Khorshed Chowdhury

A structural analysis of external debt and economic growth: some evidence from selected countries in Asia and the Pacific

In an attempt to resolve the existing controversy about the cause and effect relationship between external dept and economic slowdown, Granger causality tests are conducted with data on indebted developing countries of Asia and Pacific. The results of these tests indicate that the Bulow–Rogoff proposition that the external debts of developing countries are a symptom rather than a cause of economic slowdown is rejected. They also indicate that the Dornbush–Krugman proposition that external dept leads to economic slowdown is also rejected. Moreover, a feedback-type relationship is not rejected for two countries. In view of the mixed results, this paper also estimates the nexus of inter-relationship between public and private external dept accumulation, capital accumulation and production within a simultaneous equation system. The estimation results indicate that the full effects of the public and private external depts on GNP are small and of an opposite sign, whereas an increase in the GNP level raises sub...

Capital structure and firm performance in emerging economies: an empirical analysis of Sri Lankan firms

This paper offers an empirical analysis of the impact of capital structure on firm performance in the context of an emerging market—Sri Lanka. The study applies both pooled and panel data regression models for a sample of 155 Sri Lankan-listed firms. The results demonstrate that most of the Sri Lankan firms finance their operations with short-term debt capital as against the long-term debt capital and provide strong evidence that the firm performance is negatively affected by the use of debt capital. The study also finds a significant negative relationship between tangibility and performance indicating inefficient utilization of non-current assets. The negative performance implications associated with over-utilization of short-term debts and the under-utilization non-current assets provide corporate managers with useful policy directions.

Testing financial liberalization hypothesis with ARDL modelling approach

It is a stylised fact that financial ‘repression’ retards economic growth. Hence, financial liberalization is advocated to remove the stranglehold on the economy. Financial liberalization policy argues that deregulation of interest rate would result in a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This examines the financial liberalization hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.

The real exchange rate and the Balassa-Samuelson hypothesis in SAARC countries: an appraisal

This paper empirically tests the Balassa–Samuelson (B-S) productivity bias hypothesis in seven South Asian countries. We use auto regressive distributed lag (ARDL) modelling to develop a dynamic structure of the B-S hypothesis. Using annual data from Penn World Table Version 7.0 and the ‘bounds test’, we found no evidence of the B-S hypothesis in six sampled countries (Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka) and the only exception was Bangladesh. We found that a 1% increase in labour productivity in Bangladesh relative to the US will lead to 2.5% appreciation in the real exchange rate of Bangladesh. The speed of adjustment towards equilibrium was found to be high, with short-run disequilibrium correcting by nearly 25% per annum in Bangladesh. The two endogenously determined structural breaks are found to be negative and statistically significant. These results add new insights to the time-series literature on the B-S hypothesis.

Regional Income Inequality in China

This chapter is concerned with analyzing developments in income inequality in China during the period of its economic reform. An overview of regional income disparity is conducted, focusing upon that between the coastal, central and western provinces, and the key factors behind this. A conceptual framework for measuring income disparity both between and within provinces is presented, and utilizing appropriate data the Theil index is calculated. It is found that income disparities within provinces have declined. However, income disparities between regions and provinces have increased significantly during the period of the 1990s. The government’s policy response to such a widening disparity and its prospects of being successful is discussed.

Growth, foreign investment and trade-openness interactions in ten OECD countries: a panel-VAR approach

This paper investigates statistical relationships between economic growth, foreign direct investment (FDI) and trade openness, using panel-VAR methods in relation to ten significant OECD countries: Austria, Canada, Finland, Iceland, Ireland, Japan, Norway, Spain, Switzerland and the USA, between 1970 and 2010. We find that foreign direct investment, trade openness and economic growth are co-integrated, suggesting the presence of long-run equilibrium relationships between them. Our Granger-causality tests indicate the presence of bidirectional causality linking foreign direct investment to trade openness, with unidirectional causality from foreign direct investment to economic growth, and also from trade openness to economic growth. Significantly, the pattern of causal relationships varies between the countries we studied.

Purchasing power parity puzzle and the Australian dollar real exchange rate

This paper examines mean reversion in the real exchange rate (RER) index of Australia in the presence of structural breaks from 1984 quarter 1 till 2011 quarter 1. Testing for mean reversion in RER is one way of testing the purchasing power parity (PPP) theory of international trade and finance. Mean reversion is examined by using a minimum Lagrange Multiplier unit-root test that allows for breaks in level and trend. We were able to reject the unit-root null hypothesis and find evidence of mean reversion and hence purchasing power parity (PPP). Our finding reverses the results of past studies that failed to prove convergence to PPP in the long-run. The corresponding structural break dates are 1988 quarter 2 and 2002 quarter 4 respectively and these breaks are statistically significant. The break dates mostly correspond to the period of RER instability (1986-1989) and the recovery of the Australian dollar driven by the resources boom (2001-2002).