Estimating the size of the black economy: new evidence from India

2019 ◽  
Vol 14 (2) ◽  
pp. 300-321
Author(s):  
Chandan Sharma
Keyword(s):  
Structural Breaks ◽  
Structural Break ◽  
Market Price ◽  
Ordinary Least Squares ◽  
Policy Action ◽  
Content Type ◽  
Tax Rate ◽  
Black Economy ◽  
Currency Demand ◽  
Current Market Price

Purpose The issue of black economy has long been debated in India and it has been one of the key targets of policy action from last four decades. The debate is further fueled by demonetization of higher currency notes in the country. In this context, the purpose of this paper is to estimate the size of black economy in India for the period 1970–2017. Design/methodology/approach A currency demand approach is adopted for this purpose. The test of structure break indicates for a break in the system; therefore, the authors employ Johansen et al. (2000) cointegration test. For estimating the empirical model, the authors utilize fully modified ordinary least squares in a cointegration framework for taking care the endogeneity problem. Findings The estimates indicate that the Indian economy has a sizable black economy. In early 1970s, when the tax rate in India was significantly higher, the estimated black economy was above 30 percent of the official GDP. A variety of economic reforms including taxation, regulation and industrial licensing have drastically reduced the size to below 15 percent of official GDP in the last two decades. In the last estimated year (2017), the black economy was 23,849bn Indian rupees at current market price (around $400bn), which was 14 percent of the official GDP. Practical implications On the basis of the findings, the authors suggest some important fiscal, administrative and regulatory reforms to curb the generation of black economy in India. Originality/value The structural breaks can induce stochastic behavior similar to an integrated process, which makes it difficult to differentiate between the lack of cointegration and a structural shift. Thus, in the present study, the authors attempt to address this issue by incorporating the issue of structural break in the analysis. Furthermore, India is a cash-based economy; therefore, it is likely that currency-based models are more suitable. The application of advanced time-series techniques is likely to yield better and robust results.

Absence of the weekend effect and industry-style portfolios

2019 ◽  
Vol 12 (4) ◽  
pp. 463-475
Author(s):  
Selma Izadi ◽  
Abdullah Noman
Keyword(s):  
New York ◽  
Stock Market ◽  
Structural Breaks ◽  
Stock Exchange ◽  
Structural Break ◽  
Weekend Effect ◽  
Content Type ◽  
Market Portfolio ◽  
The Us ◽  
Using Data

Purpose The existence of the weekend effect has been reported from the 1950s to 1970s in the US stock markets. Recently, Robins and Smith (2016, Critical Finance Review, 5: 417-424) have argued that the weekend effect has disappeared after 1975. Using data on the market portfolio, they document existence of structural break before 1975 and absence of any weekend effects after that date. The purpose of this study is to contribute some new empirical evidences on the weekend effect for the industry-style portfolios in the US stock market using data over 90 years. Design/methodology/approach The authors re-examine persistence or reversal of the weekend effect in the industry portfolios consisting of The New York Stock Exchange (NYSE), The American Stock Exchange (AMEX) and The National Association of Securities Dealers Automated Quotations exchange (NASDAQ) stocks using daily returns from 1926 to 2017. Our results confirm varying dates for structural breaks across industrial portfolios. Findings As for the existence of weekend effects, the authors get mixed results for different portfolios. However, the overall findings provide broad support for the absence of weekend effects in most of the industrial portfolios as reported in Robins and Smith (2016). In addition, structural breaks for other weekdays and days of the week effects for other days have also been documented in the paper. Originality/value As far as the authors are aware, this paper is the first research that analyzes weekend effect for the industry-style portfolios in the US stock market using data over 90 years.

scholarly journals A macro assessment of China effects on Malaysian exports and trade balances

2014 ◽  
Vol 7 (1) ◽  
pp. 18-37 ◽  
Author(s):  
Tze-Haw Chan ◽  
Hooi Hooi Lean ◽  
Chee-Wooi Hooy
Keyword(s):  
Trade Balance ◽  
Structural Breaks ◽  
Structural Break ◽  
Analytical Framework ◽  
Trade Integration ◽  
Content Type ◽  
Regional Collaboration ◽  
Long Run ◽  
Cointegration Tests ◽  
The Impact

Purpose – This paper aims to focus on the impact of China's export expansion on Malaysian monthly trading with to her 12 major trading partners over the liberalization era. Design/methodology/approach – The analytical framework comprises of both the export and trade balance models. Unit root and cointegration tests with break and error correction modeling are employed in the analyses. Findings – Regime shifts are evident in the long run where structural break(s) found mostly coincides with the Asia crisis and China's accession into WTO. While the income effects are more apparent in most cases, the real exchanges are rather insignificant and incorrectly signed for Malaysian bilateral trading. Besides, the trade balance estimation is generally more consistent that the Chinese exports have exhibited complementary effects in the long-run, mainly for advanced export destination such as Australia, Germany, Japan, the UK and the USA. On the whole, there is insufficient evidence to support the “PRC competitive threat”. Practical implications – The empirical evidence disfavors currency devaluation for current account correction and reveals that the fear for China effect might be over-projected. Closer regional collaboration and trade integration between the two nations are well expected. Originality/value – The paper assesses the China's crowding out effect and magnitudes of Malaysian export and trade balance elasticities with model specifications that consider structural breaks. The paper also assesses the macro dimension of income and real exchanges effects.

Hedonic appraisal of apartments in Tirana

2016 ◽  
Vol 9 (2) ◽  
pp. 239-255 ◽  
Author(s):  
Marsela Thanasi (Boçe)
Keyword(s):  
Real Estate ◽  
Reference Price ◽  
Market Price ◽  
Ordinary Least Squares ◽  
Hedonic Model ◽  
Marginal Effect ◽  
Pricing Model ◽  
Simple Method ◽  
Content Type ◽  
Property Valuation

Purpose The approved methodology of property valuation in Albania evaluates the reference property prices based on the average contractual price of properties sold and takes into account only factors such as price, square meters of living and location of property. Simple method is the one used on evaluating the reference price for a group of properties with similar characteristics. The purpose of this study is, by building a hedonistic pricing model for apartments in Tirana, to prove empirically that in addition to location, there are other characteristics that affect the value of apartments. Design/methodology/approach The capital city is chosen as a case study for the construction of a hedonistic pricing model. In the database were included detailed characteristics of 1,421 apartments. Multiple regression analysis was chosen in this model as a method to test hypotheses about the causal relationship between house value Y and independent variables XS, representing the characteristics of the property. Population equation parameters β0, β1, β2 […], βn. were evaluated by the ordinary least squares method. Selection of α-standard is 5 per cent, taking into account the significant number of observations and the degree of regression freedom. Findings Based on this study, it was proved empirically that the characteristics of the apartments as square meters of living, number of rooms, access to parking, furniture, view and surface of living affect their price. As a literature review showed, location is the most important variable that affects the value. Results showed that the marginal effect that the number of rooms has on the apartment value depends on the square meters of living of the apartment. In the same line, the effect of the square meters of living on value depends on the square meters, as the relationship between these variables is nonlinear and depends more on the number of rooms. Research limitations/implications It was impossible to find the information on property sales contracts. That is why this study was oriented toward the market and took into account the properties offered for sale at one of the biggest real estate agency “Çelësi”. More accurate information regarding properties characteristics could be obtained. The information was limited and depended on the best apartment characteristics that potential sellers wanted to advertise. On the other side, contractual sales price is oriented by the reference price, so, the applied methodology has resulted in better evaluations of real estate prices, which reflect the market price. Practical implications This study is conducted as an applicable research. After analyzing the property valuation system in Albania, the study recommends the change of the method used on apartment valuation. Improvement of the property valuation system requires first of all creation of a complete and updated database for all real estate sales. Social implications Property valuation is a very important function of the land administration system which directly affects people’s life. Property evaluation for different purposes like tax evaluation, compensation and expropriation is a process that must be designed using an equal, transparent and well-accepted methodology by all. Promotion of property valuation system development is helpful to various interest groups in society, as it can reduce the risk of investment in this sector and encourages lower rates of interest on loans. Originality/value To the author's knowledge, the hedonic model is not applied on the Albanian housing market, thus providing encouragement to deepen the study in this regard. The study is original and has a very important impact on policymakers to change the actual property valuation methodology to obtain more accurate property values.

Financial development, FDI and economic growth: evidence from Sudan

2018 ◽  
Vol 45 (8) ◽  
pp. 1236-1249 ◽  
Author(s):  
Abdalla Sirag ◽  
Samira SidAhmed ◽  
Hamisu Sadi Ali
Keyword(s):  
Economic Growth ◽  
Least Squares ◽  
Financial Development ◽  
Unit Root ◽  
Structural Break ◽  
Ordinary Least Squares ◽  
Series Data ◽  
Content Type ◽  
Long Run ◽  
Cointegration Tests

Purpose The effect of foreign direct investment (FDI) on economic growth is widely believed to be contingent on the development of the financial sector. Nevertheless, as the possibility that the effect of financial development on growth being contingent on FDI has been neglected in existing literature, the authors have investigated it in this paper. In general, the purpose of this paper is to examine the effect of financial development and FDI on economic growth in Sudan using annual data from 1970 to 2014. Design/methodology/approach Since most of the macroeconomic variables are subject to unit root problem, the time series data are assessed using unit root and cointegration tests with/without structural break. Moreover, the study uses the fully modified ordinary least squares and the dynamic ordinary least squares techniques to estimate the long-run model. Findings The results of the cointegration tests provide evidence that a long-run relationship exists among variables even after accounting for the structural break. The results show that financial development and FDI are positive and significant in explaining economic growth in Sudan. Financial development is found to be more beneficial to economic growth than FDI. Moreover, the findings reveal that FDI leads to better economic performance through financial development. Interestingly, the findings of the study show that the effect of financial development on economic growth is further enhanced by the inflows of FDI. Research limitations/implications The government should focus on promoting FDI in more productive sectors. In addition, further cooperation with multinational enterprises is needed to increase FDI in the country. Originality/value This is the first paper that empirically examines both the interlinked impact of FDI on growth through financial development and the impact of financial development on economic growth through FDI in Sudan using appropriate econometric methods.

Structural breaks and labor market disparities in the Canadian provinces

2015 ◽  
Vol 42 (2) ◽  
pp. 322-342 ◽  
Author(s):  
Firouz Fallahi ◽  
Gabriel Rodríguez
Keyword(s):  
Unemployment Rate ◽  
Unit Root ◽  
Structural Breaks ◽  
Time Series Data ◽  
Structural Break ◽  
Series Data ◽  
Stochastic Convergence ◽  
Content Type ◽  
Unemployment Rates ◽  
Canadian Provinces

Purpose – The purpose of this paper is to use quarterly time series data from Canada and the Canadian provinces to determine if the unemployment rates in the Canadian provinces are converging to the national rate of unemployment. Design/methodology/approach – First, the authors check for existence of stochastic convergence using recent unit root statistics, see Perron and Rodríguez (2003) and Rodríguez (2007). Second, the authors verify existence of convergence using methods proposed by Volgelsang (1998) and Bai and Perron (1998, 2003). All these methods allows for structural break(s) in the data. Findings – Results from different unit root tests, without and with structural breaks, confirm that stochastic convergence exists in all provinces. The other results show strong evidence that deterministic convergence exists and the unemployment rates of the Canadian provinces are converging to the unemployment rate of Canada. This conclusion is stronger when multiple breaks are allowed in the trend function using the approach of Bai and Perron (1998, 2003). Practical implications – Since the authors have verified the existence of stochastic convergence, any intervention in the labor markets of the Canadian provinces to control the provincial unemployment rate would have a temporary effect and these policies will not have a permanent influence on the unemployment rates. However, existence of β-convergence in the Canadian provinces shows that general policies toward lowering the national unemployment rate would decrease the provincial unemployment rates as well. Originality/value – To the best of the knowledge, the paper attempts to study the unemployment rate convergence in the Canadian provinces using the above-mentioned approaches. These approaches allow the authors to take into consideration the possibility of structural breaks in order to get results that are more accurate.

Constraints to growth: a cross country analysis of Chinese, Indian and Pakistani SMEs

2016 ◽  
Vol 10 (2) ◽  
pp. 365-386 ◽  
Author(s):  
Ahmad Raza Bilal ◽  
Aaisha Arbab Khan ◽  
Michèle Eunice Marie Akoorie
Keyword(s):  
Firm Growth ◽  
Success Factors ◽  
Innovation Process ◽  
Ordinary Least Squares ◽  
Positive Influence ◽  
Data Repository ◽  
Content Type ◽  
Tax Rate ◽  
Research Propositions ◽  
Practical Implications

Purpose This paper aims to identify the barriers that are linked to the institutional, external and social environmental factors in the emerging economies of South-East Asia (SEA). Through a comparative analysis of China, India and Pakistan, this study attempts to understand the constraints that might inhibit small and medium-sized enterprises (SMEs) in this region from becoming more successful. Design/methodology/approach This study proposes an empirical research framework to identify the constraints to determinants of SMEs’ growth (the CDSG model) in an important geographic and industrial cluster of SEA countries including China, India and Pakistan. Six propositions are tested, using data from 1,443 SMEs obtained from Enterprise Survey Data Repository database from the World Bank. Ordinary least-squares estimation is applied for statistical analyses and testing of the research propositions. Findings The results show the differential effects of the proposed CDSG model in China, India and Pakistan. Access to external finance is found to be irrelevant to the growth of SMEs in China, while it has a positive influence in India and Pakistan. Furthermore, in terms of the innovation process, partial mediation is traced. Using the tax rate factor, negative mediation is found between CDSG variables and SMEs’ growth. Both mediators play different roles in firm growth activities, while the level of significance of some variables is found to be more relevant to a specific region rather than to all. Practical implications The prudent management of the proposed CDSG variables could revolutionize the constraints facing SME growth, making them into success factors. This could invigorate the growth of SMEs’ in SEA countries. The paper concludes with practical implications for policymakers and investors. Originality/value This SMEs’ theoretical framework is the first to use innovation and tax rate mediators to highlight the determinants of business growth in three SEA regional economies (China, India and Pakistan).

Does tourism affect house prices in Turkey? Evidence from smooth structural break tests

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mustafa Ozan Yıldırım ◽  
Cagin Karul
Keyword(s):  
Structural Breaks ◽  
Structural Changes ◽  
House Prices ◽  
Structural Break ◽  
Negative Influence ◽  
Mortgage Lending ◽  
Content Type ◽  
Substantial Role ◽  
Causality Tests ◽  
The Impact

Purpose The purpose of this study is to examine the impact of tourism activities on house prices in Turkey from January 2010 to March 2020. Design/methodology/approach It is used newly developed cointegration and causality tests based on Fourier approximation. These methods consider smooth structural breaks and do not need to recognize a priori date number and/or form of breaks. Findings Empirical findings show that international tourism activities have a substantial role in the escalation of house prices in Turkey. Findings also indicate a rise in industrial production enhances house prices while the mortgage lending rate exhibits a negative influence on house prices. Additionally, the evidence from Fourier causality tests reveals the unilateral causal linkage from tourism to house prices. This situation also shows that the tourism sector has a substantial role in stabilizing house prices’ rapid rise as a policy implication. Originality/value Although a large number of papers have been analyzing the link between house prices and macroeconomic variables, this study eliminates the lack of papers examining the link between tourism and house prices in Turkey by using the new cointegration and causality methods that consider smooth structural changes.

The determinants of leasing decisions: an empirical analysis from Chinese listed SMEs

2016 ◽  
Vol 42 (8) ◽  
pp. 763-780 ◽  
Author(s):  
Tongxia Li ◽  
Rahimie Karim ◽  
Qaiser Munir
Keyword(s):  
Firm Size ◽  
Financial Distress ◽  
Ordinary Least Squares ◽  
Small Sample ◽  
Future Research ◽  
Debt Ratio ◽  
Policy Makers ◽  
Content Type ◽  
Tax Rate ◽  
Financing Decisions

Purpose – The purpose of this paper is to investigate the determinants of leasing decisions for a sample of China’s non-financial small and medium-sized enterprises (SMEs). Design/methodology/approach – Pooled ordinary least squares and Tobit models are used to analyze five years of data (2009-2013) on the sample units, to find the determinants of leasing decisions after controlling for industry. In order to assess the robust of the results, the authors further apply instrumental variables methods. Findings – The results suggest that CEO ownership, tax rate, financial distress potential, and firm size are positively related to the operating lease share, whereas debt ratio, profitability, and tangibility are negatively linked to the operating lease share. In contrast, capital lease share increases with debt ratio, profitability, firm size, and strong corporate governance; it decreases with CEO ownership and financial distress potential. Research limitations/implications – Using a small sample might not be enough capture industry effects. Future research may gain more insights using sufficient sample and considering the types of leases as well as leased assets. Practical implications – This study offers evidences to the policy-makers who may adopt the practices to promote the development of leasing market. Furthermore, these results provide important implications to lessors in making operating strategy decisions and to potential lessees in making financing decisions. Originality/value – To the authors’ limited knowledge, this is the first study on leasing relies on publicly traded Chinese SMEs. The results of this study enrich the literature on the determinants of leasing in several ways.

Exchange rate interest rate linkages in India: an empirical investigation

2016 ◽  
Vol 8 (4) ◽  
pp. 443-457 ◽  
Author(s):  
Shruti Shastri ◽  
Swati Shastri
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Capital Flows ◽  
Structural Breaks ◽  
Structural Break ◽  
Unit Root Test ◽  
Empirical Reality ◽  
Content Type ◽  
Long Run

Purpose The purpose of the paper is to examine the linkages between exchange rate and interest rate in India using quarterly data from Q1 of 1996 to Q4 of 2014. Design/methodology/approach Stationarity properties of data are checked using the Augmented Dickey–Fuller (ADF), Dickey–Fuller test with GLS de-trending (DF-GLS) and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) tests and Perron’s unit root test with structural breaks. Johansen Juselius and Gregory Hansen tests are applied to assess cointegration, and block exogeneity test is used to detect causality among variables. Findings The study finds long-run relationship among interest rate, rupee–dollar exchange rate, capital flows, intervention, inflation differential, money supply differentials, output differentials and trade-balance differentials. However, the interest rate does not explain movements in the exchange rate, directly and indirectly, via capital flows. Intervention by the Central Banks to stabilize exchange rate does not have implications for movements in interest rate. Research limitations/implications The study finds capital flows to be insensitive with respect to interest rates and hence thwarts International Monetary Fund ’s (IMF) claim of using interest rates as a tool to stabilize exchange rate. The much-debated conflict between exchange-rate stabilization and control over interest rates also does not hold up to the empirical reality of India. Originality/value The study augments the existing literature by taking into account the problem of structural break in the relationship between interest rate and exchange rate. Three measures of interest rate are used to assess the robustness of results adding to their credibility compared to previous studies.

Inflation persistence and structural breaks

2016 ◽  
Vol 43 (6) ◽  
pp. 980-1005 ◽  
Author(s):  
Giorgio Canarella ◽  
Stephen M. Miller
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Structural Breaks ◽  
Global Financial Crisis ◽  
Structural Break ◽  
Mean Reversion ◽  
Inflation Persistence ◽  
Content Type ◽  
The Usa ◽  
The Global Financial Crisis

Purpose The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the USA, a non-IT country with a history of credible monetary policy. Design/methodology/approach First, the authors estimate inflation persistence in a rolling-window fractional-integration setting using the semiparametric estimator suggested by Phillips (2007). Second, the authors use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. The authors use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. Finally, the authors reapply the Phillips (2007) estimator to the subsamples defined by the breaks. Findings Four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the USA experience a structural break in inflation persistence that coincides with the global financial crisis. Research limitations/implications The authors find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity. Practical implications Monetary policy implications differ between pre- and post-global financial crisis. Social implications Global financial crisis affected the persistence of inflation rates. Originality/value First paper to consider the effect of the global financial crisis on inflation persistence.

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