The probabilities of type I and II error of null of cointegration tests: A Monte Carlo comparison

This paper evaluates the performance of eight tests with null hypothesis of cointegration on basis of probabilities of type I and II errors using Monte Carlo simulations. This study uses a variety of 132 different data generations covering three cases of deterministic part and four sample sizes. The three cases of deterministic part considered are: absence of both intercept and linear time trend, presence of only the intercept and presence of both the intercept and linear time trend. It is found that all of tests have either larger or smaller probabilities of type I error and concluded that tests face either problems of over rejection or under rejection, when asymptotic critical values are used. It is also concluded that use of simulated critical values leads to controlled probability of type I error. So, the use of asymptotic critical values may be avoided, and the use of simulated critical values is highly recommended. It is found and concluded that the simple LM test based on KPSS statistic performs better than rest for all specifications of deterministic part and sample sizes.

Cointegration and causality analysis between foreign direct investment, exports and economic growth in the republic of Croatia

The main objective of this paper is to analyze the causal relationship between foreign direct investment (FDI), exports, and economic growth in the Republic of Croatia for the period 2000-2020 and determine the implications of research results on corporate management. The management of the investment enterprise is usually interested in high returns, whereas the management of the recipient enterprise is interested in higher productivity, spillovers, and larger market share on domestic and international markets. Several methodological approaches, including unit root tests, cointegration tests, and Granger causality test, were used to assess the relationship between gross domestic product (GDP) growth rate, on the one side, and the share of FDI and total exports of goods and services in real GDP, on the other side. The results of cointegration tests indicated there is no long-term relationship between the real GDP growth rate, the share of FDI, and the share of exports of goods and services in real GDP. Based on the Granger causality test, it cannot be concluded that there is no causal relationship between the analysed variables. Finally, the paper discusses the implications of the conducted research for corporate management. The results indicate that managers are not discouraged by the fact that FDI is not correlated to economic growth, as investment decisions are determined by numerous factors and not primarily by the growth rate of a recipient country.

Financial Development and Macroeconomic Performance: A Cointegration Approach

The paper tests the existence of long-term relations between all the IMF financial development indices and some macroeconomic performance indicators applying panel cointegration tests in a panel with 46 countries, and in a panel including only the sub-sample of the 27 EU countries over the interval 1990-2019. Overall, there are no significant differences between the results obtained for the whole sample and the panel including only the EU countries. The results obtained clearly point to the existence of cointegration between the financial development indices and the real Gross Domestic Product, as well as with the inflation, the unemployment rate, the current account, and the net international investment position. The results also show that there are no significant differences between the results obtained for the financial institutions and for the financial markets indices. Moreover, the results related to the specific aspects addressed by the IMF indices very well demonstrate that much more important than the simple access to or the depth of the financial institutions and markets is the efficiency of these institutions and markets.

Effects of the financial crisis and low interest rate environment on interest rate pass-through in Czech Republic, Hungary and Romania

In order for monetary policy’s interest rate channel to operate smoothly and effectively, the relevant retail interest rates of the real economy should react quickly and follow the movements of the prime rate. It has been observed that this connection has weakened since the financial crisis and it was suggested that the so called Weighted Average Cost of Liabilities (WACL) might be a better proxy for the banks’ marginal costs than the prime rate or interbank rate. In this study the WACL for Czech Republic, Hungary and Romania is calculated by applying cointegration tests and ARDL models. I examined whether their long-run relationships with the retail loan rates are more stable. Results: 1. Using the WACL instead of the interbank rate yields slightly more stable long-term relationships with the retail loan rates, and the WACL has been proved to be somewhat more stable than the interbank rate. 2. The interest rate pass-through has been efficient for the household loan rates in all three countries, but only in Romania for the corporate loan rates. 3. The results suggest that the central banks can effectively influence the commercial banks’ financing costs even in a low interest rate environment, although this cost represents only one component of the loan rates, and the movements of other components can offset the changes of the prime rate.

Nafta and Mexico’s Economic Growth from a Gender Perspective

This paper investigates the dynamics of Mexico’s economy after the signing of the NAFTA treaty. It is reported that Mexico, the United States and Canada have experienced low rates of economic growth as a result of the deindustrialization processes they have undergone, which has been a consequence of the tariff reductions. Tariff reduction has also affected employment, especially female industrial employment, with adverse consequences on domestic savings, trade balance and economic growth. Additional analysis is related to cointegration tests of the employment ratios, as well as to the existence of principal components among the three countries’ employment to population ratios. The paper investigates the effects of declining employment to population ratios in the three countries, reporting that in Mexico female employment has increased to compensate the declining tendencies of labor productivity and male employment ratio. The paper ends with a proposal regarding the launching of the North American Social and Dignity Pact.

The Relationship between Economic Growth, Energy Consumption and CO2 Emission in the Middle East and North Africa (MENA)

Research background: CO2 emissions are considered to be the main reason for global warming, and for this reason, their regulation is a very important issue for governments. Due to the increasing use of energy, carbon dioxide emissions have increased dramatically over the past century, with a direct link to economic growth and development. The relationship between CO2 emissions, growth and energy consumption is therefore at the heart of current economic issues. Purpose: This study aimed at examining the relationship among economic growth, carbon dioxide (CO2) emissions and energy consumption in selected MENA countries, in the period 1995–2017. Research methodology: To prove these relations, a stationary data panel methodology is used supported by unitary root and cointegration tests. Results: The results indicated that there is a long-term relationship between CO2 emissions, energy consumption and GDP. In addition, it is found that the elasticity of CO2 emissions with respect to energy consumption is less than one (inelastic), and the elasticity of CO2 emissions with respect to GDP suggests the existence of an Environmental Kuznets Curve. An important finding is that energy consumption has a positive but relatively low effect on CO2 emissions. To reduce CO2 emissions, the countries of the MENA region are being called upon to increase significantly the use of renewable energies and the establishment of a more efficient energy policy.

The socio-cultural determinants of tourism: the case of Turkey

PurposeThe study aims to determine the socio-cultural variables that affect Turkey's tourism demand. The study proposes how important socio-cultural determinants as well as economic determinants affect tourism demand.Design/methodology/approachThe study examined a sample of 19 countries sending the most visitors to Turkey between 1996 and 2017 by using panel unit root, panel cointegration tests and cointegration estimator methods. The data set consists of variables such as GDP per capita (lnGDPP), total population number (lnPOP), urbanization level, information and communication technology (lnICT), human development index (lnHDI), education level and death rates (lnDTH).FindingsThe findings from the analysis provide evidence that the variables in the models show the expected effects on tourism demand. The findings show that apart from economic variables, socio-cultural variables also have an important effect on tourism demand.Research limitations/implicationsThe socio-cultural models used in the study were created using variables that can be quantified. The study results are valid for the countries included in the analysis.Practical implicationsThe findings of this study will contribute to policymakers in determining the market for Turkish tourism. The results show that the policies to be prepared by considering the socio-cultural characteristics of countries can increase the tourism demand.Originality/valueThe study is significant in that it focuses on socio-cultural variables rather than economic variables commonly used in the literature. The study is original in terms of both the study sample and the model and considers cross-sectional dependency (CD) and homogeneity.

The impact of gender inequality in education and employment on economic performance in Turkey: evidence from a cointegration approach

PurposeThis study aims to empirically examine the impact of gender-based inequalities in both education and employment on economic performance using the dataset of Turkey for the period 1975–2018.Design/methodology/approachThis study employs Johansen cointegration tests to analyze the existence of a long-term relation among variables. Furthermore, dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) estimation methods are performed to determine the long-run coefficients.FindingsThe findings from the Johansen cointegration analysis confirm that there is a long-term cointegration relation between variables. Moreover, DOLS and FMOLS results reveal that improvements in gender equality in both education and employment have a strong and significant impact on real gross domestic product (GDP) per capita in the long term.Originality/valueThe authors expect that this study will make remarkable contributions to the future academic studies and policy implementation, as it examines the relation among the variables by including the school life expectancy from primary to tertiary based on the gender parity index (GPI), the gross enrollment ratio from primary to tertiary based on GPI and the ratio of female to male labor force participation (FMLFP) rate.

The Impact of CO2 Emissions on the GDP per Capita, Employment Rate and Energy Consumption of China, Korea and Japan

This paper aims to investigate the relationship between CO2 Emissions and GDP per capita of three East Asian countries (China, Japan, and South Korea). The Environmental Kuznets Curve hypothesis and its possible implications to the implementation of the Kyoto Protocol Agreement will be tested. The independent variables Employment and Energy consumption will be used as control variables. Multiple regression analysis and cointegration tests will be used on time series data of Japan, Korea, and China that is obtained from the World Bank database. GDP per capita is measured in constant 2010 US$, CO2 emission in kt, Employment in the ratio of total employment to total population aged 15 and above, and Energy Consumption in annual kWh per capita.

The Relationship between Financial Development and Renewable Energy Consumption in South Asian Countries

We analyse how the financial development and green energy use are linked to the countries of South Asia from 1990 to 2018. Domestic credit to the private sector and renewable energy consumption is being used in this paper as indicators of financial development and the use of renewable energy. On the indication of cross-sectional dependency among the variables of the models, we apply second generation panel unit root tests and cointegration tests to check the stationarity properties and long-run cointegration relation among the variables. We find that variables are stationary at the first difference, and long-run cointegration exists. By applying robust dynamic heterogeneous and cross-section augmented estimators, we find that increase in GDP increases renewable energy consumption by 1.56-0.50%; however reduces by 0.07-0.03% after certain thresholds. Furthermore, increase in financial development, on average, reduces the propensity of renewable energy consumption by 0.15-0.07% in the long-run. On the other hand, the Dumitrescu-Hurlin panel causality test shows a unidirectional relationship from GDP to financial development and financial development to renewable energy consumption but not vice versa. We suggest that the selected countries revisit and restructure the renewable energy policy and emphasise institutional reforms to strengthen renewable energy development in the upcoming years.