estimated at relatively high value compared to the other determinants of the 1977- 1983 period, indicating a strong impact on economicgrowth. This value remained positive through regimes; however, with a declining value, indicating the decreasing impact of trade openness through time.
the logistics sector on the relationship between the development of the logistics sector and GDP or economicgrowth. The fact that any empirical study on the relationship between the competitiveness and the logistics sector has not been encountered in the literature was a primary motivation for writing this paper. By contributing to the literature, this study will hopefully be the starting point for empirical studies concentrating on the logistics sector in Turkey. Another dimension of the study’s contribution to the literature is related to the econometric method used. In the various studies, cointegration analysis has generally been used. However, the fact that probable structuralbreaks in the time series have not been taken into account motivated the use of a different econometric method. From this point of view, by using the Johansen et al. (2000) approach, which makes it possible to analyze the structuralbreaks in the cointegration tests, the long-run elasticities of the model are estimated in the presence of structuralbreaks.
The long run results reported in Table-4 reveal that a 1 per cent increase in inflation increases gold prices by 1.9 per cent, all else being the same. The positive effect of inflation in gold prices is more elastic indicating that investment in gold is a hedge against inflation in case of Pakistan. This implies that gold prices are affected by inflation dominantly. These findings are contradictory with traditional theory which assumes that the relative prices of assets such as gold are not affected permanently by inflation (see, Fledstein, 1978). In case of Pakistan, gold prices change relatively more as compared to changes in inflation. Our results support the view reported by Worthington and Pahlavani, (2007) for USA; Tiwari, (2011) for India; Dicle et al. (2011) for US; Omag, (2012) for Turkey; Beckmann and Czudaj, (2012) for USA and UK. The positive and statistically significant impact of economicgrowth on gold prices is found at 1 per cent level, keeping the others constant. This shows that people make investment in gold to save their money with the rise in their income levels. A 0.09 per cent rise in gold prices is linked with a 1 per cent increase in economicgrowth. This supports the view that gold demand is linked with income level of an individual. Economicgrowth indicates a rise in per capita income which raises aggregate demand of gold as people think that gold investment is a safe place against inflation (see, Fledstein, 1978).
The purpose of this paper is to contribute to the literature on the panel cointegration analysis of current account and its determinants applying panel cointegration analysis allowing for structural shifts. There is a limited number of studies on the cointegration estimations of current account regressions with structural shifts accommodation, see, for example, Bagnai (2006), Leachman and Francis (2002). The estimations of our tests provided evidence of the unit root presence in all our series using conventional panel unit root tests. The panel cointegration test of MacCoskey and Kao (1998) did not provide any evidence of cointegration relationship among variables. Therefore, in order to use the panel cointegration test allowing for structural shifts, it was necessary to estimate whether our series have structuralbreaks. For this purpose, Hansen’s (1992) stability test was applied, where strong evidence was found for instability in the regressions of Argentina, Brazil, China, Korea and Indonesia, and mixed evidence was found for the instability in the India and Turkey models. Having evidence of the instability of the series, the panel cointegration test of Westerlund (2006) was applied with the accommodation of unknown multiple breaks. However, the results of this test did not supply any evidence of cointegration in the panel. As stability estimations of India and Turkey models provided mixed results of their parameter instability, panel cointegration test was run excluding these two countries, however results did not differ from full panel estimations, and did not illustrate any evidence of cointegration in the panel with the excluded cases of India and Turkey. Our study illustrated that there are no long run relationships between the Current Account, the Relative Prices and the Terms of Trade variables in the considered countries. However, the cointegration tests were applied on the basis of the results of conventional unit root tests, which indicated the non-stationarity of the considered variables. However, unit root tests allowing for structuralbreaks indicated that all variables in the panel are stationary. Therefore, the accommodation of structuralbreaks in unit root tests demonstrated the presence of structuralbreaks and absence of the unit root in the
reflect the large decline in the dividend yield and corresponding large increase in the price-earnings ratio due to the dramatic boom of stock prices during that period. Third, the largest breaks in the coefficients related to interest rates appear to have occurred around 1982, around the time the Federal Reserve changed its monetary policy. Fourth, the coefficients related to inflation and industrial production growth display the largest change around 1974, due to the oil price shocks and the higher level of inflation and slowdown in economicgrowth that followed. Fifth and finally, the coefficients of the monetary base and the credit spread display very large breaks at October 1987. Hence, contrary to our prior observation that the stock market crash probably is considered to be an outlier, it does seem to have led to structuralbreaks in at least some relationships between stock returns and predictor variables. In that respect, the pattern in the coefficient of volatility also is interesting, showing a gradual decline up to the moment of the crash, and a gradual increase thereafter.
The empirical literature on the energy-growth nexus has been largely dominated by cross- country studies and the findings were mixed. For example, using a panel error correction model, within a multivariate framework, Apergis and Payne (2012) investigated the relationship between renewable, non-renewable energy consumption and economicgrowth for 80 countries, including Egypt, over the period 1990–2007. They found bidirectional causality between renewable and non- renewable energy consumption, and economicgrowth in both the short- and long-run which is in line with the feedback hypothesis. In another cross-country study, Fuinhas and Marques (2012) examined the nexus between primary energy consumption and economicgrowth in Portugal, Italy, Greece, Spain and Turkey over the period 1965 to 2009. Using an Autoregressive Distributed Lag (ARDL) approach, they found bidirectional causality between energy consumption and economicgrowth in both the long-run and short-run, supporting the feedback hypothesis.
After the capital account liberalization in Turkey in August 1989, which entirely lifted the restrictions on capital movements and rendered the economy fully integrated with international financial markets, there has been a marked surge in the capital flowing into Turkey. In the two years period from 1992 to 1993, capital inflows as measured by the sum of portfolio and other short-term capital flows have reached to USD 16 billion. Turkey witnessed a serious capital outflow in 1994 amounting to USD 6.5 billion due to the financial crisis in that year. After the economic crisis in 1994, capital inflows to Turkey have increased moderately during 1995-97 until the Russian crisis in 1998, when there has been a capital outflow from Turkey. During 1999-2000, capital inflows have gone up again, but in 2001 there has been a capital outflow amounting to USD 17.2 billion caused by the deep economic and financial crisis in that year, when the real GDP contracted by 7.5 percent. Mainly as a result of the sound monetary and fiscal policies and widespread structural reforms in the post-crisis period, Turkey has succeeded in attaining to sustained macroeconomic stability and high growth rates with steadily declining inflation. This recovery and stabilization period has also been an era when a significant amount of capital, USD 44 billion from 2003 to 2005, flew into Turkey.
A bidirectional relationship has also been discovered by some researchers, Dritsakis (2004) using time-series data for the period 1960–2000 in Greece and a V.E.C.M., he found that tourism and economicgrowth mutually Granger-cause each other. The tourism-led growth hypothesis (T.L.G.H.) is confirmed through cointegra- tion and causality testing. Similarity Gunduz and Hatemi (2005) empirically con- firmed the T.L.G.H. for Turkey using the leveraged bootstrap causality tests. They found unidirectional causality running from international tourist arrivals to economicgrowth of Turkey. On the other hand, Oh (2005) examined the casual relation between tourism development and economicgrowth over the period 1975–2001 in Korea. The results suggested that growth-led tourism hypothesis is confirmed through cointegration and causality tests in Korea.
The relationship between financial development and economicgrowth has been a subject of great interest and debate among economists for many years. In the literature the term ‘financial development’ is defined as the improvement in quantity, quality and efficiency of financial intermediary services. Financial intermediary means institution that helps channeling funds between lenders to borrowers. In a broader sense financial development signifies development of the overall financial sector. The existing literature points out that a well-functioning economy needs a sound financial system for the efficient mobilization of resources and openness is the key determinant of cross-country differences in the development of financial systems. As far back as 1873, the link between financial development and growth was first demonstrated in the literature by Bagehot (1873) and Hicks (1969), who pointed out that industrialization of England, was possible because of the use of the financial system to mobilize productive financial capital (Liang & Teng, 2006). McKinnon (1973) and Shaw (1973) brought the issue of financial development in the process of economicgrowth at the center of research (Christopoulos & Tsionas, 2004). Empirical studies in the finance-growth relationship are voluminous, but there is still absence of a consensus of opinion (Antonios, 2010). One possible reason for these varying positions may be that different countries are in different economic and financial conditions. That is, the relationship between financial development and economicgrowth may not be linear. There are few studies regarding the presence of non-linearity or structuralbreaks in the finance-growth relationship.
Pesaran (2006) proposed common correlated e ﬀ ects (CCE) estimators to estimate hetero- geneous panel data models with a multifactor error structure. The basic idea is to ﬁlter the cross-unit speciﬁc regressors by means of cross-section averages of the dependent vari- able and the observed regressors. Thus, cross-sectional dependence can be eliminated since the unobserved common factors can be well approximated by those cross-section averages. Therefore, the number of the stationary factors need not to be estimated. The CCE proce- dure can be computed by running standard panel regressions where the observed regressors are augmented with cross-sectional averages of the dependent variable and the cross unit- speciﬁc regressors. Pesaran (2006) developed two CCE estimators, the pooled and mean group CCE estimator, to consider two diﬀerent but related estimation and inference prob- lems: one that concerns the coeﬃcients of the cross unit-speciﬁc regressors and the other that focuses on the means of the individual coeﬃcients. Kapetanios et al. (2011) extend the work of Pesaran (2006) to the case where the unobserved common factors are non- stationary. They show that the CCE estimators are consistent even in the presence of unit roots in the unobserved common factors and are also robust to structuralbreaks in the mean of those unobserved factors.
In view of the relatively low power of the ADF unit root tests when the data generating process is stationary but with a root close to the unit root, Table 2 (part B) presents the results of running a KPSS stationarity test ( Kwaitkowski et al., 1992). This test has a no unit root (stationary) null hypothesis, thus reversing the null and alternative hypotheses under the Dickey Fuller test. It is used as a confirmatory test because in the presence of insufficient information, due to a relatively small sample size, it defaults to the stationary data generating process. The reported results in both level and differenced form under the assumption of a deterministic trend are consistent with those reported in Table 2 (part A). For example, the null hypothesis of no unit root can be rejected for all the variables in level form at the 5 percent level of significance; i.e., they appear to follow a random walk with (positive) drift. In the case of first differences, however, the null hypothesis of stationarity cannot be rejected for all variables at least at the 5 percent level. Thus, the evidence presented suggests that the variables in question follow primarily a stochastic trend as opposed to a deterministic one, although the possibility that for given subperiods they follow a mixed process cannot be rejected.
Such fragilities were of little concern, however, in an environment of rapid growth of exports and output. With the deterioration of the country’s terms of trade and resulting growth slowdown in export values in 1996 and 1997, however, the highly over- leveraged corporate sector came under intense profitability and cash flow pressures. In 1997 a number of chaebol became insolvent or had to seek protection from creditors. An already shaky financial sector, arising from imprudent and excessive lending to the chaebol, experienced a further sharp deterioration in non-performing loans. Government action to tackle this problem was lacking. By October 1997 further pressure began to be strongly applied by international investors on the currency as concerns over the third major fragility, excessive short term foreign debt, came in to play. The ability of the country to meet its short-term interest and debt repayments was questioned as useable foreign exchange reserves diminished alarmingly. The consequence was the financial and economic crisis of 1997-98.
In empirical literature on energy consumption - economicgrowth or electricity consumption - economicgrowth, it can be seen that most of the studies are using only GDP and energy or electricity consumption variables in their models (See Payne, 2010; Table 1 for details). In other words, bivariate models were used in many of these empirical studies. Thus, we also prefer to apply bivariate model (by using per capita GDP and electricity consumption per capita variables) to compare and evaluate our results with others’ in this study. Following the empirical literature, the standard log-linear functional specification of long-run relationship between the real GDP and the electricity consumption may be expressed as:
comparison, estimates of the corresponding no-break VAR model are presented in Table 6. It can be seen that, for the structural break VAR model, the covariances between the innovations of the variables change over the 3 regimes and the second regime is marked by high volatility of all three variables. Before this regime, it is the short rate that significantly predicts output growth while the term spread is insignificant. During the high-volatility regime, none of these variables can predict the output growth. After the high-volatility regime, the predictive power of the short rate disappears while the term spread becomes significant. Figure 4 plots the posterior distributions of the predictive coefficients of the short rate and term spread in the 3 in-sample regimes. It can be seen that the posterior distributions of these coefficients have undergone noticeable changes during the sample period. In contrast, the no-break VAR estimates show that both the short rate and term spread are significant over the whole sample period. Note that most of the studies of predicting output growth involving short rates and term spreads found that the short rate has little marginal predictive power once spreads are included, e.g. Plosser and Rouwenhorst (1994) and Stock and Watson (2003). In contrast, Ang et al. (2006) found that the short rate has more predictive power for GDP growth than term spreads. Our approach differs from the existing studies by explicitly modeling the possible structural instability of the predictive relation and finds that the relative importance of short rates and term spreads is changing over time. In the most recent regime, the term spread has more predictive power for output growth than the short rate.
in favor of a trend stationary alternative in a model that includes a time trend. They have referred to TQPPP as the rejection of unit root null hypothesis in favor of an alternative hypothesis of regime-wise trend-stationarity after allowing for one or two changes in the intercept. This terminology is adopted throughout the rest of this paper. But, it is very important that evidence in favor of QPPP or TQPPP does not imply PPP since PPP requires reversion toward a constant mean or a constant trend in the long run as mentioned above. Therefore, in the presence of structuralbreaks, QPPP or TQPPP is necessary but is not a sufficient condition for the PPP to hold.
The problem here is that countries might have their own sui generis characteristics that may affect and determine the relationship between growth and democracy. Thus, it is difficult to get reliable and accurate re- sults, particularly in the long run, in cross national research studies. For instance, during the process of joining the European Union, countries are affected by the politics of the Union. The candidate countries need to fulfill the political and economic criteria of the Union to become a full mem- ber. Therefore, if one decides to make a comparison between these can- didate countries and some other countries in different parts of the world, he should not ignore the effects of the European Union on developments in the country. Similarly, there are many other external and internal deter-
Then, we show the results of Lee et al. (1997)’s test: KPSS test in the presence of given structuralbreaks. We set the break point in each currency following Fig. 1, which presents the plots of real exchange rates. Following these figures, we assume that the real exchange rates of NTD and the US dollar have had breaks in April 1995. In April 1995, the value of the Japanese yen with respect to the US dollar reached the highest point according to the data on the market rate (See Fig.1). The German mark is assumed to have shifted in July 1993. The Chinese RMB is assumed to have shifted in July 2005. In July 2005, the RMB was revalued. The Korean won is assumed to have had a structural shift in December 1997, when the Asian financial crisis occurred. The euro is assumed to have had a break in October 2000.
Three pieces of evidence suggest the estimate from fundamentals are likely to be closer to the path of the true equity premium. First, the estimates from fundamentals have lower standard errors and therefore are estimated more precisely. Second, Sharpe ratios are related to aggregate risk aversion. Splitting the sample into two periods 1871-1950 and 1951-2013 one might expect the average Sharpe ratio to fall across these periods since the first subsample contains the most volatile period of the entire sample around the Wall Street Crash. The Sharpe ratio calculated from the dividend growth model falls across subsamples however the Sharpe ratio calculated from realised excess returns actually increases which seems implausible. Third, and most important, the expected stock return estimated from realised returns is greater than the average income return on investment for the period 1961 to 2013 suggesting the average corporate investment for the period was unprofitable. This is difficult to reconcile with an average book-to-market ratio of 0.79 for the period. The expected stock returns from fundamentals however are less than the average income return on investment and are therefore more consistent with the observed book-to-market ratio.
In this study, the relationship between EXPORTS and IPE as a proxy for economicgrowth were tested by employing a time series unit root, the Johansen cointegration and Granger causality tests for the total manufacturing sector and Turkey’s top 10 exported goods for the period between 2002:01 and 2012:05. Johansen cointegration tests showed the existence of a long-run relationship only for the total manufacturing sector, basic metals, chemicals products, electrical machinery and apparatus and fabricated metal products. In the long run, the impact of exports on economicgrowth was found stronger than the impact of economicgrowth on exports for each sector. While the export-led growth hypothesis was found valid in the long-run for the manufacturing industry in the last decade of the Turkish economy, a feedback (bi-directional) relationship was found between exports and economicgrowth in the short-run. The findings of the sub-sectoral analysis differ from each other. Although we found evidence to support export-led growth for basic metals, chemical products and fabricated metal products in the long-run, a uni-directional causality relationship was found from economicgrowth to exports for electrical machinery and apparatus both in the short and long-run. Moreover, a growth-led export hypothesis was also found valid for chemical products in the short-run. Due to the fact that these sectors are more research and technology intensive (medium-high-technology industries) than the others (Mauro and Foster, 2008), the growth of the Turkish economy may also lead to an increase in exports in these sectors. However, causality tests are insufficient to analyze the extent of the impact of exports on economicgrowth in this context this should be further explored in another study.