International R&D Spillovers: An Application of Estimation and Inference in Panel Cointegration

In this paper, we apply the asymptotic theory of panel cointegration developed by Kao and Chiang (1998) to Coe and Helpman's (1995) international R&D spillovers regression. The OLS with bias-correction, the fully-modified (FM) and the dynamic OLS (DOLS) estimations produce different predictions about the impact of foreign R&D on total factor productivity (TFP) although all the estimations support the result that domestic R&D is related to TFP.     

Impact of financial development on SAARC’S human development

The objective of the study is to investigate the link between economic growth and financial development (i.e., broad money supply, credit to private sector (CPS) and bank deposit liabilities) in human development for a panel of selected South Asian Association for Regional Cooperation (SAARC) countries; namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka during 1988–2008; over the period of 1988–2008. The panel cointegration technique is employed for analysis of short and long-run relationship between the variables. The results of panel cointegration found that there is a long-run relationship between financial development indicators and economic growth in human development in SAARC region. The estimated results indicate that in the short run, bank deposit liabilities exerts the maximum impact (i.e., 0.425 %) on human development in SAARC region, subsequently, broad money supply (i.e., 0.301 %) and CPS (i.e., 0.128 %) respectively, while there is a negative relationship between real GDP growth and human capital (i.e., \(-\) 0.189 %). In the long-run, DOLS estimator constitutes broad money supply which increases by 0.912 %, followed by credit to private sector (i.e., 0.121 %) on human development. While, in case of FMOLS estimator, these results are disappear, as broad money supply does not have any significant impact on human development in SAARC region. The coefficient of real GDP per capita in both estimators, have a negative impact on human development, however, the intensity of both estimators are different in nature, as real GDP per capita decrease human development in FMOLS (i.e., \(-\) 0.828 %) and in DOLS estimators (i.e., 0.458 %). The results indicate that due to a low quality of human capital in SAARC region; the direct effect of economic growth becomes negative; however, financial development indicators act as an important driver for increase in human capital in SAARC region. The implications of present research relate to heightening the need for labor market reforms and making the educational system more flexible.     

Remittances and economic growth in Africa, Asia, and Latin American-Caribbean countries: a panel unit root and panel cointegration analysis

This study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985–2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three in study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed.     

Capital market integration in ASEAN: A non-stationary panel data analysis

Motivated by the establishment of ASEAN Economic Community (AEC) at the end of 2015, we examine saving-investment relationship in various subgroups of ASEAN to assess their capital market integration. The results from second generation panel unit-root and cointegration tests that account for cross-sectional dependence as well as estimates of long-run saving-retention rate provide some evidence of market integration in ASEAN. The analysis of short-run dynamics suggests that capital mobility in ASEAN during 1980–2014 appears similar to that in OECD countries during 1970–1999. More importantly, across different panel estimators and subgroups of membership, there is considerable heterogeneity among the member countries. The saving-investment association is very weak, thereby implying very high capital mobility, in more developed members such as Singapore, Malaysia, and Brunei; the association is very strong, implying very low capital mobility, for much less developed members such as Laos, Myanmar, and Cambodia. The results call for renewed effort to develop capital markets in less developed nations and integrate them with the rest of the membership in ASEAN. In this paper, we also address several major shortcomings of the original Feldstein-Horioka framework.     

Is infrastructure capital productive? A dynamic heterogeneous approach

This paper offers an evaluation of the output contribution of infrastructure. Using a panel time series approach and a large cross‐country dataset, the paper estimates a long‐run aggregate production function relating gross domestic product to human capital, physical capital, and a synthetic measure of infrastructure comprising transport, power and telecommunications. Tests of the cointegration rank allowing it to vary across countries reveal a common rank with a single cointegrating vector, which we interpret as the long‐run production function. Estimation of its parameters is performed using the pooled mean group (PMG) estimator, which allows for unrestricted short‐run parameter heterogeneity across countries while imposing the (testable) restriction of long‐run parameter homogeneity. The long‐run elasticity of output with respect to the synthetic infrastructure index ranges between 0.07 and 0.10. The estimates are highly significant, both statistically and economically, and robust to alternative dynamic specifications and infrastructure measures. Tests of parameter homogeneity fail to yield evidence that the long‐run parameters differ across countries. Copyright © 2014 John Wiley & Sons, Ltd.     

On the robustness of R&D

Alternative models of productivity predict a range of its determinants besides that of research and development (R&D). We investigate the robustness of R&D vis-à-vis a dozen productivity determinants in a panel of 16 Organisation for Economic Co-operation and Development countries through panel cointegration, bootstrap simulations and extensive sensitivity tests. Domestic knowledge stocks, international knowledge diffusion and human capital remain robust across all measures. The cross-country differences in accumulated knowledge stocks and human capital appear to explain productivity differences across countries.     

Savings and investment rates in Latin America: An error correction analysis

Using savings and investment rates from fifteen Latin and Central American countries, this study explores the possibility of a long-run relationship between saving and investment. The analysis consists of regressions unit root tests, and an error correction model developed by Jansen and Schulze (1996) and Jansen (1996). Of the 15 countries, there is evidence to substantiate capital mobility in 13 countries. For Chile and Uruguay, countries that have experienced considerable capital controls, evidence indicates the lack of capital mobility for these two countries.     

Savings and investments in the OECD, 1970–2007: A test of panel cointegration with regime changes

In this paper we test for the existence of a long-run relationship between investment and savings (the Feldstein–Horioka puzzle) in a panel of 18 OECD countries, 1970–2007, allowing for heterogenous breaks in the coefficients. For this purpose we develop a bootstrap panel cointegration with breaks robust to cross-section dependence, shown by simulation to enjoy good size and power properties provided that some care is applied in its use. The tests suggest that, even allowing for parameter shifts in the countries where capital control regulations changed in the sample period, there is no evidence of an investment–savings long-run relationship for the panel as a whole.     

The Feldstein–Horioka puzzle in Latin American and Caribbean countries: a panel cointegration analysis

In this paper, the recently developed panel unit root and the Pedroni cointegration tests are applied to empirically examine the validity of the Feldstein–Horioka puzzle (F–H puzzle) for a heterogeneous panel of 14 Latin American and five Caribbean countries over the period, 1960–2002. The findings indicate that in these countries, the long-run solvency condition is maintained. Finally, employing the Pedroni panel group FM-OLS estimator (2000, 2001), it is found that the statistically significant estimated savings-retention coefficient for the panel is relatively small indicating that the F–H Puzzle is not valid and thus implying the prevalence of a moderate degree of capital mobility.

Globalization and insurance activity: Evidence on the industrial and emerging countries

This study applies panel cointegration with cross-country dependence and causality tests to uncover the extent and the magnitude of the relationship between insurance penetration and globalization. The results first confirm evidence of the long-run relationship between insurance market activities and globalization. Second, we find positive impacts of all three globalization indices on life and non-life insurance penetrations, and globalization has a larger impact on insurance market activities in the industrial countries than in the emerging countries. Finally, the results of panel causality tests roughly show bidirectional causality between insurance market activities and globalization in the long run.     

To what extent are public savings offset by private savings in the OECD?

The substitutability of private and public savings has implications for the effectiveness of fiscal policy. Using annual data for the period 1970–2004, this study re-examines long-run relationships between OECD private and public savings rates. However, unlike previous work, panel data unit root and cointegration tests are employed. The results confirm substitutability where strong Ricardian Equivalence is rejected for the entire OECD panel. There is support for weak Ricardian Equivalence with less than perfect substitutability. Indeed, it is argued that existing studies most likely overstate the extent of long-run substitutability particularly with regard to EU countries. I am very grateful for the helpful comments provided by the Editor and an anonymous referee. Any remaining errors are my own.     

Panel cointegration tests of the Fisher effect

Most empirical evidence suggests that the Fisher effect, stating that inflation and nominal interest rates should cointegrate with a unit slope on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be attributed in part to the low power of univariate tests, and that the use of panel data can generate more powerful tests. For this purpose, we propose two new panel cointegration tests that can be applied under very general conditions, and that are shown by simulation to be more powerful than other existing tests. These tests are applied to a panel of quarterly data covering 20 OECD countries between 1980 and 2004. The evidence suggest that the Fisher effect cannot be rejected once the panel evidence on cointegration has been taken into account. Copyright © 2007 John Wiley & Sons, Ltd.     

Cointegration Vector Estimation by Panel DOLS and Long‐run Money Demand*

We study the panel dynamic ordinary least square (DOLS) estimator of a homogeneous cointegration vector for a balanced panel of N individuals observed over T time periods. Allowable heterogeneity across individuals include individual‐specific time trends, individual‐specific fixed effects and time‐specific effects. The estimator is fully parametric, computationally convenient, and more precise than the single equation estimator. For fixed N as T→∞, the estimator converges to a function of Brownian motions and the Wald statistic for testing a set of s linear constraints has a limiting χ²(s) distribution. The estimator also has a Gaussian sequential limit distribution that is obtained first by letting T→∞ and then letting N→∞. In a series of Monte‐Carlo experiments, we find that the asymptotic distribution theory provides a reasonably close approximation to the exact finite sample distribution. We use panel DOLS to estimate coefficients of the long‐run money demand function from a panel of 19 countries with annual observations that span from 1957 to 1996. The estimated income elasticity is 1.08 (asymptotic s.e. = 0.26) and the estimated interest rate semi‐elasticity is ?0.02 (asymptotic s.e. = 0.01).     

A Long-Term Analysis of Regional Housing Markets and Inflation

This paper reexamines the relationship between inflation and residential property over a 30-year period. Using conventional OLS models and cointegration and causality models we examine regional markets in the United Kingdom. The OLS tests provide little evidence of a consistent and stable relationship, with large variations in the results between different regions. The cointegration results, and in particular those obtained using the Engle-Granger procedure, provide strong evidence to support the hypothesis that housing and inflation are cointegrated. Additionally, the causality results provide strong evidence to support the hypothesis that housing leads inflation.     

基于结构突变和截面相关的面板协整检验

本文基于Westerlund和Edgerton（2008）,考虑了无时间趋势和有时间趋势的面板协整检验。在检验协整时,本文不仅允许误差项存在异方差、序列相关以及截面相关,而且还允许各截面在截距和协整斜率上存在未知时点的多个突变点。蒙特卡洛模拟结果表明,（1）该检验的具有较小的水平扭曲和较高的检验势,（2）将模型拓展到不含有趋势项的情形是必要的。在此基础上,使用基于动态最小二乘估计量的新统计量对国际CO2排放和经济增长关系进行检验,发现在考虑了突变和截面相关的情形下,两者间的长期均衡关系确实存在。     

The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy

Abstract

The purpose of this paper is twofold. First, we provide a discussion of the problems associated with endogeneity in empirical accounting research. We emphasize problems arising when endogeneity is caused by (1) unobservable firm-specific factors and (2) omitted variables, and discuss the merits and drawbacks of using panel data techniques to address these causes. Second, we investigate the magnitude of endogeneity bias in Ordinary Least Squares (OLS) regressions of cost-of-debt capital on firm disclosure policy. We document how including a set of variables which theory suggests to be related with both cost-of-debt capital and disclosure and using fixed effects estimation in a panel data-set reduces the endogeneity bias and produces consistent results. This analysis reveals that the effect of disclosure policy on cost-of-debt capital is 200% higher than what is found in OLS estimation. Finally, we provide direct evidence that disclosure is impacted by unobservable firm-specific factors that are also correlated with cost of capital.     

面板协整检验有限样本性质的模拟比较

面板协整检验是基于渐近分布的检验,有限样本下统计量的检验水平和检验功效的表现涉及检验的可靠性。本文针对目前实证研究中应用最广的一类基于残差的统计量及文献中最新提出的基于准残差的统计量进行蒙特卡罗模拟,比较10个检验统计量在不同DGP设定下的检验水平和检验功效,尤其是在DGP误设时的表现。模拟结果表明:基于准残差的面板协整检验大多数情况下有着更好的检验水平和检验功效表现。这一研究为解决实证中面临的统计量可靠性甄别与选择问题提供了依据。     

Testing for Error Correction in Panel Data*

This paper proposes new error correction‐based cointegration tests for panel data. The limiting distributions of the tests are derived and critical values provided. Our simulation results suggest that the tests have good small‐sample properties with small size distortions and high power relative to other popular residual‐based panel cointegration tests. In our empirical application, we present evidence suggesting that international healthcare expenditures and GDP are cointegrated once the possibility of an invalid common factor restriction has been accounted for.     

Capital mobility, foreign aid, and openness: further panel data evidence from sub-Saharan Africa

This study uses several alternative panel data estimation techniques (pooled ordinary least squares, fixed effects, and random effects) to examine the effect of domestic savings, foreign aid, the evolution of capital mobility over time, and openness on investment rates for a sample of 29 sub-Saharan African countries over the time period 1980 to 2001. The empirical evidence suggests the presence of capital mobility in line with previous studies of developing economies and that capital mobility has gradually increased over time. Moreover, foreign aid and openness both have positive and significant impacts on investment rates.     

Raising the bar (8)

This editorial summarizes the papers published in issue 13(3) so as to raise the bar in applied spatial economic research and highlight new trends. The first paper challenges the home market hypothesis that large countries host more firms relative to their size than small countries by considering the lobbying activities of multinational firms. The second paper analyzes the implications of a spatial weight matrix used to estimate a spatial econometric model that depends on an endogenous economic variable. By adding a spatial context, the third paper provides a novel contribution to the literature on international norms in de facto measures of human rights performance. The fourth paper examines the determinants of accepting informal work in Poland. The fifth paper deals with non-stationarity and cointegration in a dynamic spatial econometric panel data model when the number of observations in the time – rather than in the cross-sectional– domain tends to infinity.