Domestic Savings, Investment, and Economic Growth: an Empirical Evidence from Nepal using VEC Model

This study examines the relationship between domestic savings, investment, and economic growth in Nepal by using time series data covering from the period 1975 to 2019. The vector error correction model (VECM) has been used to investigate the long-run and short-run causal relationship between the variables. The Johansen cointegration test results confirmed that there is a long-run relationship between savings, investment, and economic growth. Therefore, further analysis has to be set for the VEC model to analyze both long-run and shortrun causality. The VECM equation result is -0.1363 which is the adjustment speed of disequilibrium towards the equilibrium in long run. The coeffi cient of savings and investments are positive with economic growth which also indicates that both variables have a positive impact on economic growth in the short run. The results of the Jarque-Bera test show the residual distribution is normally distributed. For the model stability test, the study performed recursive estimation applying CUSUM and CUSUM of square, and both tests move within the 5 percent level of upper and lesser bound significance indicating that the model is stable over the observation period. Overall, the study suggests that in Nepal, domestic savings and investment growth have a positive contribution to economic growth. The central bank, planning commission, and ministry of finance should focus on stimulating the capital formation and productive sector investment for sustainable economic growth in Nepal.

Can Family Farms Depend on Price Information? Testing Butter and Curd Price Integration in Poland

This study examines the integration of regional dairy markets in Poland, which is a major European dairy producing country. The analysis of prices is important, as many dairy farmers are members of dairy processing cooperatives, and their incomes are affected by the prices of two popular products: butter and curd. Moreover, the period of study included significant fluctuations in the world market and the termination of the milk quota system in the European Union (EU). The price records used in this study are from the two main milk-producing regions in the country: Northern and Central. The data were tested for stationarity and Granger causality before estimating a Vector Error Correction (VEC) model. Estimation results show that the removal of the milk quota lowered prices of butter and curd in the two regions. The relationships of the prices in both regions for butter markets were nearly perfect during the period January 2010–November 2017, but curd prices were found unintegrated. Impulse response analysis showed that the effect of shocks was mostly absorbed in a two-week period and prices returned to full equilibrium in about four to five weeks. This fast price adjustment indicates that both markets operate properly and no market participant can obtain gains above those offered at equilibrium.

Time-Varying Comovement of Foreign Exchange Markets: A GLS-Based Time-Varying Model Approach

How strongly are foreign exchange markets linked in terms of their similarities in long-run fluctuations? Are they cointegrating? To analyze such “comovements,” we present a time-varying cointegration model for the foreign exchange rates of the currencies of Canada, Japan, and the UK vis-à-vis the U.S. dollar from May 1990 through July 2015. Unlike previous studies, we allow the loading matrix in the vector error-correction (VEC) model to be varying over time. Because the loading matrix in the VEC model is associated with the speed at which deviations from the long-run relationship disappear, we propose a new degree of market comovement based on the time-varying loading matrix to measure the strength or robustness of the long-run relationship over time. Since exchange rates are determined by macrovariables, cointegration among exchange rates implies these variables share common stochastic trends. Therefore, the proposed degree measures the degree of market comovement. Our main finding is that the market comovement has become stronger over the past quarter-century, but at a decreasing rate with two major turning points: one in 1995 and the other one in 2008.

Bank Competition and Economic Growth

This paper provides rather scares evidence on the nexus between bank competition and economic growth in a unique developing economy; Sri Lanka for the period 1996-2018. The effect of competition in the Sri Lankan banking sector on economic growth, and the mechanisms through which competition affects growth are analyzed in the present paper. The VEC model used in this study was aimed at capturing independently the short and long-term effect of bank competition on economic growth. The competition is measured with Pazar-Ross H- Statistics. Contrary to the common wisdom, the study found evidence for negative effects of bank competition, on economic growth in the short run. However, in the long run, this effect is strong and positive. Further, the statistical results of this paper revealed that higher bank competition channels economic growth through interest rate and bank efficiency. These findings have important policy implications as it gives great insight into the complexity of competition related conduct in developing countries.

Research on the Coordination of Environmental Pollution and Industrial Structure Upgrading from the Coupling Perspective

Economic transformation and industrial structure upgrading are critical to achieving environmentally sustainable development. Based on the inaccurate data analysis of the VEC model and the logarithmic average exponential decomposition method, this paper proposes an analysis of the two-way coupling relationship between natural gas energy consumption and environmental pollution. Through the identification of conceptual models of the re-linking and decoupling relationship between energy consumption and environmental pollution, two-dimensional endogenous variables and exogenous variables are determined. The research results show that both energy consumption and CO2 emissions are on the actual data statistical line, with an error of 0. At the end, the article puts forward policy recommendations to promote the coordinated development of urban agglomeration environmental pollution and industrial structure upgrading.

Research on the influence mechanism of China’s industrial circulation on long-term interest rate: Empirical analysis based on VEC model

As the adjustment space of China’s monetary policy is gradually expanding and the adjustment intensity is gradually increasing, the influence of external factors on money supply and demand is gradually weakening. The endogenous mechanism of interest rate in the real economy needs to be further explored. Through the long-term interest rate model, the paper reveals the relationship between the circulation status of real economy and long-term interest rate. Based on the monthly data of China from 2003 to 2019, the paper establishes the error-correction VEC model and the state-space model to conduct empirical test and analysis on the influence mechanism of long-term interest rate. The final results show that exogenous factors such as monetary policy have certain influence on interest rate in the short run, while in the long run, interest rate is affected by the average circulation of goods described by the inventory increment of manufacturers and the actual production input of enterprises.

The Wagner’s law testing in the Visegrád Four countries

This research paper analyses the relationship between gross domestic product and public expenditures in nominal terms. The analysis is being done by using the standard Peacock-Wiseman specification of the Wagner’s law and provides the results for the Visegrád Four countries, i.e. the Czech Republic, Slovakia, Poland and Hungary. We aim to answer a question concerning the existence of a long and/or short-term relationship between the nominal GDP and nominal public expenditures, which consist of current and capital expenditures. To address this question, we employ the VAR model, the Johansen Cointegration test and the VEC model. We study a period between the first quarter of 1999 and the second quarter of 2019 and find out mixed results for the Visegrád Four countries.

Inclusive Institutions – a Precondition of Sustainable Development. A Comparative Analysis Between Romania and Poland

When trying to identify the sources of growth and sustainable development, institutions and their effectiveness are among the most important and powerful instrument required to explain the economic dynamics of countries all over the world. More precisely, those rules, formal or informal, political or economic, that foster the participation of the majority of people in activities able to ensure the allocation of resources to their most productive destinations are the ones that promote long-term prosperity. Their significance is becoming even more important when the particular case of transition economies is addressed. Consequently, the aim of this paper is to demonstrate that inclusive institutions (political and economic ones) are a prerequisite for the long-run development, mainly for emerging economies. Using an unique dataset of indicators that highlight the quality of economic and political institutions we have employed a VEC Model, variance decomposition and Granger causality analysis for Romania and Poland, in order to emphasize that, from a comparative perspective, each transition path towards the market economy has designed different rules of the game determining, thus, dissimilar development profiles. Keywords: Sustainable development, Transition economies, Institutions, Institutional performance