Openness in the Canadian economy: 1870–1988

The causal relation between openness and GDP and between exports and imports are examined. Causality test carried out in growth rates showed that over the period 1870–1988 openness, both narrowly and broadly defined, Granger-causes GDP growth; tests for the inverse causality produced mixed results, validating causality from GDP growth to export plus import growth, but rejecting causlaity from GDP growth to export growth; it was also found that export growth causes import growth, but not the opposite. Causality tests over four subperiods indicated the importance of openness for only the earliest phase of Canadian economic development. While the absence of causality in the later subperiods is largely compatible with the experience of the industrial countries, no meaningful comparison can be made between the experience of Canada and that of developing countries owing to causality variations of openness and to large differences in resource endowments.     

The causal interaction between financial development and human development in Bangladesh

This note investigates the causal relationship between financial development measured as the domestic credit to private sector (% of GDP) and human development measured by the Barro–Lee index in Bangladesh. The bootstrap causality tests with leverage adjustments are implemented in order to avoid any distributional assumption. It is found that human development is causing financial development. However, there is no significant causality running from financial development on human development. The policy implication of these empirical findings is also elaborated.     

The export-output growth nexus in Japan: a bootstrap rolling window approach

The purpose of this article is to examine the export–output nexus in Japan by taking into account the time variation in the causal link with bootstrap Granger non-causality test and rolling estimation. The data used cover the seasonally adjusted real export and real Gross Domestic Product (GDP) for the 1957:1–2009:1 period. Standard Granger causality tests indicate no causality between export and real GDP series. On the contrary, full sample-modified Granger causality tests based on bootstrap, which are applicable irrespective of integration–cointegration properties of the data, indicate a bi-directional causal link between exports and real GDP. Accordingly, export growth should be an important factor behind Japan’s high-economic growth in the last three decades. Using parameter stability tests, we show that these results are not uniform for different sample periods and results vary due to structural changes. Using bootstrap rolling window estimation, we find that there is a positive bi-directional predictive power from the mid 1970s to the late-1980s between the series, while from the late 1990s to 2009 there is a positive predictive power only from export growth to output growth.     

Re-examining the financial development and economic growth nexus in Kenya

This paper re-examines the causal relationship between financial development and economic growth in Kenya for the period 1966–2005 within a quadvariate vector autoregressive (VAR) framework by including exports and imports as additional variables to the finance–economic growth nexus. We use four conventionally accepted proxies for financial development, namely money supply (M2), liquid liabilities (M3), domestic bank credit to the private sector and total domestic credit provided by the banking sector (all percent of GDP). Applying a modified version of the Granger causality test due to Toda and Yamamoto [Toda, H.Y. and Yamamoto, T., Statistical inference in vector autoregressions with possibly integrated process. Journal of Econometrics 1995; 66; 225–250], our empirical results suggest that in three out of the four measures of financial development we found evidence of a two-way Granger causality: (1) between domestic credit provided by the banking sector and economic growth; (2) between total domestic credit provided by the banking sector and economic growth, and (3) between liquid liabilities and economic growth. This implies that neither the supply-leading nor the demand-following hypotheses are supported in Kenya and that economic growth and financial development are jointly determined, or they complement each other. A major implication of our finding is that financial development promotes economic growth in Kenya and that policies at enhancing the development of the financial sector can help to spur economic growth.     

CO2 emissions,economic growth,energy consumption,trade and urbanization in new EU member and candidate countries: A panel data analysis

This paper investigates the causal relationship between energy consumption, carbon dioxide emissions, economic growth, trade openness and urbanization for a panel of new EU member and candidate countries over the period 1992–2010. Panel unit root tests, panel cointegration methods and panel causality tests are used to investigate this relationship. The main results provide evidence supporting the Environmental Kuznets Curve hypothesis. Hence, there is an inverted U-shaped relationship between environment and income for the sampled countries. The results also indicate that there is a short-run unidirectional panel causality running from energy consumption, trade openness and urbanization to carbon emissions, from GDP to energy consumption, from GDP, energy consumption and urbanization to trade openness, from urbanization to GDP, and from urbanization to trade openness. As for the long-run causal relationship, the results indicate that estimated coefficients of lagged error correction term in the carbon dioxide emissions, energy consumption, GDP, and trade openness equations are statistically significant, implying that these four variables could play an important role in adjustment process as the system departs from the long-run equilibrium.     

Financial development and economic growth in Greece: an empirical investigation with Granger causality analysis

This paper empirically examines the causal relationship between the degree of openness of the economy, financial development and economic growth by using a multivariate autoregressive VAR model in Greece for the examined period 1960:I-2000:IV. The results of cointegration analysis suggest that there is one cointegrated vector among GDP, financial development and the degree of openness of the economy. Granger causality tests based on error correction models show that there is a causal relationship between financial development and economic growth, but also between the degree of openness of the economy and economic growth.     

Social security expenditure and GDP in OECD countries: A cointegrated panel analysis

Abstract

Using panel data unit root tests and panel cointegration tests, as well as estimation techniques appropriate for heterogeneous panels such as the full modified OLS, this paper re-examines the long-run co-movement and the causal relationship between GDP and social security expenditure in a bivariate model, employing data on 25 OECD countries from 1980 to 2001. Our cointegration test results show strong evidence in favour of the existence of a long-run equilibrium cointegrating relationship between GDP and social security expenditure after allowing for a heterogeneous country effect. Regarding the panel-based error correction model, we find that GDP and social security expenditure lack short-run causality, but reveal the existence of long-run bidirectional causality. This shows that, in the long run, economic growth must be based on a social welfare policy that should be carried out, and economic growth can facilitate contiguous development in a social welfare policy. Lastly, we also provide evidence to support that social security expenditure can affect growth through the savings and human capital accumulation in OECD countries.     

Revisiting the environmental kuznets curve hypothesis: evidence from the ASEAN-5 countries with structural breaks

This paper tests if the Environmental Kuznets Curve (EKC) hypothesis exists for ASEAN-5 countries in an annual sample data that covers 1971–2013, by utilizing Auto Regressive Distributed Lag (ARDL) methodology. The empirical findings give support for the EKC hypothesis for Thailand only, after considering the structural breaks. Furthermore, the paper tests the EKC hypothesis for a panel data of the ASEAN-5 by adopting the Pooled Mean Group (PMG) methodology. The results show that the long-run estimates provide no evidence for the EKC hypothesis. Finally, the paper examines the causality between the CO₂ emissions and GDP. For individual countries, bidirectional causality was found in the case of Thailand and Malaysia, plus unidirectional causality running from GDP and squared GDP to CO₂ emissions was found for Indonesia, but a unidirectional causality running from CO₂ emissions to GDP and squared GDP was found for the Philippines, however, no causality effect was found for Singapore. Furthermore, the pairwise Dumitrescu and Hurlin Panel Causality test show a bidirectional effect between CO₂ emissions and both GDP in addition to squared GDP.     

A re-examination of financial development,stock markets development and economic growth

This study provides new evidence on the role of financial development and stock market development in accounting for economic growth across geographic regions and income groups. To derive feasible policy implications, we estimate not only unbalanced panel regressions with period fixed effects, but also variance decompositions of annual Gross Domestic Product (GDP) growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth. We find distinct direction, timing and strength of the causal links between financial development, stock market development and economic growth based on the results of Granger causality tests. Therefore, it may be necessary to make different efforts to achieve steady economic growth across geographic regions and income groups.     

Stock market development and real economic activity in Peru

We explore the causal effect of stock market development on real economic activity in Peru by setting up a simple growth model that underpins long-run identifying restrictions for vector autoregressive models. This allows us to identify stock market shocks and to uncover the dynamic response of real output per capita. Using annual time series data for the period 1965–2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics has been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.     

Time-varying linkages between tourism receipts and economic growth in South Africa

The causal link between tourism receipts and GDP has recently become a major focus in the tourism economics literature. Results obtained in recent studies about the causal link appear to be sensitive with respect to the countries analysed, sample period and methodology employed. Considering the sensitivity of the causal link, we use rolling window and time-varying coefficient estimation methods to analyse the parameter stability and Granger causality based on a vector error correction model (VECM). When applied to South Africa for the period 1960–2011, the findings are as follows: results from the full-sample VECM indicate that there is no Granger causality between tourism receipts and GDP, while the findings from the time-varying coefficients model based on the state-space representation show that tourism receipts have positive-predictive content for GDP for the entire period, with the exception of the period between 1985 and 1990. Full-sample time-varying causality tests show bidirectional strong causality between tourism receipts and GDP.     

Testing the relationships between energy consumption and income in G7 countries with nonlinear causality tests

Knowing the real causal links between energy consumption and national income is crucial for policy decision making. In this article, we address this issue for the G7 countries by using two nonlinear causality tests in the sense of Hiemstra and Jones (1994), and Kyrtsou and Labys (2006). Our results reveal some new, but mixed results. Hiemstra–Jones test indicates unidirectional causality running from energy consumption to GDP for the United Kingdom, while a bidirectional causality between energy consumption and GDP is found for Canada, France, Japan and United States. On the other hand, Kyrtsou–Labys test shows that a unidirectional causality runs from energy consumption to GDP for France and the United States, and from GDP to energy consumption for Germany. Overall, our findings suggest that policy implications of the energy-GDP links should be interpreted with caution, given the test-dependent and country-specific results.     

Energy consumption and economic growth in Asian economies: A more comprehensive analysis using panel data

This paper applies the most recently developed panel unit root, heterogeneous panel cointegration and panel-based error correction models to re-investigate co-movement and the causal relationship between energy consumption and real GDP within a multivariate framework that includes capital stock and labor input for 16 Asian countries during the 1971–2002 period. It employs the production side model (aggregate production function). The empirical results fully support a positive long-run cointegrated relationship between real GDP and energy consumption when the heterogeneous country effect is taken into account. It is found that although economic growth and energy consumption lack short-run causality, there is long-run unidirectional causality running from energy consumption to economic growth. This means that reducing energy consumption does not adversely affect GDP in the short-run but would in the long-run; thus, these countries should adopt a more vigorous energy policy. Furthermore, we broaden the investigation by dividing the sample countries into two cross-regional groups, namely the APEC and ASEAN groups, and even more important results and implications emerge.     

Nonlinear dynamics and the exports–output growth nexus

The untested assumption of a linear relationship between exports and output growth in previous empirical investigations may lead to invalid inference if the actual relationship is nonlinear. This paper re-examines the relationship between exports and economic growth in five industrialized economies (Canada, Italy, Japan, UK, and the US) with emphasis on the effect of nonlinearities on the causal relationships. Results from linearity tests show that nonlinearities do exist in the dynamic relationship between exports and GDP growth. Nonlinear smooth transition autoregressive (STAR) model results suggest that nonlinear Granger causality flows from exports to output growth and vice versa. Predictive accuracy tests further confirm the appropriateness of the nonlinear models over the linear model specification.     

Defence spending,economic growth and temporal causality: evidence from Taiwan and mainland China, 1952-1995

This paper uses a cointegration analysis and a vector autoregressive model (VAR) to examine the causal relationship between defence spending and economic growth for Taiwan and Mainland China over the period 1952–1995. It is found that these two variables are not cointegrated for both countries studied. The results of the Granger causality tests suggest bidirectional Granger causality (feedback) between defence spending and economic growth for Taiwan, unidirectional Granger causality running from economic growth to defence spending for Mainland China, and unidirectional Granger causality running from Taiwan's defence spending to Mainland China's defence spending for cross-country studied. These results further indicate that there exists no arms race between two countries from both sides of Taiwan strait. Furthermore, impulse responses and variance decompositions are incorporated into the analysis. The results from the impulse responses and variance decompositions tell a similar story.     

Causal Linkages among the Product Diversification of Exports,Economic Globalization and Economic Growth

This paper examines causal relationships between economic globalization, the three indices for product diversification of exports (Theil index, intensive margin and extensive margin) and economic growth in the unbalanced panel data framework in 139 countries over the period 1970–2010. We also consider the subgroup of the countries related to the income levels and run the panel Granger non‐causality tests for heterogeneous panels. The empirical results indicate that there is a bidirectional causal relationship between economic globalization and economic growth. There is also a significant causal relationship that runs from all three indices for the diversification of exports to economic growth. After implementing various robustness checks, we observe that diversification of exports and economic globalization are positively related with economic growth merely in the upper middle economies.     

Time-varying linkages between tourism receipts and economic growth in a small open economy

The causal link between tourism receipts and GDP has recently become the major focus of some recent studies in tourism economics. Results obtained in these studies about the causal link appear to be sensitive with respect to the countries analyzed, sample period and methodology employed. Considering the sensitivity of the causal link, we use the rolling window and time-varying coefficients estimation methods to analyze the Granger causality based on Vector Error Correction Model (VECM). When applied to Turkey for the 1963–2006 periods, this methodology enables us to overcome differences in the outcome of the tests performed in other studies for tourism receipts and GDP. The findings of this paper are as follows: results from the full sample within the VECM model indicate that there is no Granger causality between the series, while the findings from the time-varying coefficients model based on the state-space model and rolling window technique show that GDP has no predictive power for tourism receipts; however, tourism receipts have a positive–predictive content for GDP following early 1980s.     

The impact of credit rationing on the real sector: a study of the effect of mortgage rates and terms on housing starts

Various studies of the impact of credit rationing on the housing sector have examined its effect on mortgage terms and flows. If credit rationing has a significant effect on the economy, it must affect the real sector, i.e. housing starts. This paper examines the causal relationships between six different variables which describe mortgage rates and terms and single family housing starts. Two different types of tests for economic causality are used. The results indicate that neither credit rationing nor mortgage rates affect housing starts for the period 1963–1980. There is some evidence that housing prices have a causal relationship to housing starts, possibly reflecting speculative motives. On balance, the results are consistent with the rational expectations theory.     

The Intertemporal Causal Dynamics Between Fixed Capital Formation and Economic Growth in The Group-Of-Seven Countries *

The debate between De Long and Summers (1991, 1992) and Blomstrom, Lipsey and Zejan (1996) who reported conflicting results on the relationship between fixed capital formation and economic growth raised doubts on whether changes in a country's capital formation shares in GDP have an influence on its future growth rates. This paper addresses the issue again by examining the causal patterns between the share of fixed investment in GDP and the growth rate of per capital real GDP on an individual country basis, using time series on each of the group-of-seven countries. The empirical results suggest that the causal relationship between these variables may vary significantly across the major industrialized countries that presumably belong to the same growth group. Most importantly, no consistent evidence is found that causality is running in only one direction. Rather, causality between fixed investment and growth seems to have a country-specific nature and may run in either directions.     

Is the tourism–economic growth nexus time-varying? Bootstrap rolling-window causality analysis for the top 10 tourist destinations

This article explores the time-varying causal nexus between tourism development and economic growth for the top 10 tourist destinations in the world, namely China, France, Germany, Italy, Mexico, the Russian Federation, Spain, Turkey, the UK and the United States of America, over the period 1990–2015. To that end, a bootstrap rolling window Granger causality approach based on the modified Granger causality test is used. A new index for tourism activity which combines via principal component analysis the commonly used tourism indicators is also employed. The results of the bootstrap rolling window causality tests reveal that the causal relations between tourism and economic growth vary substantially over time and across countries in terms of both magnitude and direction. It is shown that the causal linkages tend to be more pronounced for a large group of countries following the global financial crisis of 2008. Additionally, Germany, France and China clearly stand out as the countries with the weakest causal nexus, while the UK, Italy and Mexico emerge as the countries that have the strongest causal links. These results have particularly important implications for policymakers.