Muhammad Ahad

Financial Development and Money Demand Function: Cointegration, Causality and Variance Decomposition Analysis for Pakistan

This study has investigated money demand function incorporating financial development, industrial production, income and exchange rate for Pakistan for time span from 1972 to 2012. Bayer–Hanck combined cointegration and Johansen cointegration approaches have been used to test cointegration among variables and vector error correction model (VECM) approach has been applied to explain the direction of causality in the long run and short run. Unit root problem has been tested by augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests. The results indicate that feedback effect is found between financial development and money demand. There is a long-run relationship existing among money demand, financial development, income, industrial production and exchange rate. Financial development is the main factor to determine money demand function in both long run and short run.

An aggregate and disaggregate energy consumption, industrial growth and CO2 emission: Fresh evidence from structural breaks and combined cointegration for China

Purpose This study aims to examine the relationships between aggregated and disaggregated energy use in the industrial sector, carbon emissions and industrial output in China. Design/methodology/approach The study utilizes annual frequency data for the period of 1984-2015. The unit root properties of data are tested using augmented Dickey–Fuller and Phillips and Perron unit root tests. Furthermore, the Zivot–Andrew structural breaks unit root test is used to detect the structural breaks steaming into series. The autoregressive distributed lag bound test and newly developed Bayer–Hanck combined cointegration are used to check the existence of a cointegration relationship between underlying variables. Last, the direction of causality is determined applying vector error correction model (VECM) Granger causality. Findings The results confirm the existence of a long-run relationship in the presence of structural breaks. The authors conclude that aggregated and disaggregated energy consumption in the industrial sector increases CO2 emission in both long and short run. The VECM Granger causality analysis indicates the bidirectional relationships between CO2 emission, industrial growth and aggregated and disaggregated (coal, oil and natural gas) energy consumption. Research limitations/implications Based on the empirical results mentioned above, the study proposes the recommendation that China should focus on the use of natural gas in the industrial sector instead of coal and oil consumption. The most potent reasons for such a transformation are twofold: natural gas is much more environment-friendly, thus being a much lesser polluting source of energy, and, most significantly, such a change would have no adverse impact upon the output level. Originality/value This study contributes to the existing literature on estimating CO2 emission by using aggregated and disaggregated energy consumption in case of China. Notwithstanding, it also adds to the existing applied literature by using newly developed combined cointegration to confirm and substantiate the cointegration relationship between the underlying variables. Moreover, this study incorporates the role of structural breaks while investigating CO2 emission function, which helps in providing more valuable policy suggestions.

A Dynamic Relationship between Financial Development and Import Demand for Bangladesh: An Evidence from Combine Cointegration and Granger Causality Approach

This article has estimated the impact of financial development on import demand over the period of 1986: Q1–2014: Q4 in case of Bangladesh. The long-run relationship between financial development, import demand and economic growth are investigated by combine cointegration. Error Correction Method (ECM) is applied to examine short-run phenomena. The unit root properties of variables are tested by augmented Dickey–Fuller test (ADF) and Philips–Perron (P–P) unit root test. Perron (1997) single structural break unit root test is also applied. The results of Bayer and Hanck (2013) combine cointegration test that reveal the existence of long-run relationship between import demand, financial development and economic growth. Financial development and economic growth have a positive and significant impact on import demand in long run as well as in short run. The lagged value of error correction method (ECMt-1) is –0.08 that is negative and significant. This indicates that change from equilibrium level of import demand is corrected by 8 per cent per quarter in a year. The results of Vector Error Correction Model (VECM) Granger causality explain that bidirectional causality exists between import demand and financial development in long run as well as short run. Similarly, bidirectional causality exists between import demand and economic growth in short run. Policymakers should focus on financial sector development for import of technology through adoption of the import substitution policy.

Oil demand forecasting for China: a fresh evidence from structural time series analysis

The main objective of this study is to investigate the linkages between oil price, oil reserve, economic growth and oil consumption to forecast future oil demand in China. A structural time series technique is used to expose the underline energy demand trend (UEDT) for total oil consumption and transport oil consumption over the period of 1980–2015. In both models, the elasticity of GDP and oil reserve remains positive and significant, while the elasticity of oil price shows negative and significant relationship with oil demand. Moreover, the results suggest that GDP, oil price, oil reserve and UEDT are found to be important drivers for oil demand. Furthermore, UEDT is found to be an increasing trend in total oil consumption as well as for transport oil consumption. It is also predicted that total oil demand will be 9.9 thousand barrels per day by 2025, while transport oil demand will be 9.0 thousand barrels per day by 2020 in China.

Modelling the asymmetric impact of defence spending on economic growth: An evidence from non-linear ARDL and multipliers

Purpose The purpose of this paper is to examine the non-linear impact of defence spending on economic growth for the USA, the UK and Russia by using quarterly frequency from 1992 to 2014. Design/methodology/approach The unit root property is tested by ADF and PP unit root test. Further, BDS test is applied to test the linear independence. To verify the results of BDS test, we apply short and long-run symmetry test. The cointegration non-linear relationship is examined by NARDL approach. Further, Multipliers predict the speed of adjustments by considering the nonlinearity. Findings The short and long-run symmetry test confirms the existence of asymmetry in all countries. Further, asymmetric cointegration is confirmed through Wald statistics of Pesaran and Banerjee for all countries. The long-run asymmetric coefficient predicts negative and significant impact of defence spending on economic growth for the USA and the UK, but, these impacts were positive and significant in the case of Russia. The multiplier effect of defence spending on economic growth confirms the findings of NARDL model. Originality/value This study contributes in existing literature by applying newly developed non-linear ARDL approach, including a Wald test for long and short-run symmetry, asymmetric cointegration and asymmetric long run parameters in case of the USA, the UK and Russia.

Financial Development and Estimation of Import Demand Function in Pakistan: Evidence from Combined Cointegration and Causality Tests

This article explores the relationship between financial development and imports focusing on economic growth and import prices as potential contributors to this relationship. We have applied combined cointegration and causality tests using multivariate model for long-run and augmented Dickey–Fuller (ADF) as well as Phillips–Perron (PP) unit root to test the order of integration of the variables. The empirical evidence confirms the presence of a long-run relationship among the series. Financial development increases imports demand. Economic growth and imports prices decrease imports consumption. Imports are negatively affected by relative prices.