Emmanuel Anoruo

Current account and fiscal deficits: Evidence from five developing economies of Asia

The persistent and coinciding fiscal and external trade deficits have been in the economic spotlight largely because of its important policy implications concerning the long-term viability of economic progress. Most studies on the subject have focused attention on the relationship between the two deficits in developed countries such as the United States. The present study, in contrast, uses multi-variate time series analysis to extend the “twin deficits” debate to five developing Southeast Asian economies—namely, India, Indonesia, Korea, Malaysia and the Philippines. The discussion is especially relevant given the backdrop of the current economic crisis that is engulfing many Asian economies, and the plausibility that there could be wide disparities in the macroeconomic dynamics governing fiscal and current deficits between developing and developed economies. Specifically, Granger causality test based on a vector autoregressive (VAR) model is utilized to underpin the direction of causality between the two deficit series. Contrary to most findings in the literature, this study finds trade deficits to cause fiscal deficits and not vice versa. A case for increased government spending in response to the domestic hardships caused by a worsening of trade balance is made. Furthermore, the study identifies several other macroeconomic variables that jointly influence the twin deficits, thus highlighting some degree of commonality in the twin deficit nexus. A number of policy implications are derived.

Causal Relationship between Domestic Savings and Economic Growth: Evidence from Seven African Countries

This paper utilizes cointegration and the vector error-correction model (VECM) to explore the causal relationship between economic growth and growth rate of domestic savings for Congo, Cote d’Ivoire, Ghana, Kenya, South Africa, and Zambia. Specifically, three analyses were undertaken. First, the time series properties of economic growth and domestic savings were ascertained with the help of the augmented Dickey–Fuller unit root procedure. Second, the long-run relationship between economic growth and growth rate of domestic savings was examined in the context of the Johansen and Juselius (1990) framework. Finally, a Granger-causality test was undertaken to determine the direction of causality between economic growth and growth rate of domestic savings. The results indicate one order of integration [I(1)] for each of the series. The results of the cointegration tests suggest that there is a long-run relationship between economic growth and growth rate of savings. The results from the Granger-causality tests indicate that contrary to the conventional wisdom, economic growth prima facie causes growth rate of domestic savings for most of the countries under consideration.

International linkage of interest rates: Evidence from the emerging economies of Asia

Abstract This article employs monthly short-term interest rate data over the 1980–1999 period to investigate the intermarket interest rate linkages across seven newly industrialized markets in Asia, and the influence that Japan and the US exert on interest rates in the region. In an attempt to isolate the impact of the liberalization process from the Asian financial crisis on interest rate transmission mechanisms, the sample period is broken down into two equally divided subperiods (1980 through 1989 and 1990 through 1999). The results from the study indicate that (a) the national short-term interest rate nexus is inherently a steady-state, long-run phenomenon, in that they are found to be cointegrated; (b) there is a pronounced increase in the cross-country interest rate linkages during the 1990s; (c) Hong Kong and Singapore play an important, but not dominant, role in the Asian region, and serve to integrate the regional economies and mediate the short-run linkages between the regional and the world financial markets; and (d) while Japan played an influential role during the 1980s, the US supplants Japans role during the 1990s. Several policy implications are derived.

GDP per capita and its challengers as measures of happiness

Purpose – The paper attempts to empirically assess whether GDP per capita or the human capital index is a better measure of happiness. Design/methodology/approach – Cross-country regressions are run to see how GDP per capita fairs in comparison to the human capital index in explaining happiness based on survey questionnaires. Findings – The paper finds that GDP per capita accounts for a far greater share of the cross country variation in happiness based on survey data than the human capita index and assorted other measures of human welfare. Practical implications – The important implication is that the often heard criticism that GDP per capita is inappropriate for use in economic analysis, especially in the area of economic development and other international fields, because it is not specifically designed as a measure of welfare, may be unfounded. Originality/value – The paper shows that GDP per capita is a better measure of happiness defined in surveys than the human capital index.

Government size, public debt and real economic growth: a panel analysis

Purpose – The purpose of this paper is to examine the impact of the size of government and public debt on real economic growth, for a panel of 175 countries around the world. Design/methodology/approach – The paper utilizes the fixed-effects and random-effects techniques to estimate the panel regressions. Findings – The results indicate that both the size of government and the extent of government indebtedness have negative effects on economic growth. Practical implications – The findings suggest that the authorities ought to take the necessary steps to curtail excessive government spending and public debts, in order to promote economic growth. Originality/value – The contribution of the paper is its application of the fixed- and random-effects techniques in modeling the relation of real economic growth to the size of government and public debt, for a panel of 175 countries around the world.

The Effect of the Size of the Military on Stock Market Performance in the United States and the UK

This paper uses regression analysis to investigate the relationship between military expenditure and stock market performance for the United States and the United Kingdom. Specifically, the study applies the Bierens-Guo unit root procedures to ascertain the time series properties of the variables in the study. The standard OLS technique is employed to determine the influence of military expenditure on stock markets for the period 1914 through 2001. The results from the unit root tests indicate that the military expenditure, military personnel, stock market, and energy consumption series are level stationary. The results from the OLS equations suggest that military expenditure has significantly positive effect on stock market performance for the United States and the United Kingdom. The implication of this finding is that high-income class and people in power are less likely to oppose increases in military spending even though such expenditures are not in the best interest of the society.

Nonlinearity and the Unit Root Hypothesis for African Per Capita Real GDP

Abstract Once described as an epic center of growth tragedy, African nations have lately achieved relatively rapid growth rates, which have raised hopes that the continent is finally on the path to economic convergence with other emerging economies. However, there is a need to establish whether stabilization policies for the purpose of enhancing the GDP are effective in African countries. One of the means of examining the effectiveness of these policies is through the investigation of the unit root properties of per capita GDP in the continent. This study aims to add to the existing papers on GDP in African countries by investigating the non-stationarity of per capita GDP in 52 African countries, while using a newly proposed nonlinear unit root test. The results suggest that per capita GDP follows the non-stationarity process in half of the entire sample.

Return Dynamics Across the Asian Equity Markets

The degree of integration among different economies is an important issue in international economics and finance. This article employs daily stock market data for the period 1988 through 1999 to investigate the return dynamics and the extent of the stock market linkages across six newly industrialized countries (NIC’s) of Asia, and documents the role of Japan and the US in this region. Primarily, the study finds that there are significant stock market linkages among the emerging equity markets of Hong Kong, India, Korea, Malaysia, Singapore and Thailand. While dominant relationships do exist, no country is totally insulated from market movements that emanate from other countries in the region. Furthermore, the study documents the presence of temporal instability in the transmission mechanism that coincides with the Asian economic crisis. During the period in which the NIC’s experienced rapidly rising stock valuations, Singapore and the US had dominant causal influences on these Asian markets. However, in the period of financial crisis during the latter part of the 1990s decade, Singapore’s influence is greatly diminished while shocks from other countries, most notably India, play a more dominant role. Several important policy implications are derived from the results.

Cross-Border Linkages among Asian Closed-End Funds

This study investigates the behavior of nine Asian closed-end country funds traded on the NYSE over the period 1990–2001. The results indicate that fund discounts follow a mean-reverting process and, furthermore, display various cross-border patterns of influence that are contingent on the period examined. Notably, for the overall period, the Korean Fund exhibits the strongest market leadership. However, in the period following the Asian financial crisis, movements in the Thai Funds discount have the strongest influence on, and responsiveness from, the other country funds.

The world distribution of military spending: is there a convergence?

This paper examines the issue of convergence in military spending among NATO countries. In particular, the paper employs the sequential panel selection method (SPSM) to ascertain whether the military spending of NATO countries has converged relative to that of the USA. The results from the SPSM for both the full- and sub-periods indicate that military spending of NATO countries, with the exception of Hungary, have converged to that of the USA. The results show that the number of NATO countries whose military spending converged relative to that of the USA did not change following the collapse of the Soviet Union. The overall finding of this study contradicts the alliance theory which stipulates that alliances tend to weaken or dissolve following the elimination of the unifying threat.