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Cape Verde has attracted high Foreign Direct Investment (FDI) flows in the last 15 years. Although there is growing literature on the determinants of FDI in developing countries, only a few studies are available addressing African countries. This paper aims to fill this gap and identify the main economic and political determinants of FDI in Cape Verde, a small African country. The analysis is based on data from 1986 to 2019 concerning several macroeconomic and political variables that are potential determinants of Cape Verde’s FDI inflows. Firstly, several unit root tests are run, such as the Augmented Dickey-Fuller, Dickey-Fuller-GLS, Phillips-Perron and KPSS tests. As the time series are generally integrated, they are tested for cointegration using Johansen’s maximumeigenvalue and trace tests. Then, a vector error correction model (VECM) is fitted to the data and its goodness-of-fit is satisfactory, enabling the estimation of a long-run regression equation for the FDI, our primary purpose. The fitted model concludes that market growth, macroeconomic instability, infrastructures, political stability, and trade openness are important determinants of FDI inflows. As expected, all but macroeconomic instability have a positive impact on FDI, which means that: economic growth attracts FDI; macroeconomic instability deters FDI; a country with good infrastructure quality can attract larger FDI inflows; a country’s political stability brings larger FDI inflows; trade openness also induces FDI, and its impact is quite strong. Furthermore, the estimate of FDI’s speed of adjustment or error correction towards the equilibrium is 0.16 percentage points. Maximizing the benefits of FDI requires policymakers to implement appropriate domestic policies. Thus, the above determinants have to be regarded as crucial competitiveness tools for Cape Verde’s success as an FDI host country, namely boosting economic growth and ensuring its sustainability, keeping price (macroeconomic) stability, investing in building infrastructures and developing Information and Communication Technologies, ensuring political stability and good government practices, and implementing reforms towards a more export-oriented trade regime. [ABSTRACT FROM AUTHOR]

This article examined whether the Wagner's law that represents the long-run relationship between income and public expenditure holds at the subnational level in India. It also examines whether the Wagner's law is revenue expenditure specific or capital expenditure specific in the context of Indian sub-nationals. The paper covers 21 Indian States and a time period of 40 years, from 1980-81 to 2019-20. In this study we have assessed six pairs of relationships among state-level income, public expenditures, revenue expenditure, capital outlay, public expenditure on economic services, public expenditure on social services, and expenditure on the developmental sector. The validity of the law was examined for nine different panels of states broadly under income categories and geographical regions. Unlike first-generation panel techniques, which fail to account for the aspects of cross-sectional independence and heterogeneity, the present study tests the validity of the Wagner's law using the second-generation panel unit root method and cointegration approach. The analysis adopted Panel Dynamic Ordinary Least Square to test the evidence of Wagner's law hypothesis. The findings reveal that Indian states are heterogeneous in terms of public expenditure, and there exists cross-sectional dependence. There also exists a long-run cointegrating relation between state-level income and state-level public expenditure. For the full sample, while this study finds holding Wagner's law, there is a mixed validity of the law in different panels across income categories and regions. In addition, it is observed that the validity of Wagner's law in the Indian Subnational context is mainly driven by the high-income major states, and it is more capital outlay centric. To conclude, these responsive affiliations comprehend the effectiveness of public expenditure as a fiscal policy instrument in stimulating economic growth and the contribution of economic growth in the budget exercise at the subnational level. Therefore, subnational governments need to be more strategic to ensure growth momentum as the public expenditure indirectly and directly causes the living standard and welfare of the people in the economy. It must be acknowledged that India adopted fiscal rules in 2005, which may limit the procyclical fiscal policy during the swings in the business cycle, and thus have implications for budget exercises at the subnational level. [ABSTRACT FROM AUTHOR]

From 1977 until 2014, the real effective exchange rate in France declined. Over the same period, the total value of stocks traded in proportion to the nation's GDP increased. The data is consistent with economic theory - currency depreciation was followed by an increase in the total value of stock transactions (in proportion to GDP). The results of most regression analyses have shown that the relationship between currency depreciation and stock transactions are not always consistent with economic theory. The effect of currency depreciation on stock transactions can be either positive or negative due to various reasons, one of which is the omission of an important variable. Phylaktis and Ravazzolo (2005) showed that the lack of a significant relationship between exchange rate movements and stock transactions could be due to excluding the influence of the world capital markets. This paper builds on Phylaktis and Ravazzolo (2005) and tests the hypothesis that currency depreciation increases the total value of stock transactions in France. Annual data is obtained from the World Development Indicators of the World Bank. The total value of stocks traded is expressed as a percentage of GDP. The real effective exchange rate index is the nominal effective exchange rate divided either by a price deflator or by an index of costs. A trivariate VECM is estimated for the period 1977-2014. The paper investigates the short-run and long-run relationships between the real effective exchange rate and the total value of stocks traded in France. The effect of the U.S. stock market, representing the world capital markets, is also examined. The Dickey-Fuller Generalized Least Squares unit root test indicates that the variables are I(1). The Johansen cointegration test indicates a long-run relationship between the variables. Since AIC selected a model with 4 lags and the maximum rank of the cointegrating matrix is found to be 1, the VECM is estimated with 4 lags and 1 rank specification. The short-run results indicate that the adjustment coefficient is statistically insignificant; thus the estimated results are plausible in the short-run but not in the long-run. The short-run results indicate a significantly negative relationship between the real effective exchange rate and the total value of stock transactions in France; thus there is a close association between the stock market and the foreign exchange market in France. The short-run relationship between stock transactions in the U.S. and France is also found to be significantly negative. [ABSTRACT FROM AUTHOR]

In the past two decades, Senegal has made great strides towards the achievement of universal basic education. However, education opportunities remain unequal partly because of skewed allocation of education resources. Furthermore, poor teacher quality with inefficient use of public funding for education tend to compromise the effectiveness of programs to expand access and improve learning outcomes. The paper uses the Autoregressive Distributed Lag Cointegration approach introduced by Pesaran and Shin to examine the impact of education spending on primary education outcomes in Senegal. The Autoregressive Distributed Lag Bound testing methodology has attractive advantage over the Johansen cointegration approach and does not require all variables to be integrated of order one and can be estimated if the variables are of different order of integration. The method also estimates both short term and long-term relationships among the variables of the model without testing for the presence of unit roots in the data generating process. The estimated results based on time series data for 1971-2018 indicate that the logarithms of primary completion rate, income, enrollment rate, public expenditures on education, and pupil-teacher ratio are cointegrated and thus have a long-run relationship. Estimates of the long-run model show that with the exception of public expenditures on education, the rest of the variables have significant effects on primary completion rate and with the expected signs. The estimated coefficients of the short-run error correction model are significant for all the explanatory variables. The error correction term has the expected negative sign and is robustly strongly. The speed of adjustment is quite high (-2.472), suggesting an easy correction of any disequilibrium. The plots of CUSUM and CUSUM squares are consistent with the estimated coefficient of the ARDL model. The Senegalese government need to continue vigorously to promote the current policy and improve the quality of instruction in primary schools; as well as promote equity and fairness in the distribution of education funding and other education resources. Improving teacher quality is key in increasing completion rates and reducing repetitions with dropout rates. A government poverty alleviation and income-generating program can substantially encourage parents to enroll their children. [ABSTRACT FROM AUTHOR]

Interest rate uncertainty has adverse effects on stock market performance. Despite the considerable studies on the relationship between interest rate and stock market return, the relationship between interest rate volatility and stock market development still is enigma. This paper investigates the effect of interest rate uncertainty on stock market development. We examine the long-run and short-run relationship between these variables using Pesaran et al (2001) bounds testing approach to cointegration and error-correction modeling for 12 emerging economies over the period 1980-2011. This methodology has two main advantages over other cointegration methods which have made it unique: first there is no need to do pre-unit root resting, which is an essential requirement in other methods, and second, we are able to distinguish short -run effects from its long- run effect. Diagnostic statistics applied in this study indicate that our models are stable, well specified and normally distributed residual free of autocorrelation. The estimated results here show a significant short-run effect of interest rate uncertainty on stock market developing in all of 12 emerging economies under study. Furthermore, our results indicate that in 9 out of 12 countries the short-run effects have been seen in the long-run as well, and the cointegration relationship is confirmed in almost all of the models by either the F-test results or negative sign of error correction term. Also, the long run real income estimated elasticity is significantly positive in all countries (except for Brazil, Chile and Thailand) which would be a major long-run factor affecting stock market development in most of emerging economies in this study. Moreover, we found a mixed long- run effect of interest rate on stock market development. The results obtained in this paper suggest that emerging economies need to be cautious in implementing financial market and interest rate policies. A well-developed financial system improves capital formation and the efficiency of resource allocation, enhancing investment, and therefore economic growth. Interest rate uncertainty significantly affects stock market development. Therefore, a sound monetary policy creates a safer investment environment and stock market development. The role of stock market development towards achieving economic growth is crucial. [ABSTRACT FROM AUTHOR]

The paper empirically investigates the relationship between bank, stock market and economic growth in Bangladesh. In investigating empirical relationship , GDP at the current price, private sector credit given by banks and market capitalization are considered as indicators of economic growth, banks’ development and stock market development, respectively. Three possible regression models are estimated to know the relationship between economic growth and financial sector development. The paper shows that bank’s credit to the private sector is both positively and robustly contributing to the economic development of the country when bank credit to private sector entered alone in regression as an independent variable. Besides long-term relationship, contemporaneous change in bank’s credit to the private sector has profound positive short-run feedback effects to the economic growth. In assessing impact of stock market development on economic growth, no significant long-run relationship is found between stock market development and economic growth in Bangladesh. However, net positive subdued short-term effect of stock market development is evident. But when both bank and equity market jointly enter the model to find out the relationship of both variables with economic growth, a long-run relationship has been evident without statistical significance. It indicates that Bangladeshi financial system comprising both banking sector and stock market jointly is not still a strong promoter of its economic growth, although banking development alone is robustly associated with economic development. Bangladesh therefore needs to enhance the efficiency of banks for increasing credit to the private sector. An immediate initiative is also required to make both equity and debt market as regular sources of finance for the economy. In this perspective, ensuring smooth operation of primary and secondary market, increasing financial literacy among investors, minimizing volatility of the market, expanding issuer base, creating both individual and institutional investors, enhancing efficiency of the brokerage house, adding innovative financial services, initiating knowledge based trading, introducing shelf registration system, creating more professional trustee and ensuring authenticate credit rating from the rating agencies are required to be ensured. [ABSTRACT FROM AUTHOR]

The interaction between macroeconomic variables and share returns has been a debatable topic since decades. Much of the earlier studies have talked about significant relationships between stock market and macroeconomic indicators. In recent years Islamic finance has shown persistent growth worldwide. India has approximately 177 million Muslims, accounting for 12% of India's total population. Islamic finance differs from conventional investing in different ways like prohibition of gambling, pork, alcohol, entertainment, tobacco, profiting from interest rates etc. This paper aims to explore the long run and short run relationships of macroeconomic indicators and stock returns in the Indian context. The study is unique as it employs Shariah compliant indices to check on the stock market in India, a non - Islamic country. Data spans the period from January 2006 to July 2015. Monthly data is used and the selected macroeconomic variables are inflation rate (wholesale price index), interest rate (365 day government of India T-bill rate), money supply (M3) and exchange rate (US Dollar/Indian Rupee). 'Dow Jones Islamic Market India Total Return Index' is considered to track for the Shariah compliant stock index in Indian equity market. The study employs Johansen's co-integration and VECM to check for long run and short run equilibrium relationships. We check for long run equilibrium relationships through co-integration analysis. Johansen's test is a preferable multivariate cointegration test as it accounts for more than one cointegrating relationships. Granger causality is applied to check for the direction of causality. Variance decomposition in VAR system dynamics is also analyzed. Study reports the presence of a long run equilibrium relation between macroeconomic indicators and Dow Jones Islamic India market index. We are getting a positive and statistically significant relationship between WPI and stock returns as well as money supply and stock returns. Interest rate is showing negative and statistically significant relation with stock returns. Further uni-directional causality is observed from money supply and exchange rate to Dow Jones Islamic India market index. We can say that exchange rate as well as money supply granger causes Dow Jones Islamic India Market Index. Variance decomposition of exchange rate shows that 21.66% of variance in exchange rate is explained by Dow Jones index. Variance decomposition of Dow Jones index shows that money supply M3 explains 16.01% of variation in Dow Jones index. India's Islamic capital markets are showing signs of market inefficiency because of long run equilibrium relationships. This paper caters to the needs of Islamic investors and also to the policy makers as it provides a broad understanding of dynamic relationships between Shariah compliant stock returns and macroeconomic factors in India. [ABSTRACT FROM AUTHOR]

Government spending is a reflection of government policy choices. However, the implications of government spending growth necessitate an understanding of the drivers of the growth of government spending. The present paper modifies the median voter model to explain the growth of government spending by introducing foreign aid, public debt, and democracy. The paper argues that these variables are important drivers of government spending for developing countries, hence a model explaining the growth of government spending of these group of countries that ignores the potential impact of foreign aid, public debt and democracy does not capture fully what determines the growth of government spending. Such a model is too simplistic and less relevant for policy purposes. The paper therefore makes use of annual time series data to determine the long-and shortrun impact of per capita income, tax share, minimum wage, population growth, foreign aid, public debt and democracy on the growth of government spending in Ghana over the period 1980-2012. The autoregressive distributed lag (ARDL) bounds test for cointegration and the error correction model (ECM) procedures were used for the estimation. Additionally, the paper provides results of generalized forecast error variance decomposition in order to determine the effect of innovations in both the dependent and independent variables on the dependent variable. The findings reveal that per capita income, tax share, population growth, minimum wage, foreign aid, public debt, and democracy are key determinants of the growth of government spending in the long-run. With the exception of minimum wage, these variables are also key determinants of the growth of government spending in the short-run. Variance decomposition results suggest innovations in per capita income and population growth generally account for the largest variations in government spending over the horizon considered. Also, innovations in foreign aid, public debt, and democracy are responsible for significant variations in government spending. The findings and policy recommendations of the paper provide vital information for policy implementation in Ghana. [ABSTRACT FROM AUTHOR]

Malaysia has been experiencing sustained current account surplus during post-Asian crisis period. Although current account surplus is not as harmful as deficit, it cannot be sustained forever. Moreover, if the surplus is caused by bad reasons, such as, insufficient social insurance, inefficient financial intermediation, then it is reflected in deteriorating external competitiveness through more depreciated real exchange rate. Therefore, examination of current account sustainability is of crucial importance for the long-run health of the economy. Previous studies on Malaysian current account sustainability produce diverse results and leave it as an unsettled issue open to further research. In this backdrop this paper investigates the sustainability of Malaysia's current account balance for the period 1970 - 2010. This paper employs inter-temporal budget constraint to understand the behavior of exports and imports of Malaysian economy. Autoregressive Distributed Lag (ARDL) method is applied to examine the long cointegrating relation between Malaysian exports and imports plus interest on external borrowing. Advantage of employing the ARDL method is that it does not require the variables to be integrated to the first order. This method can be applied to a set of stationary and nonstationary variables. The paper uses annual data over the periods 1970 - 2010. Export, import and Gross Domestic Product (GDP) data are in current US dollars. Interest payment on long-term external borrowing in US dollars is used as a proxy for interest on net foreign debt. Estimation results indicate that these two variables are cointegrated, which implies that Malaysia's current account is sustainable in the long run. Strong sustainability requires the coefficient of cointegrating vector to be one. In addition to ARDL method, coefficient of cointegrating vector is estimated by two other methods, namely, fully modified OLS (FMOLS) and dynamic OLS (DOLS). All three estimations show that the long-run coefficient is greater than one. This indicates that in the long-run export increases more than import plus interest on external borrowing. Therefore, if the excess export earnings in the long run cannot be utilized productively current account surplus may not sustain. It is, therefore, concluded that Malaysian current account is weakly sustainable. This findings call for policy intervention at macro level to make efficient utilization of excess saving to boost economic growth through promoting social insurance, facilitating efficient financial intermediation and encouraging private investment. [ABSTRACT FROM AUTHOR]

Malaysia has been experiencing sustained current account surplus during post-Asian crisis period. Although current account surplus is not as harmful as deficit, it cannot be sustained forever. Moreover, if the surplus is caused by bad reasons, such as, insufficient social insurance, inefficient financial intermediation, then it is reflected in deteriorating external competitiveness through more depreciated real exchange rate. Therefore, examination of current account sustainability is of crucial importance for the long-run health of the economy. Previous studies on Malaysian current account sustainability produce diverse results and leave it as an unsettled issue open to further research. In this backdrop this paper investigates the sustainability of Malaysia's current account balance for the period 1970 - 2010. This paper employs inter-temporal budget constraint to understand the behavior of exports and imports of Malaysian economy. Autoregressive Distributed Lag (ARDL) method is applied to examine the long cointegrating relation between Malaysian exports and imports plus interest on external borrowing. Advantage of employing the ARDL method is that it does not require the variables to be integrated to the first order. This method can be applied to a set of stationary and nonstationary variables. The paper uses annual data over the periods 1970 - 2010. Export, import and Gross Domestic Product (GDP) data are in current US dollars. Interest payment on long-term external borrowing in US dollars is used as a proxy for interest on net foreign debt. Estimation results indicate that these two variables are cointegrated, which implies that Malaysia's current account is sustainable in the long run. Strong sustainability requires the coefficient of cointegrating vector to be one. In addition to ARDL method, coefficient of cointegrating vector is estimated by two other methods, namely, fully modified OLS (FMOLS) and dynamic OLS (DOLS). All three estimations show that the long-run coefficient is greater than one. This indicates that in the long-run export increases more than import plus interest on external borrowing. Therefore, if the excess export earnings in the long run cannot be utilized productively current account surplus may not sustain. It is, therefore, concluded that Malaysian current account is weakly sustainable. This findings call for policy intervention at macro level to make efficient utilization of excess saving to boost economic growth through promoting social insurance, facilitating efficient financial intermediation and encouraging private investment. [ABSTRACT FROM AUTHOR]

Theoretically, it is believed that FDI is a principal factor supporting and accelerating economic enhancement of an economy over the years. FDI boosts the productivity of host countries and promotes economic development, as FDI may not only provide direct capital financing, but may also create positive externalities via the adoption of foreign technology and know-how. In this paper we focus our attention on Estonia, as a (former) transition economy. Estonia stands out as one of the most successful ones in terms of economic growth and institutional changes among former command economies, as in less than two decades Estonia has been able to build functioning market-economyinstitutions virtually from scratch and has joined the European Union (EU) and the Euro-zone. This paper, using cointegration methodology for the period of 1994:Q1-2013:Q2 focuses on the causal relationship between FDI and real GDP in Estonia. The real GDP data is obtained from Eurostat (2005 = 100) while the FDI data is obtained from the Bank of Estonia. Exploring the cointegration test is done through two methods: the residual-based test of Engle and Granger (1987) and Johansen's methodology. The cointegration tests require that series to be integrated of order one. For this reason we first test for the existence of a unit root using Augmented Dickey Fuller unit root test (ADF, 1979, 1981), and Kwiatkowski et al. (KPSS, 1992). We further investigate the causal relationship using Granger Causality analysis and Vector Error Correction Model (VECM). The stationarity tests show that the variables are integrated of order 1, confirming that FDI and GDP are not stationary. The Engle-Granger method shows that FDI and real GDP are not cointegrated. Continuing with Johansen Cointegration Test, which is more generally applicable than the Engle-Granger method, the findings indicate that both the real GDP and FDI series are cointegrated, hence, the variables have long term relationship in that they will not deviate arbitrarily from each other and that their deviations from long run equilibrium path are corrected. Finally, Granger Causality test provides evidence that GDP does respond to changes in FDI in the long run but not in the short run, besides FDI does Granger cause real GDP. Our findings demonstrate that FDI can be very useful for Estonia, and it will be interesting to examine whether such findings are essentially due to large share of FDI in the banking sector and/or due to large share of FDI from high-income countries. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between defence burden and real gross domestic products in Nigeria, using annual time series data. This study uses Johansen's Cointegration approach to investigate the relationship between government's military expenditure (defence burden) and real gross domestic products, among other variables. In light of the lingering controversy on military expenditure and growth nexus, this paper contributes to the existing literature using time-series data from Nigeria, a country with high military spending over the years to re-investigate the impact of military expenditures on economic growth and the direction of causality between military spending and economic growth. Specifically, this study discusses the long run relationship between military expenditure and economic growth using Johansen cointegration approach. The key variables used in the study include: military burden (military expenditure), real GDP, real education expenditure, real health expenditure. The nature of the relationship that exists between military expenditure and economic growth as well as the cointegrating vector, taking into cognizance all other variables is focus of this paper. The results of the study show that increased defence burden is harmful to the Nigerian economy, and there exists a negative long-run relationship between defence burden and increase in the growth of real gross domestic products, the impact of defence burden remains negative both in the short-run and long-run respectively. It is not sufficient to have cuts in military expenditure, but such reallocation from defence should be directed towards productive investment in other sectors of the economy in order to generate economic prosperity and enhance the welfare of the citizens. Implications of having a negative effect of defence burden on growth rate of real Gross Domestic Products result in crowding-out of private sector investment, retards economic progress or growth rate of real gross domestic products, and therefore, is an ineffective tool to stimulate the growth of the economy in Nigeria. Military expenditure cannot be an effective tool of fiscal policy (government revenue and expenditure to regulate the economy), from the results of the study both short-run and long-run impact are negative, hence, the role of military sector should be limited to the maintenance of internal law and order as well as the defence of the country against any form of external aggression. This study will be of immense significance towards shaping policies that relate to military spending in Nigeria. [ABSTRACT FROM AUTHOR]

Brazil and USA are important trading partners. Brazil as a resource-rich country in Latin America and a vibrant emerging economy draws enormous US trade and investment interests. Inclusion in BRICS lifts Brazil as an emerging global economic force and BRICS as a group poses economic challenges to the developed world. The Brazil-US growing trade and fluctuating Real-Dollar exchange rate are a fascinating issue of empirical exploration. The principal objective of this paper is to study the dynamics between Brazil-US nominal trade balance and nominal Real-Dollar exchange rate. Monthly data are utilized from January 1999 through December 2013 since Brazil allowed floatation of Real beginning in January 1999. They are obtained from the Direction of Trade and International Financial Statistics, published by the IMF. The standard cointegration methodology is implemented. This is appropriate since macroeconomic and financial variables are very likely to be time-variant. The application of OLS on nonstationary variables would produce misleading inferences in presence of spurious correlation. Consequently, the efficient DF-GLS and NG-Perron tests for nonstationarity and their counterpart KPSS test for stationarity are applied. All of them confirm nonstationarity of both time series variables. Stationarity in both variables is restored on first-differencing of the level data depicting I(1) behavior. Consequently, the Johansen-Juselius procedure is implemented for cointegrating relationship. Both max and trace test statistics unveil no cointegration between nominal bilateral trade balance and exchange rate. In this backdrop, VAR model is estimated, as appropriate. The evidences on short-run bidirectional causal flows are strong with significant interactive feedback effects. In the case of reverse causality, the evidences are highly insignificant. The impulse response analysis depicts the existence of short-run bilateral J-curve that shows initial deterioration in trade balance for a while following exchange rate depreciation before improvement into positive territory. In this paper, the J-curve shows that currency depreciation by Brazil against the US dollar to improve its trade balance with the USA may work only in the short run. Progressive improvement in trade balance in the long run would, in fact, depend on prudent monetary and fiscal actions to enhance Brazil's global competitiveness through improvement in labor productivity and modern technology adoption. [ABSTRACT FROM AUTHOR]

The improved performance of the financial sector through its process of financial intermediation between savers and investors and between lenders and borrowers as well as the guidance of the funds those are available to the optimal investments lead to achieve the desired stable economic growth. Economists generally believe that high rates of inflation cause problems to some individuals and as well as for the whole economic performance. In general, low inflation rate with financial sector development plays a crucial and essential role in achieving sustained and stable economic growth. Therefore, maintaining inflation rate at low level and improving the financial sector performance are considering themain targets for policy makers to promote sustained and stable economic growth. So, the main purpose of this paper was to investigate empirically the relationship between inflation and financial sector development in Saudi Arabia for the period of 1982-2013.This paper used the autoregressive distributed lag (ARDL) bound testing approach suggested by Perasan et al. (2001) to examine the existence of the long-run relationship between the inflation rate and financial sector development. The advantage of the bounds testing approach is in its applicability irrespective of whether the underlying variables are purely I (0), purely I (1) or mutually co-integrated. All data were tested for stationarity using Augmented Dickey-Fuller (ADF) test and the Phillip-Perron (PP) test to determine the order of integration. The variables included in this study are: The credit to the private sector as percentage of GDP was used as a proxy of financial development and inflation rate measured by the consumer price index. The study also included two more control variables: trade openness and real gross domestic product. The main findings are as follows. First, tests results of the Augmented Dickey-Fuller (ADF) and Phillips - Perron (PP) showed that consumer price index (LCPI), real gross domestic product (LGDP) and trade openness (LOPEN) did not seem to be stationary at their level but they were at first difference. Accordingly, they were integrated of order one I (1). On the other side, both tests results of financial development (LFD) seemed to be stationary at its level. Accordingly, it was integrated of order zero I (0). Second, results showed that there was a statistically significant long-and-short run negative relationship between inflation and financial development. Third, there was statistically significant positive impact of previous financial sector's policies on financial sector development. Forth, results indicated that there was statistically significant positive impact of economic growth on financial development. Fifth, there was a statistically significant negative impact of trade openness on financial development. Accordingly, inflation and trade liberalization policy are the main obstacles facing financial sector performance. Therefore, the policy makers can reduce inflation through the use of appropriate fiscal and monetary policies. [ABSTRACT FROM AUTHOR]

Sustained current account deficit and surplus are not good for an economy. Before 1997 financial crisis South East Asian countries experienced current account deficit, while after the crisis most of them have current account surplus. This paper is motivated by the absence of research on current account sustainability issues in selected crisis affected countries, namely, Indonesia, Malaysia, the Philippines, and Thailand, within the framework of panel cointegration and error correction methods. The paper employs panel unit root, panel cointegration and panel dynamic OLS (PDOLS) methods to assess current account sustainability. Based on an inter-temporal analytical framework the paper examines co-integrating relationship between export as percentage of GDP (indicated by X) and the sum of import and interest on long-term external borrowing, both as percentage of GDP (indicated by MM). The paper also estimates current account sustainability parameter by PDOLS. Annual data from 1970 to 2013 for Indonesia, Malaysia, the Philippines, and Thailand are sourced from World Development Indicator 2012 & 2014. Exports, imports, and GDP data are in current US dollars. The interest payment on long-term external borrowing is used as a proxy for interest on net foreign debt. All variables are expressed as percentage of GDP. Different econometric tests indicate that X and MM are non-stationary at level; however, stationary at first difference. Panel co-integration tests indicate that the variables are co-integrated, which indicates that there is long-run equilibrium relationship between X and MM. Error correction parameter indicates that it takes less than four years to correct short-run disequilibrium. PDOLS estimate shows that the sustainability coefficient is 1 (one).Panel co-integration and PDOLS results together indicate that current accounts in the sample countries are strongly sustainable. This finding is consistent with previous single country study. This finding supports that the current account balance reflects the optimal decisions of the borrowers and lenders; therefore, policy intervention to correct the balance is unwarranted and could reduce welfare. To avoid future crises, policymakers should pay attention to other issues, such as supporting longterm capital flows and liberalizing short-term capital movements. [ABSTRACT FROM AUTHOR]

In the recent past, with the phenomenal growth of equity markets, a burgeoning number of policy makers and researchers began to query about the possible impact that equity market development might have on economic growth. Indeed, an overwhelming number of studies have been carried out worldwide to investigate the links which might exist between stock market development and economic growth. As a result, this has strengthened the view that stock markets around the world play a key role in fueling a powerful and resilient economy. However, most of these studies have focused solely on developed countries and not on developing countries or small island developing economies like Mauritius. As such, since studies analyzing this link in the African region are rather scant, this paper endeavors to scrutinize the relationship between equity market development and economic growth in Mauritius. To this end, this paper analyzes the relationship between stock market development, banking development and economic growth in a unified framework using semi-annual data for the period 1988-2011, through a dynamic Vector Error Correction Model (VECM). The VECM is used extensively to determine the link between stock market development and economic growth while simultaneously allowing identification of any bi-directional and/or uni-directional causality between the variables of interest. Moreover, this model divulges both the direct and the indirect impacts, if any, which stock market development might have on economic growth. Possible determinants of stock market development and the effect of stock market development on the control variables are also analyzed through the VECM. The results suggest that stock market development does play an important role in generating gains in terms of economic growth in the long run in the island. In the short run however, stock market development fails to significantly boost economic growth in Mauritius. Moreover, stock market development is also seen to indirectly stimulate economic growth in the short run, through banking development. Interestingly, banking development is seen to have a positive impact on economic growth, both in the short run and in the long run. This indicates that banking development and stock market development both complement each other. As such, it is believed that further steps have to be taken to promote stock market development in the island, with the aim of boosting both the economy and the banking sector in the long run. [ABSTRACT FROM AUTHOR]

This paper examines causalities among foreign direct investment (FDI), economic growth (GTH), and financial development proxied by both equity market size (EQM) and bank credit to private sectors (BANK). We use a structural cointegration model with a vector error correction (VEC) mechanism to test for the short-term dynamics of the model. The results show that there is a reinforcing causal relationship between FDI and EQM, and between EQM and GTH in the short term, and that these variables cointegrate in the long term. As far as practical implications are concerned, the results reinforce that developed financial markets are an essential precondition for the positive impact of FDI on economic growth, reflecting host countries' ability to exploit FDI more efficiently. Moreover, the paper provides further substance for the notion that a country with a well-developed financial market gains significantly from FDI inflow. [ABSTRACT FROM AUTHOR]

Most of the study of causal relationship of GDP or growth with Trade and Foreign Direct Investment in the context of India rely on cross country comparisons, or simple correlations/regressions disregarding nonstationarity properties, or at most on VAR or VECM or Johansen-Juselius cointegration technique of testing for Granger causality. The potential biases, pitfalls, influence of nuisance parameters and asymptotic unreliability of these techniques have been well documented in the literature and also briefly mentioned in this paper. Therefore, this paper employs the more recent and robust Toda-Yamamoto-Dolado-Lutkephol augmented VAR(p) technique for testing Granger causality among these three time series. This technique has been shown to provide more robust and asymptotically reliable results under wide variety of situations regarding the cointegration relationships among the time series. This study also focuses on the post liberalization period and clearly shows that the post- liberalization period significantly differs from the pre-liberalization period in the GDP-Export-FDI nexus. We find strong support for Export-led and Foreign Direct Investment led growth hypotheses only in the post liberalization period. [ABSTRACT FROM AUTHOR]

This paper examines the determinants of foreign direct investment (FDI) from Singapore to two main host destinations: China and Hong Kong. It allows policy makers and researchers to understand the differences/similarities in the determinants of FDI from Singapore to a developing country, China, and a developed country, Hong Kong. Annual time series data covers the period 1994 to 2014 is used. Commonly used determinants, such as gross domestic product per capita of a host country, gross domestic product per capita of Singapore, real interest rate of a host country and trade openness of a host country are utilized to study Singapore's outward FDI (OFDI). Because the sample has only 21 observations, autoregressive distributed lag based bounds testing approach to cointegration developed by Pesaran, Shin & Smith (2001) is used to estimate cointegrating regression among these variables. This approach is an appropriate econometric estimation technique because the estimated long-run coefficients obtained from the reparameterization of an ARDL model are super-consistent even in small sample size. The main findings show that gross domestic product per capita of a host country attracts FDI from Singapore to each of these countries. It is also observed that higher interest rates in these two host countries attract Singapore's FDI. The degree of openness of China influences the flows of Singapore's FDI to China positively, but not for Hong Kong. It is a surprise that this empirical study is unable to find evidence that gross domestic product per capita of Singapore has an influence on its own FDI outflows. The overall results reveal that the motives of multinational corporations (MNCs) from Singapore to invest abroad typically differ between developing and developed economies, depending upon their respective competitive advantages. In general, MNCs invest in more advanced economies, such as Hong Kong, due to its purchasing power and market potential. Same goes for the developing markets, such as China, that consists of cheaper labor and large market opportunities. For the developing economies, trade liberalization is proved to be the pull factor that attracts MNCs. The more open an economy, the greater the attraction it has to MNCs. [ABSTRACT FROM AUTHOR]

This paper tests the validity of Purchasing Power Parity (PPP) doctrine for Ghana using the conventional relative PPP equation. We conducted a univariate Augmented Dickey-Fuller unit root test on the model variables. Exchange rate and CPI data for Ghana and the USA were collected on annual basis for the period between 1970 and 2005 inclusive. The result of the PPP test shows nonrejection of the null hypothesis of the failure of PPP. The result of the unit root test suggests that Ghana?s exchange rates are mean reverting. Exchange rates and inflation differentials were found to be stationary at the same order of integration. Consequently, cointegration is suspected between GHANEX and GHANINF, though this paper did not investigate the presence of cointegration because even if it exists, we conclude that there is a long-run relationship between the two variables. Based on the result, it is concluded that a common basket of goods, when quoted in either cedi or dollar is not expected to cost the same in both countries. From the policy point of view, we established that PPP can be used to assess the level of exchange rates. [ABSTRACT FROM AUTHOR]

As a result of the dependency of United States (US) on Nigerian oil exports, coupled with her greatest share in Nigerian foreign direct investment, the recent global financial crisis of 2008/09 which emanated from the country spilled over to the Nigerian capital market, affecting majorly the financial sectors. Since the period of the crisis, the interests of the researchers have been gingered towards studying the interdependencies in financial market series of nations that are trading partners, particularly in relation to technological advanced economies like the US and the United Kingdom. This paper examines the effects of the global financial crisis on the Nigerian stock market. We use daily US stocks (S&P500, Nasdaq and Dow Jones industrial stock indices) and All Share Index (ASI) of Nigerian Stock Exchange, testing for long run equilibrium relationships between the Nigerian ASI and each of the US indices. Apart from the initial nonstationarities displayed by the stock time series, plots of a US stock index and ASI also display the possibility of possible co-movement over time, particularly during the crisis period. That called for possible test for cointegration. However, instead of restricting ourselves to integer degrees of differentiation we allow for the possibility of fractional values. Thus, we test for fractional integration, and the results first indicate that the ASI and the three US stock indices display similar orders of integration, which are all very close to 1. Testing for fractional cointegration, we do not find any significant evidence of a long run equilibrium relationship between the two markets. The lack of fractional cointegration can be due to the presence of breaks in the data that have not been taken into account. This is something very plausible in the context of the global financial crisis. Also, the fact that long-run relationships do not exist between each of the US stocks and the Nigerian stock markets does not imply no contagion effect. Contagion effect may be as forms of returns, shocks or volatility between the US and Nigeria market. This finding therefore calls for alternative testing procedure, other than cointegration, in other to establish the influence of United States economy on the Nigerian capital market. [ABSTRACT FROM AUTHOR]

Urban induced industrialization, energy consumption, carbon emission and rising percapita automobile consumption have impelled society to brace for the heat wave like conditions. Over last 50 years (1956-2005), average annual temperature worldwide has been increased by 0.13 C degrees. Post 2005 period has even faced some unprecedented heat wave conditions across the globe starting from Europe in 2003, Greece in 2006, North America, 2006, India in 2010, 2013 and 2015, Australia in 2012. In this context, this paper empirically examines the importance of such unsystematic urbanization with respect to annual temperature change in case of so-called BRICS economies. For this we have collected data ranging from 1980 to 2012 for five economies namely Brazil, Russia, India, China and South Africa. Data w.r.t annual temperature, urbanization, energy consumption, carbon emission and foreign direct investment are mainly collected from World Bank, EIA and UNCTAD databases. In our empirical setup, we have employed Bayer-Hanck cointegration and different structural break tests. Our long run cointegration result shows that both pollution and annual temperature changes are well cointegrated and robust enough to capture the trend of global warming and environmental changes in an economy. Further, the evidence of structural break tests in forms of Zivot-Andrews Unit Root test and Gregory-Hansen cointegration tests are applied to ensure the breakpoint. It captures the condition of relative unsustainability from the year, when urbanization has exerted significant effect upon the environmental indicators and annual temperature variation. Furthermore, we apply chow forecast test to examine the significance of structural breaks in an economy during the period. The result shows that there exists no breakpoint in all these economies except Brazil during 1990-2012 period. The main policy implication emerging out of this study is that there must be the element of sustainability in industrialization and urbanization processes of the developing economies. The developing economies primarily must adopt the short term goal in attaining sustainability in a coordinated manner and switch over to the long term goal later. All our empirical investigations have confirmed that if such unbalanced growth is not controlled, then the effect of global warming on BRICS is quite imminent. [ABSTRACT FROM AUTHOR]

Although Classical theory postulates that there is a short-run trade-off between inflation and unemployment rates, numerous studies have shown that the relation between inflation and unemployment rates vary greatly across different sample periods, countries, estimation techniques and data sources. Due to the contrasting results obtained in previous studies, in this paper we investigate the short-run and long-run effects of unemployment rate, long-term interest rate, trade openness, budget deficit, money supply, economic growth rate and exchange rate on U.S. inflation rate over the period 1978-2014. The Augmented Dickey Fuller unit root test is performed. The variables are found to be integrated of order one. We apply the bounds testing approach proposed by Pesaran et. al (2001). The Johansen and Juselius (1990) and the Engle-Granger (1987) tests show that the variables are cointegrated. The Granger F-test is applied to the vector error correction model to investigate causal relationships between different pairs of variables. Results indicate short-run unidirectional causalities from interest rate, trade openness, economic growth rate and exchange rate to inflation rate, from interest rate to unemployment rate, from economic growth rate to trade openness, and from unemployment rate, trade openness, budget deficit, economic growth rate and exchange rate to money supply. Long-run causality is observed when inflation rate is an endogenous variable. In cointegration analysis, the adjustment coefficient is found to be statistically insignificant; thus, the results are considered plausible only in the short-run. Long-term interest rate and trade openness are found to have significant positive short-run effects on inflation rate. No significant short-run trade-off is observed between inflation and unemployment rates. The results of the cumulative sum (CUSUM) and cumulative sum of squares (CUSUMSQ) tests proposed by Borensztein et. al (1998) are within the critical bounds; thus all the coefficients in the error correction model are found to be stable. The diagnostic tests indicate that there is no evidence of serial correlation, and no problem of heteroscedasticity. The autoregressive conditional heteroscedasticity is not present in the short-run model. The test results also indicate that there is no problem of normality in error distribution. Based on the cointegration and causal analysis, we find no evidence to support a short-run Phillips curve for the U.S. economy for the period 1978-2014. A rise in inflation rate, due to a monetary expansion, is not found to have any significant short-run impact on unemployment rate in the U.S. economy for the sample period under study. [ABSTRACT FROM AUTHOR]

This paper investigates the role of safe haven assets i.e. gold and Islamic stocks in time-frequency domain for two different crises periods. Wavelet coherency squared coherence approach has been utilized on daily data of gold, DJIEM and stock returns of the BRICS markets for the period from January 1st 1996 to December 31st 2014. The results indicate that gold maintain its role as hedge for stock markets over short-run. In both crises periods, gold exhibits low correlation with stock markets. Over all, our results suggest that the hedge and safe haven ability of gold is market specific. Therefore, in Asian financial crises, gold proves as a strong safe haven for BRICS and Islamic index. However, in late 2005, gold prices start moving with BRICS equitey markets and show positive correlation for 32-128 days scale. This relationship effects gold’s ability to act as a financial protector against extreme negative shocks in global financial crises of 2007-09. In contrast, gold leads world Islamic emerging markets and displays negative relation across a range of frequencies and indicates safe haven effects for the returns of Islamic stock markets. This low correlation between gold and Islamic stock markets indicates that gold can provide diversification to the portfolios of Islamic stock markets. Panel cointegration analysis depicts that the Islamic emerging and BRICS equity markets are cointegrated and global investor should have to carefully monitor the risk associated with them. Based on these results we infer that gold investment has potential to safe guard the stock portfolios in short-run against extreme negative market shocks. However, in long-run, gold does not seem to be a strong safe haven. Further, Dow Jones world Islamic emerging market index shows low correlation with only conventional stock market of China. This suggests significant diversification benefits of Islamic stocks for Chinese investors. [ABSTRACT FROM AUTHOR]

This paper investigates the role of safe haven assets i.e. gold and Islamic stocks in time-frequency domain for two different crises periods. Wavelet coherency squared coherence approach has been utilized on daily data of gold, DJIEM and stock returns of the BRICS markets for the period from January 1st 1996 to December 31st 2014. The results indicate that gold maintain its role as hedge for stock markets over short-run. In both crises periods, gold exhibits low correlation with stock markets. Over all, our results suggest that the hedge and safe haven ability of gold is market specific. Therefore, in Asian financial crises, gold proves as a strong safe haven for BRICS and Islamic index. However, in late 2005, gold prices start moving with BRICS equitey markets and show positive correlation for 32-128 days scale. This relationship effects gold's ability to act as a financial protector against extreme negative shocks in global financial crises of 2007-09. In contrast, gold leads world Islamic emerging markets and displays negative relation across a range of frequencies and indicates safe haven effects for the returns of Islamic stock markets. This low correlation between gold and Islamic stock markets indicates that gold can provide diversification to the portfolios of Islamic stock markets. Panel cointegration analysis depicts that the Islamic emerging and BRICS equity markets are cointegrated and global investor should have to carefully monitor the risk associated with them. Based on these results we infer that gold investment has potential to safe guard the stock portfolios in short-run against extreme negative market shocks. However, in long-run, gold does not seem to be a strong safe haven. Further, Dow Jones world Islamic emerging market index shows low correlation with only conventional stock market of China. This suggests significant diversification benefits of Islamic stocks for Chinese investors. [ABSTRACT FROM AUTHOR]

Governments of developing countries have been targeting poverty alleviation and deprivation as their main goal and thus have been working for pro poor growth. It is observed that African countries need considerable amount of investment in order to help their economies to prosper. African countries can benefit from growth through foreign investment which is seen as an important source of capital flows. However, even if growth is important for an economy, it is not a good indicator of social development. Welfare can be worsen if growth attained by a country is not pro poor and can also result in an increase in inequality gap. In this regards, this study is based on the investigation on FDI and poverty alleviation or welfare maximization in selected Sub Saharan African countries. The present paper takes a different approach in analyzing the impact of FDI on poverty reduction. In the context of selected Sub Saharan African countries and over the period 1990-2010, a dynamic Panel vector error correction model is adopted. In effect the Vector autoregressive model or the vector error correction model is of great importance in showing the dynamic behavior of economic time series and for forecasting. Also, it often provides better forecasts and describes theory-based simultaneous equations models. Thus, given the endogeneity and causality issues, using such a model can prove to be highly beneficial. The main variables used are FDI net inflows and poverty headcount index. Other variables used in this study include the unemployment rate, inflation, openness, government debt and government expenditure, education level and GDP per capita. The results suggest that indeed FDI is an efficient tool in fighting poverty both in the short run and long run with the sample of countries considered. Moreover, the results favor a uni directional relationship between FDI and social welfare (poverty reduction) and a bi directional causality between FDI and economic welfare (Economic growth). According to this study, foreign investment is an important ingredient for both economic and social development for Sub Saharan African countries. Hence, the government should devise appropriate policies to attract such capital flows. These can be in terms of an improvement in institutional capacity and easier administrative procedures which would surely favor the entrance of foreign firms in the host countries. [ABSTRACT FROM AUTHOR]

Since the 1980's, Turkish economy has revealed a dramatic growth. The purpose of the present study is to develop the import demand behavior of Turkey as an emerging economy and discover the longrun relation between the import demand and the components of GDP. One of the main reasons we adopt a disaggregated model to test aggregated import demand function estimation is that it deals with the potential aggregation bias when the different macro components have different import contents. The second reason is we believe that elimination of the biasedness will produce better forecasting results. This study examines the long-run and short-run elasticities of Turkey's disaggregate import demand using an annual dataset that covers the period of 1980 to 2011. The error-correction modeling and cointegration analysis are the appropriate techniques since we try to discover the long-run relation between the import demand and components of GDP. First we determine the degree of integration of each variable in the model to apply the cointegration test that is known as an autoregressive distributed lag (ARDL). We collect the dataset from United Nations Statistical Division National Accounts Official Country Data and World Bank's Development Indicators. This paper is one of the first studies to estimate import demand function of Turkey using the recent data which makes it different from earlier studies. Our results suggest that there is a long run relationship between the dependent variable and the control variables in the import demand function. All the explanatory variables are statistically significant in the long-run and the short-run as well. Our results also suggest that in the long run all of the included variables in the model are statistically significant. All the independent variables have inelastic effects on imports except total consumption. Relative price variable has a positive effect which may suggest in the short run importers cannot adjust price changes faster, consequently causing an increase in import expenditure bills. Thus, Turkish trade balance may get worsen if imports exceeds exports. [ABSTRACT FROM AUTHOR]

This paper estimates the acreage supply response of natural rubber in Thailand using cointegration methods. Results show that a unique long-run relationship exists between area planted, the rubber price and the replanting subsidy, and the rubber price is weakly exogenous. The short-run own price elasticity of acreage response is low at 0.04 whereas the corresponding long-run elasticity is 2.24, and the use of pricing policy takes a long lead time to take effect. The acreage elasticity in response to a change in the subsidy is 1.17 and the replanting subsidy is a key driver for increasing rubber production. [ABSTRACT FROM AUTHOR]

This paper aims to assess the sustainability of the current account of Bangladesh over the period of 1982-2012 using the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). This approach examines the relationship between exports and imports plus unilateral transfer payments. We apply Johansen cointegration test and Dynamic Ordinary Least Square (DOLS) to evaluate the sustainability. Cointegration between inflows and outflows of current account implies that the intertemporal budget constraint is satisfied. Results of the Johansen cointegration test imply that there is a cointegrating relationship between exports and imports plus unilateral transfer payments. This indicates that Bangladesh's current account is sustainable but result of DOLS estimation reveals that it is weakly sustainable. [ABSTRACT FROM AUTHOR]

From the early 1980s onwards, Bangladesh has undertaken a series of trade-liberalization measures. In combination with the steady rise in real income over the past two-and a half decades, these measures have raised the country's import-orientation and brought structural change in the composition of imports in favor of consumer goods and materials for consumption. This paper investigates import-demand behavior in Bangladesh within the Autoregressive-Distributed-Lag (ARDL) modeling framework using annual data for the period 1974-2008. The empirical results suggest the presence of a well-behaved import-demand function, in the senses that (1) Bangladesh's imports are income-elastic and price-inelastic and (2) there is no evidence of instability in the Bangladesh import-demand relationship. [ABSTRACT FROM AUTHOR]

This paper studies the long-run and short-run dynamics between emigrants' nominal inbound remittances in U.S. dollar term to Mexico and the Peso-Dollar nominal exchange rates. Relatively high frequency monthly data from January 1987 through December 2008 are employed. Given the comparatively short sample period, the monthly data partially compensate for implementation of standard cointegration methodology. Empirically, both variables are found nonstationary in levels with I(1) behavior in terms of DF-GLS, Ng-Perron, and KPSS tests. The changes in exchange rate exert more pronounced influences on the changes of remittances in the long run as compared to the converse. Significant short-run interactive net positive feedback effects between the variables are also evidenced. On a net basis, Mexico should pursue an exchange rate policy that would promote remittance inflows from the USA for potential net economic gains without much apprehension of the so called Dutch Disease. [ABSTRACT FROM AUTHOR]

This paper quantifies the contribution of exports to economic growth in developing countries. We apply recently developed panel cointegration methods which admit structural breaks to examine bivariate export-income relationships for a panel of 47 developing countries for annual data for 1970-2004. Results show that long-run relationships exist and there is bi-directional causality between exports and income; structural breaks occur in most country-specific relationships and most occur in the 1980s following the debt crisis of 1981-82; the income-export elasticity is 0.22 while the export-income elasticity is 1.13. Structural differences also exist in the relationships by broad income group and the impact of exports on income increases while that of income on exports falls as income increases. Export-promotion policies are not misplaced and the trade liberalisation policies advocated and sometimes imposed by the World Bank which aim to stimulate economic development seem justified but should by tailored to individual country needs. [ABSTRACT FROM AUTHOR]

Previous studies that analyzed income inequality mostly concentrated on identifying microeconomic determinants such as income, social factors (family structure, employment, or age distribution), or factor endowments; or such macroeconomic determinants as the exchange rate, economic openness or the black market premium. These studies also relied upon cross-section estimates in their assessments. In this paper, we introduce the "saving-investment" gap, which measures whether the need for financing is unmet, as another determinant of income inequality. We then apply time-series techniques in a study of 16 countries. Using the "bounds testing" cointegration method, in which variables in a given model can be stationary, non-stationary, or a combination of the two, we find varying results across countries. While these results highlight the need for further country-specific research, they indicate the benefits that external financing can provide. [ABSTRACT FROM AUTHOR]

Similar to many other developing countries Bangladesh, which is the country of my concern, has been pursuing an active exchange rate policy basically to maintain a viable external account position, and competitiveness of its products in world market. The purpose of the study is, therefore, to estimate the impact of real devaluation on country's trade balance. The study constructs nominal and real effective exchange rates which are not readily available for the country. Using multivariate cointegration tests for non-stationary data, the error correction model, and impulse response functions the paper examines the impact of exchange rate policy in both short-and long-run. The estimated results demonstrate that real exchange rate has a significant positive impact on trade balance in the long-run. Thus, currency devaluation has been a significant stimulus for country's exports growth and improvement in current account position. However, the J-curve hypothesis can be explained as the appropriate phenomenon to improve its trade balance in response to exchange rate devaluation. [ABSTRACT FROM AUTHOR]

In this paper, we applied alternative time series techniques and obtained similar summaries of demand for money relations for twelve developing countries. This indicates that adequate attention should be paid to the purpose of research and interpretation of results rather than to econometric techniques. We also find that income elasticities are close to unity for almost all of our sample countries and the interest rate elasticities are well determined and significant. Further, it is shown that demand for money in these countries is temporally stable and therefore the respective monetary authorities may target money supply as opposed to the rate of interest. [ABSTRACT FROM AUTHOR]

Foreign direct investment (FDI) has contributed significantly to the transformation of the Malaysian economy, as reflected by the changing composition of its exports and the rising share of FDI in gross fixed capital formation (GFCF). By the late 1990s, Malaysia ranked third after Singapore and Hong Kong (among the East Asian countries) in terms of attracting FDI. Despite this, studies on the determinants of FDI in Malaysia are scarce. This paper aims to meet this gap through a systematic econometric investigation using the cointegration and error correction model. Results suggest that openness and the quality of labor force have been the influential factors in attracting FDI to Malaysia in the long-run, while in the short-run it is quality of infrastructure that has been instrumental. These findings point to the importance of policy reforms aimed at opening up the economy, and improving the quality of labor force as well as physical infrastructure for attracting foreign investment in developing countries like Malaysia. [ABSTRACT FROM AUTHOR]

Recognizing the significant role that energy plays on growth, the South Asian countries are beginning to focus on their energy issues and formulate common energy policies. The SAARC Energy Center (SEC) was established in 2005 to address energy challenges in the South Asian region. In this paper the authors investigate the presence of cointegration and causality relationships for energy consumption in the three largest SAARC countries: Bangladesh, India, and Pakistan and argue that establishing mutually beneficial energy policies in the three countries helps the SEC meet its goals and objectives. [ABSTRACT FROM AUTHOR]

This paper examines the impact of interest rate reforms on financial deepening and economic growth in Kenya, using two models: the financial deepening model and the dynamic Granger causality model. The study attempts to answer two critical questions: Does interest rate liberalization in Kenya have any positive influence on financial deepening? Does the financial depth which results from interest rate liberalization lead to economic growth? Using cointegration and error-correction models, the study finds strong support for the positive impact of interest rate liberalization on financial deepening in Kenya - although the strength and clarity of its efficacy is sensitive to the level of the dependency ratio. The study also finds financial depth to Granger cause economic growth in Kenya. The study, therefore, concludes that the interest rate liberalization in Kenya has succeeded in increasing economic growth through its influence on financial depth. This applies irrespective of whether the models are estimated in a static long-run formulation (cointegration model) or in the dynamic formulation (error-correction model). [ABSTRACT FROM AUTHOR]

This paper aims to test the relationship between export and economic growth in the Malaysian economy from 1960 to 2005. Combining production function, and international trade and development theories, a five variable model is specified and estimated by using cointegration tests and error correction model. Multivariate cointegration results revealed that there exists a single cointegrating vector in the estimated system. This means that these variables are linked together in achieving their steady state equilibrium in the long run. From the estimation of the specified model, we reported that there is a positive relationship between export and economic growth in the long run and short run at 5 percent significance level in the Malaysian economy. Besides, our results suggest that capital has positive impacts on economic growth in the short-term and long-term but labor has an impact on economic growth only in the long run. For imports, it is proven that it has a negative relationship with economic growth. [ABSTRACT FROM AUTHOR]

This paper studies the dynamics of the Taka-U.S.Dollar exchange rate for Bangladesh by augmenting the Quantity Theory of Money. The standard cointegration methodology (Engle and Granger, 1987) is employed in addition to the ARDL (Autoregressive Distributed Lag) procedure. The ADF and KPSS tests reveal data nonstationarity, but with different orders of integration. As a result, the ARDL procedure is invoked following (Peseran et al., 2001) to search for cointegrating relationship among the variables. On the evidence of cointegration, the vector error- correction model (VECM) is estimated. The negative sign of the coefficient of the error-correction term and its statistical significance in terms of the associated t -value confirm unidirectional causal flow from broad money supply and real GDP to Taka-U.S.Dollar exchange rate and long-run convergence with short-run interactive feedback effects. Furthermore, impulse response analyses are performed for additional visual insights. [ABSTRACT FROM AUTHOR]

Previous studies that investigated the export led growth hypothesis, relied upon Granger or Sims causality detection approach. Since these approaches employ first differenced variables, any inference could be short-run in nature. In this paper we consider the relation between exports and economic growth to be a long-run phenomenon. After applying Johansen's cointegration technique to establish the long-run relationship between exports and output (in presence of other factors), we rely upon weak exogeneity tests proposed by Johansen to establish exogeneity of exports or output. Annual data over 1960-99 period from 61 countries are used for analysis. The results are country specific and there is no uniform pattern. [ABSTRACT FROM AUTHOR]

Using cointegration and error correction mechanism, this paper investigates the effectiveness of aid in Nepal during the period 1983-2002. Specifically, it examines the long-run relationship between aid and per capita real GDP. To address the current debate on whether aid works only in a good policy environment, we have included policy variables for macroeconomic stability, financial sector development and openness in an extended model. The results show that foreign aid has a positive and statistically significant effect on per capita real GDP in the long-run. More importantly, aid effectiveness improves in the presence of good policy environment. [ABSTRACT FROM AUTHOR]