Testing the Feldstein Horioka puzzle in Algeria: Maki co-integratioan and hidden causality analysis

The aim of this paper is to test the existence of Feldstein Horioka puzzle in the case of Algerian economy for the period 1970-2019 by examining the link between domestic savings and investments, we use in this paper both the co-integration tests under Gregory-Hansen (1996), Hatemi-J (2008) and Maki (2012) tests in the context of structural breaks, and the symmetric and asymmetric causality (hidden causality) proposed by Hacker-Hatemi (2010) and Hatemi (2012) respectively, the results suggest that there is a co-integration relationship between saving and investment with five endogenous structural breaks, and the saving retention coefficient is equal to 0.324 which means the existence of Feldstein-Horioka puzzle in a weaker form and high capital mobility, on the other hand, the results indicate asymmetric causal relationship between savings and investments.

The nexus between financial development and trade performance

Purpose This study aims to empirically examine the relationship between financial development and trade performance for the Indian economy through a time-series analysis with annual data over the period 1980-2016. Design/methodology/approach The study uses new econometrics techniques such as unit root tests in the presence of endogenous structural breaks and autoregressive-distributed lag bounds test for the analysis. Findings Empirical results reveal that the level of financial development has a significant positive impact on the exports, imports and trade balance of manufactured goods for the Indian economy. Practical implications The findings suggest that the positive effect of financial development on trade performance is a potential mechanism through which the former may affect overall income and growth rates. It also implies that standalone trade liberalisation policies are insufficient to increase Indian exports. Indian policymakers should, therefore, consider the implications of the next set of financial sector reforms on the country’s trade flows, besides their positive impact on the economic performance. The findings are particularly relevant in the present scenario when the export growth is decelerating and there is a marked slowdown in private credit flows because of the problem of non-performing assets. Originality/value This study is the first of its kind which provides a holistic analysis of the relationship between financial development and trade performance for the Indian economy and also investigates the direction of causality between financial development and international trade by considering the possible presence of multiple endogenous structural breaks in the data. Moreover, in contrast to the available literature, the present study focuses on net exports as a key indicator of trade performance rather than trade openness.

Does financial development improve environmental quality in Turkey? An application of endogenous structural breaks based cointegration approach

Purpose The purpose of this paper is to investigate the long-run effect of financial sector development, energy use and economic growth on carbon emissions for Turkey, in presence of possible regime shifts over a period of 1960-2013. Design/methodology/approach Along with the conventional unit root tests, Zivot-Andrews unit root test with structural break has been employed to check the stationarity of variables. The cointegrating relationship between variables is investigated by using the autoregressive distributed lag bounds test and Hatemi-J threshold cointegration test. Findings The results confirm a cointegrating relationship between the variables. The long-run relationship between the variables has gone through two endogenous structural breaks in 1976 and 1986. Development of financial sector improves environmental quality whereas energy use and economic growth degrade it. The results challenge the validity of environmental Kuznets curve hypothesis in Turkish economy. Research limitations/implications The study uses domestic credit to private sector as a proxy for development of financial sector. The model can be improved by constructing an index of financial development instead of using a single determinant as a proxy for financial development. Practical implications The study may pave the way for policy makers to capture important environmental pollutants in better way and develop effective and efficient energy and economic policies. This may make significant contribution to curbing CO2 emissions while sustaining economic growth. Originality/value This is the only study to examine long-run impact of financial sector development on carbon emissions, using the threshold cointegration approach. Hence, the study is a gentle request to reduce the possible omitted variable econometric estimation bias and fill the gap in the existing literature.

Environmental Kuznet’s Curve for Saudi Arabia: An Endogenous Structural Breaks based Cointegration Analysis

The study attempts to analyse cointegrating relationship between carbon emissions, energy consumption, income and trade openness in case of Saudi Arabia using the time series data for the period 1971-2011. For this purpose, it uses the ARDL cointegrating technique to find out the long run relationships among the variables. The bounds test results indicate that there exist long- run relationships between the variables. The study also used threshold cointegrating test in order to test the environmental Kuznet’s curve hypothesis in the presence of regime shift. This study confirms existence of cointegrating relationship in case of single structural break, but for two structural break there is no cointegration among the variables. The Environmental Kuznet’s curve hypothesis does not hold in Saudi Arabia. The study does not find long run coefficients statistically significant except for trade openness.

INTERNATIONAL EVIDENCE ON REAL INTEREST RATE PERSISTENCE

This paper investigates the persistency in the ex-post real interest rates in the presence of endogenous structural breaks for Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, the Netherlands, New Zealand, Norway, Switzerland, the UK and the USA using seasonally adjusted quarterly data. The procedure used in this study extends the previous research in the respect of investigating degree of persistency of the ex-post real interest rates series by allowing for possible process shifts at endogenously determined more than two structural breaks dates following the principles suggested by Lumsdaine and Papell (1997). The results from the study show that real interest rates are very persistent when such breaks are not taken into account. However, the findings also indicate low persistency in real interest rates for all countries when such breaks are allowed in the data-generating process. We find that endogenously determined structural breaks substantially reduce the degree of persistency of the real interest rate series, which has important theoretical implications as well.