Does democratic transition spur financial development?

2016 ◽  
Vol 8 (4) ◽  
pp. 499-513 ◽  
Author(s):  
Wafa Ghardallou
Keyword(s):  
Financial Development ◽  
Democratic Transition ◽  
Democratic Transitions ◽  
Data Set ◽  
Content Type ◽  
Financial Outcomes ◽  
Positive Effects ◽  
Long Run ◽  
Short Run ◽  
Democratic System

Purpose The literature studying the effect of democratic political systems on financial development has found conflicting results. Besides, recent work has focused on the level effects of democracy on financial outcomes showing evidence of positive, negative and no direct impact. This paper aims to investigate the dynamic effects of democratic transition on financial development, namely, short run and long run effects. Design/methodology/approach The author wants to see whether financial development improves after a transition to a democratic system and, if it does, for how long. Using a panel data set of 48 events of democratic transitions, the paper relies on an event study and on the estimation of dynamic panel after controlling for other potential determinants. Findings The author finds that transition to a democratic system raises the development of the financial sector. Particularly, these positive effects occurred in the long run, i.e. about 5 years following the democratic transition. However, in the short run, the author finds that the move to democracy does not impact financial outcomes. Originality/value The author contributes by studying the role of political system change on financial development finding that democratic transition increases the development of the financial system. Further, the author contributes by finding that the move to democracy produces positive effect only in the long term.

The relationship between financial development and economic growth in Eswatini (formerly Swaziland)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siphe-okuhle Fakudze ◽  
Asrat Tsegaye ◽  
Kin Sibanda
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Financial Development ◽  
Granger Causality Test ◽  
Causality Test ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
The Relationship

PurposeThe paper examined the relationship between financial development and economic growth for the period 1996 to 2018 in Eswatini.Design/methodology/approachThe Autoregressive Distributed Lag bounds test (ARDL) was employed to determine the long-run and short-run dynamics of the link between the variables of interest. The Granger causality test was also performed to establish the direction of causality between financial development and economic growth.FindingsThe ARDL results revealed that there is a long-run relationship between financial development and economic growth. The Granger causality test revealed bidirectional causality between money supply and economic growth, and unidirectional causality running from economic growth to financial development. The results highlight that economic growth exerts a positive and significant influence on financial development, validating the demand following hypothesis in Eswatini.Practical implicationsPolicymakers should formulate policies that aims to engineer more economic growth. The policies should strike a balance between deploying funds necessary to stimulate investment and enhancing productivity in order to enliven economic growth in Eswatini.Originality/valueThe study investigates the finance-growth linkage using time series analysis. It determines the long-run and short-run dynamics of this relationship and examines the Granger causality outcomes.

scholarly journals Impacts of Asset Utilization, Market Competition and Market Distance on Stock Returns

2021 ◽  
Vol 28 (1) ◽  
pp. 52
Author(s):  
Jeanne-Claire Patin ◽  
Matiur Rahman ◽  
Muhammad Mustafa
Keyword(s):  
Stock Returns ◽  
Market Competition ◽  
Generalized Method Of Moments ◽  
Data Set ◽  
Public Firms ◽  
Positive Effects ◽  
Long Run ◽  
Dynamic Ols ◽  
Short Run ◽  
Market Distance

To empirically study the effects of asset utilization, market competition and market distance on stock returns of 1961 US public firms of different industry categories over 2001-2015. The heterogeneous panel data set consists of 23,532 (N= 1961*T= 15) observations. Pedroni’s panel co-integration, panel vector errorcorrection model (PVECM), panel dynamic OLS (PDOLS), and panel generalized method of moments (PGMM) are implemented. Both asset utilization and market competition have short-run and long-run positive effects on stock returns. But the effects of market distance are negative. The evidence for convergence toward the long-run equilibrium is very weak. Firms should be strategic to improve asset utilization, be more competitive and expand market distance to maximize stockholders’ wealth.

Persistence of profitability in top firms: does it vary across sectors?

2020 ◽  
Vol 30 (3) ◽  
pp. 269-287
Author(s):  
Parneet Kaur Bhangu
Keyword(s):  
Health Care ◽  
Developing Countries ◽  
Developing Economies ◽  
Developed Countries ◽  
Economic Sectors ◽  
Data Set ◽  
Content Type ◽  
Mean Values ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to analyze variations in the degree of persistence of profitability across diverse economic sectors and industry groups over the time period of 1990-2014 for a sample of top publically listed firms belonging to a selected set of developed and developing economies. Design/methodology/approach Degree of profit persistence has been estimated using Mueller’s (1990) autoregressive methodology. Firms were classified into different economic sectors and industry groups as per the Global Industry Classification Standard (GICS). The examination of inter-sectoral variations in profit persistence has been performed by comparing mean values of estimated short-run and long-run profit persistence parameter for all firms and between firms belonging to the developed and developing countries, respectively. Findings Firms in consumer staples, consumer discretionary and health care enjoy persistent above the norm returns, unlike firms in traditional industries, utilities and energy sectors, which are characterized by low persistence and below the norm returns. A high degree of profit persistence is observed in health care and idea- and technology-intensive sector in the developed countries; however, in the developing countries, profits persist higher in consumer discretionary and capital-intensive telecommunication services sectors. Originality/value The study provides a holistic examination of inter-sectoral variations in profit persistence of top firms in developed and developing economies using a uniform methodology and data set. It can serve as an aid to the competition commissions and anti-trust regulatory authorities to formulate policies for curtailing anti-competitive activities in certain sectors.

The impact of energy consumption to environmental sustainability: an extension of foreign direct investment induce pollution in Vietnam

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tehreem Fatima ◽  
Muhammad Saeed Meo ◽  
Festus Victor Bekun ◽  
Tella Oluwatoba Ibrahim
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Ecological Footprint ◽  
International Tourism ◽  
Data Set ◽  
Content Type ◽  
Root Cause ◽  
Long Run ◽  
Short Run

Purpose According to the crusade of the United Nations sustainable development goals (SDGs-6, 7,8,12 and 13) that addressed pertinent issues around, clean access to water, access to energy, responsible consumption and climate change mitigation alongside, respectively, Paris Kyoto Protocol agreement of mitigation of climate changes issues of vision 2030. Design/methodology/approach This purpose of this study aimed to assess the Environmental Kuznets Curve hypothesis following the ecological footprint perspective with a data set covering the period 1995–2018. It is well-established that anthropogenic human activities are the root cause of environmental deterioration. To this end, the current study is fitted in a multivariate framework to ameliorate for omitted variable bias for the data set from 1995–2018 on a quarterly frequency using autoregressive distributive lag methodology. Subsequently, the stationarity status of the study underlines series were examined with a conventional unit root test and the Pesaran’s bounds test for cointegration analysis. Findings Empirical evidence from the bounds test to cointegration traces the co-integration relationship between ecological footprint, conventional energy use, foreign direct investment, international tourism arrival and water resources over the sampled period. The study, in the long run, affirms the N-shaped relationship between ecological footprint and foreign direct investment in Vietnam. Additionally, the present study validates the hypothesis of energy consumption-induced pollution emissions. The relationship between international tourism arrival and quality of the environment is statistically positive in both the short-run and long-run, as 1% in international tourism arrival worsens the quality of the environment by 0.45% and 0.4% in the short-run and long-run, respectively. Interestingly, water resource's major environmental issues that have plagued the Vietnam economy are inversely related to ecological footprint. Based on findings, Vietnamese policymakers may need to consider drafting appropriate environmental policies to tackle global warming while concurrently boosting economic development. Originality/value The present study focuses on Vietnam on the determinant of environmental quality measured by a broader indicator (ecological footprint). It is well-established that anthropogenic human activities are the root cause of environmental deterioration. The present study claims to distinct from previous literature in two-folds, namely, in terms of scope. Vietnam holds a very interesting energy mix and environmental dynamics, which has been ignored in the literature. Second, we argue to be the first based on our survey to explore the theme by incorporation of water resources and foreign direct investment intensification in the conventional pollution determinant model. This is in a bid to highlights the policy blueprint for the country (Vietnam), which is currently plagued with high pollution issues and the region at large.

Economic growth, inequality and trade in developing countries

2016 ◽  
Vol 15 (3) ◽  
pp. 240-253 ◽  
Author(s):  
Muhammad Tariq Majeed
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Open Economy ◽  
Developing Economies ◽  
Negative Relationship ◽  
Growth Effect ◽  
Data Set ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this study is to analytically explore and empirically test the relationships between economic growth, inequality and trade using a panel data set of 65 developing economies from 1965 to 2010. Design/methodology/approach This study sets a theoretical framework to explain the growth-trade nexus differentials in the developing economies. The study uses different econometric methods such as General Method of Moments to address the relationship of trade with growth in the presence of high inequalities. Findings The study determines the positive effect of trade on growth both in the short-run and in the long-run. However, the growth effect of trade is substantially influenced by the domestic context in terms of the prevalence of high initial inequalities. The study identifies high initial inequalities in developing countries as the likely reason for a negative relationship between trade and economic growth. The trade-growth nexus is significantly negative for the unequal group but strongly significantly positive for the less unequal one. Practical implications Those developing economic which mange to ameliorate inequalities are in a better position to compete in an open economy. Originality/value The study contributes in the existing literature by answering the question why growth effects of trade are not definitely positive or negative. The findings of the studies may help the policy-makers of developing economies to take the advantage of increasing international trade.

Financial development and income inequality in India: an application of ARDL approach

2015 ◽  
Vol 42 (1) ◽  
pp. 64-81 ◽  
Author(s):  
Madhu Sehrawat ◽  
A K Giri
Keyword(s):  
Income Inequality ◽  
Financial Development ◽  
Trade Openness ◽  
Development Economic ◽  
Annual Data ◽  
Content Type ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
The Relationship

Purpose – The purpose of this paper is to examine the relationship between financial development and income inequality in India using annual data from 1982-2012. Design/methodology/approach – Stationarity properties of the series are checked by using ADF, DF-GLS, KPSS and Ng- Perron unit root tests. The paper applied the auto regressive distributed lag (ARDL) bound testing approach to co-integration to examine the existence of long run relationship; and error correction mechanism for the short run dynamics. Findings – The co-integration test confirms a long run relationship between financial development and income inequality for India. The ARDL test results suggest that financial development, economic growth, inflation aggravates the income inequality in both long run and short run. However, trade openness reduces the gap between rich and poor in India. Research limitations/implications – The present recommend for appropriate economic and financial reforms focussing on financial inclusion to reduce income inequality in India. Originality/value – Till date, there is hardly any study that makes a clear comparison between market-based indicator and bank based indicator of financial development in India and those examining the relationship between finance and income inequality nexus. Further there is hardly any study to include gini coefficient as a proxy for inequality for India and apply ARDL techniques of co-integration, using the basic principles of GJ hypothesis and provide short run and long run dynamics for India. So the contribution of the paper is to fill these research gaps.

Linkages between investment flows and financial development

2014 ◽  
Vol 5 (3) ◽  
pp. 269-299 ◽  
Author(s):  
Simplice A. Asongu
Keyword(s):  
Financial Development ◽  
Single Equation ◽  
Policy Implications ◽  
Data Set ◽  
Financial Intermediary ◽  
Content Type ◽  
Vector Autoregressive ◽  
Financial Depth ◽  
Short Run ◽  
Mainstream Literature

Purpose – The purpose of this paper is to introduce previously missing financial components (efficiency, activity and size) in the assessment of the finance-investment nexus. Design/methodology/approach – Vector autoregressive models in the perspectives of Vector Error Correction Model and short-run Granger causality are employed. There is usage of optimally specified econometric methods as opposed to purely discretionary model specifications in mainstream literature. Findings – Three main findings are established: first, while finance led investment elasticities are positive, investment elasticities of finance are negative; second, but for Guinea Bissau, Mozambique and Togo, finance does not seem to engender portfolio investment; and finally, contrary to mainstream literature, financial efficiency appears to impact investment more than financial depth. Practical implications – Four policy implications result: first, extreme caution is needed in the use of single equation analysis for economic forecasts; second, financial development leads more to investment flows than the other way round; third, financial allocation efficiency is more relevant as means to attracting investment flows than financial depth; and finally, the somewhat heterogeneous character of the findings also point to shortcomings in blanket policies that are not contingent on country-specific trends in the finance-investment nexus. Originality/value – First, contrary to the mainstream approach we use four measures of financial intermediary development (depth, efficiency, activity and size) as well as four types of investment flows (domestic, foreign, portfolio and total). Second, the chosen investment and financial indicators are derived upon preliminary robust correlation analyses from the broadest macroeconomic data set available on investment and financial intermediary flows.

The curvilinear relationship between environmental pollution and economic growth

2020 ◽  
Vol 14 (5) ◽  
pp. 891-910 ◽  
Author(s):  
Haroon Rasool ◽  
Mushtaq Ahmad Malik ◽  
Md. Tarique
Keyword(s):  
Economic Growth ◽  
Environmental Pollution ◽  
Structural Break ◽  
Curvilinear Relationship ◽  
Ekc Hypothesis ◽  
Data Set ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Structural Break Test

Purpose The genesis of Environmental Kuznets curve (EKC) of “grow now clean later” has led to a substantial deterioration of local as well as the global environment. India has not been spared of this malaise and accounts for the third-largest carbon dioxide emitter in the world. Thus, the present study revisits the curvilinear relationship between economic growth and environmental pollution in case of India over the period of 1971-2014. Design/methodology/approach Dickey–Fuller generalised least square (DF-GLS) test developed by Elliott et al. is used to ensure that none of the variables is I(2). The study applies the autoregressive distributed lag (ARDL) bounds estimation technique to test for the existence of cointegration among variables and estimate long-run and short-run parameters. The study also applies the Bai–Perron structural break test with unknown break date to determine the threshold point. The study further uses the vector error correction model (VECM) Granger causality test to check the direction of causality between variables. Findings The ARDL bounds estimation technique confirms the cointegration among variables. The long-run coefficients of energy consumption, economic growth and financial development are found to have an adverse impact on environmental quality. The results also validate the existence of conventional EKC hypothesis. Bai–Perron structural break test, along with t-test and scatter graph, shows that inverted U-shaped relationship between environmental pollution and economic growth holds true. The VECM-based causality results support “growth hypothesis” both in the long run and short run. Research limitations/implications This study refrained from considering a variety of variables, as the main intention of the study is to investigate whether any threshold or turnaround point exists for India. The future studies should consider a new set of variables (e.g. population, corruption index, social indicators, political scenario, energy research and development expenditures, foreign capital inflows, public investment towards alternate energy exploration, etc.) in the estimation of EKC hypothesis. Practical implications The results validate the existence of conventional EKC hypothesis. Thereby the study argues that instead of being a threat to environmental quality, economic growth is observed to generate a sustainable environment to live in. Further, bi-directional causality is found between carbon emissions and economic growth. Thus, any effort to mitigate CO2 or environment conservation policy will impede economic growth. Consequently, controlling primary energy consumption and supply and replacing it with renewable and clean energy could be desirable for climate change mitigation. Originality/value The data set has been refined so that the EKC estimation issues raised by Stern (2004) are addressed. In particular, statistical properties of the data set such as serial correlation, presence of a stochastic or deterministic trend, has been adequately taken care of to remove any spurious correlation. Finally, various control variables have been included to provide consideration to issues of model adequacy, such as the possibility of omitted variables bias. To the authors’ best knowledge, there is no India-specific study which has taken care of data-related issues, as suggested by Stern, in the estimation of a curvilinear relationship between environmental degradation and economic growth in India. Further, this is the first study which has used Bai–Perron structural break test with unknown break date to identify the threshold point while estimating EKC in India.

scholarly journals The role of foreign direct investment, financial development, democracy and political (in)stability on economic growth in West Africa

2020 ◽  
Vol 4 (1) ◽  
pp. 27-46
Author(s):  
Hammed Agboola Yusuf ◽  
Waliu Olawale Shittu ◽  
Saad Babatunde Akanbi ◽  
Habiba MohammedBello Umar ◽  
Idris Abdulganiyu Abdulrahman
Keyword(s):  
Economic Growth ◽  
West Africa ◽  
Financial Development ◽  
Political Instability ◽  
West African ◽  
The West ◽  
Content Type ◽  
Long Run ◽  
Short Run

PurposeIn this research, we examine the role of financial development, FDI, democracy and political instability on economic growth in West Africa.Design/methodology/approachThe study uses the dynamic fixed effects technique on the secondary data obtained from 1996 to 2016.FindingsOur empirical findings suggest that even though no significant relationship is established in the short run, the long-run coefficient of FDI is found to be significant and positive; a 1% increase in FDI inflow into the West African sub-region results in a 0.26% increase in economic growth. The coefficient of democracy is significant neither in the short run nor in the long run, but political instability is found to significantly and negatively impact the growth of the countries. Finally, the estimate of financial development–growth nexus follows the supply-leading hypothesis.Research limitations/implicationsThis research affirms the proposition that FDI is a relevant means of technology and knowledge transfers, thus resulting in increasing returns to production as a result of productive spillovers, which drives the growth of the economy. Consequently, an efficient institution – where the rule of law, political stability and economic freedom are top priorities – is a key to accelerate the growth of the West African economy. Similarly, we confirm the validity of the supply-leading hypothesis in West Africa. As such, by deepening the financial system, the growth of the subregion is propelled because an efficient financial system is a basis for sustainable development.Practical implicationThe applicable policies are those that promote growth through FDI, financial development, democracy and political instability. The governments of West African countries are enjoined to promote policies that attract FDI into the subregion and promote financial sector credits so that economic performances may be enhanced. In addition, the governments of West African subregion should fully entrench democratic practices and enhance a stable and sustainable political environment. This will not only restore investor confidence but will also facilitate the inflow of FDI into the West African economy.Originality/valueOur study is the first to jointly examine these important growth determinants, especially in the context of West Africa. This becomes necessary in order to open the eyes of policy makers to the need for entrenched full democracy and to proffer sustainable cures to the frequent unrests in the subregion. The use of Pesaran (2007) technique of unit root is also a deviation from several existing studies. One advantage of this technique over others is that being a second-generation test, it tests variable unit root in the presence of cross-sectional dependence.

Financial development, energy consumption, technology, urbanization, economic output and carbon emissions nexus in BRICS countries: an empirical analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chandrashekar Raghutla ◽  
Krishna Reddy Chittedi
Keyword(s):  
Energy Consumption ◽  
Financial Development ◽  
Emerging Economies ◽  
Carbon Emissions ◽  
Urban Population ◽  
Content Type ◽  
Economic Output ◽  
Long Run ◽  
Short Run ◽  
The Impact

PurposeThe study investigates the impact of financial development, urban population, technology and energy consumption on economic output and carbon emissions in Brazil, Russia, India, China and South Africa (BRICS) economies.Design/methodology/approachThe study uses Johansen Fisher type panel cointegration, fully modified ordinary least square and heterogeneous panel causality tests to examine long-run, long-run elasticities and short-run relationships. For conducting the tests, the study selected five emerging economies, i.e. Brazil, Russia, India, China and South Africa and used balanced panel data for the period between 1998 and 2016.FindingsThe empirical results confirm the presence of a long-run cointegration relationship among the variables. We find that financial development, technology and energy consumption have a considerable positive impact on economic output. Also, financial development, urban population and technology help reduce carbon (CO2) emissions and ensure an improved environmental quality in the long run in the five emerging economies. In the short run, a bidirectional causal relationship is noticed between financial development and CO2 emissions.Practical implicationsClean energy, technological development and investments by public–private partnerships are required in the public and private sectors to reduce carbon emissions. This not only ensures improved environmental quality but also increases energy efficiency, thereby reducing dependency on traditional energy consumption.Originality/valueAs its contribution to the extant literature, the study examines the impact of financial development, energy consumption, technology, urbanization, economic output and carbon emissions in BRICS economies. The findings of the research suggest both the governments and policymakers of these five emerging economies to develop more effective policies toward bolstering the financial development and increasing the use of technology. These, in turn, ensure sustainable development with low CO2 emission in the future and, eventually, pushing those five emerging market economies toward sustainable economic growth.

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