This document analyzes the relationship between foreign aid, domestic savings, and economic growth in developing countries using panel cointegration techniques. It examines data from five African countries over 1965-2000. The key findings are:
1) Foreign aid and domestic savings are found to cointegrate with economic growth in a panel perspective, suggesting they have a long-run relationship.
2) The results reveal that both foreign aid and domestic savings enhance economic growth for all countries in the sample.
3) This study improves upon previous research by using panel cointegration techniques that allow for multiple cointegrating vectors, relaxing the assumptions of a unique cointegrating vector and problems of normalization. It provides further evidence that foreign aid and
The document is a term project analyzing the health of U.S. household consumer finances using data from the 2007 Survey of Consumer Finances. It examines household income, net worth, assets, and debt. The analysis finds that median income increased while mean income decreased, indicating a wider income distribution. Income is influenced by factors like age, education, and race. Those with college degrees earn much more than those with only high school diplomas. White households earn almost double what non-white or Hispanic households earn. The analysis also looks at different types of household debt like housing debt, education debt, and credit card balances.
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
Disparity in growth rates among countriesSparsh Banga
The document analyzes convergence between countries using GDP data from 1995-2014 for 30 countries grouped into developed, developing, and least developed. Section 1 finds the growth rates for each country over time. Section 2 calculates the coefficient of variation to measure sigma convergence, regressing it on time. Section 3 measures beta convergence by regressing countries' growth rates on their initial GDP, testing if poorer countries grew faster. The results show developing countries like India and China grew around 10-15%, least developed countries around 8-17%, and developed countries around 3-5%, indicating some degree of conditional convergence between income groups.
The document analyzes economic performance during the 2008-2009 global financial crisis across different regions and countries. It finds that while growth rates declined worldwide, output actually declined and turned negative on average only in advanced economies and Central and Eastern European countries. Other regions like Asia, Latin America and Africa saw similar or higher growth rates compared to pre-crisis periods. The crisis most severely impacted advanced nations, decreasing their share of global GDP, while Asia increased its share. The document emphasizes looking at changes in income levels rather than just growth rates to better assess crisis impacts on welfare.
Sustainable Local Government Expenditure Ardi Novra
This document summarizes a study on the impact of local government expenditures (LGEs) on human resources on economic, social, and environmental aspects in regions surrounding Kerinci Seblat National Park in Indonesia. The study finds that increasing human resources allocations without restructuring other LGE sectors does not lead to sustainable development. However, reallocating funds from routine expenditures to development expenditures, including increases to human resources, transportation, and regional development, can achieve social and economic progress while reducing environmental degradation over time. The optimal LGE structure balances ratios between routine and development expenditures across priority sectors to meet regional sustainable development targets.
Study on Probability Distribution of Disaster Losses, Demographics and Social...Global Risk Forum GRFDavos
6th International Disaster and Risk Conference IDRC 2016 Integrative Risk Management - Towards Resilient Cities. 28 August - 01 September 2016 in Davos, Switzerland
The paper is concerned with the relationship between outward foreign direct investment (FDI) and domestic investment in Finland during the post-depression years of low domestic investment activity. The relationship is analysed by the use of macroeconomic data on the period from 1965 till 2006 and through the estimation of dynamic investment equations which are based on the macroeconomic framework employed by Feldstein (1994). According to the results, outward FDI decreased domestic investment activity. The relationship is a one-to-one -trade-off: one euro abroad decreases domestic investment by one euro in the long run. This result is in conformity with the results which Feldstein obtained by utilizing data on 15–18 OECD countries. The strong growth of outward FDI can therefore be regarded as the major cause of low investment activity in Finland.
The document is a term project analyzing the health of U.S. household consumer finances using data from the 2007 Survey of Consumer Finances. It examines household income, net worth, assets, and debt. The analysis finds that median income increased while mean income decreased, indicating a wider income distribution. Income is influenced by factors like age, education, and race. Those with college degrees earn much more than those with only high school diplomas. White households earn almost double what non-white or Hispanic households earn. The analysis also looks at different types of household debt like housing debt, education debt, and credit card balances.
This paper presents new evidence on intergenerational mobility in the top of the income and earnings distribution. Using a large dataset of matched father-son pairs in Sweden, we find that intergenerational transmission is very strong in the top, more so for income than for earnings. In the extreme top (top 0.1 percent) income transmission is remarkable with an IG elasticity above 0.9. We also study potential transmission mechanisms and find that sons’ IQ, non-cognitive skills and education are all unlikely channels in explaining this strong transmission. Within the top percentile, increases in fathers’ income are, if anything, negatively associated with these variables. Wealth, on the other hand, has a significantly positive association. Our results suggest that Sweden, known for having relatively high intergenerational mobility in general, is a society where transmission remains strong in the very top of the distribution and that wealth is the most likely channel.
Disparity in growth rates among countriesSparsh Banga
The document analyzes convergence between countries using GDP data from 1995-2014 for 30 countries grouped into developed, developing, and least developed. Section 1 finds the growth rates for each country over time. Section 2 calculates the coefficient of variation to measure sigma convergence, regressing it on time. Section 3 measures beta convergence by regressing countries' growth rates on their initial GDP, testing if poorer countries grew faster. The results show developing countries like India and China grew around 10-15%, least developed countries around 8-17%, and developed countries around 3-5%, indicating some degree of conditional convergence between income groups.
The document analyzes economic performance during the 2008-2009 global financial crisis across different regions and countries. It finds that while growth rates declined worldwide, output actually declined and turned negative on average only in advanced economies and Central and Eastern European countries. Other regions like Asia, Latin America and Africa saw similar or higher growth rates compared to pre-crisis periods. The crisis most severely impacted advanced nations, decreasing their share of global GDP, while Asia increased its share. The document emphasizes looking at changes in income levels rather than just growth rates to better assess crisis impacts on welfare.
Sustainable Local Government Expenditure Ardi Novra
This document summarizes a study on the impact of local government expenditures (LGEs) on human resources on economic, social, and environmental aspects in regions surrounding Kerinci Seblat National Park in Indonesia. The study finds that increasing human resources allocations without restructuring other LGE sectors does not lead to sustainable development. However, reallocating funds from routine expenditures to development expenditures, including increases to human resources, transportation, and regional development, can achieve social and economic progress while reducing environmental degradation over time. The optimal LGE structure balances ratios between routine and development expenditures across priority sectors to meet regional sustainable development targets.
Study on Probability Distribution of Disaster Losses, Demographics and Social...Global Risk Forum GRFDavos
6th International Disaster and Risk Conference IDRC 2016 Integrative Risk Management - Towards Resilient Cities. 28 August - 01 September 2016 in Davos, Switzerland
The paper is concerned with the relationship between outward foreign direct investment (FDI) and domestic investment in Finland during the post-depression years of low domestic investment activity. The relationship is analysed by the use of macroeconomic data on the period from 1965 till 2006 and through the estimation of dynamic investment equations which are based on the macroeconomic framework employed by Feldstein (1994). According to the results, outward FDI decreased domestic investment activity. The relationship is a one-to-one -trade-off: one euro abroad decreases domestic investment by one euro in the long run. This result is in conformity with the results which Feldstein obtained by utilizing data on 15–18 OECD countries. The strong growth of outward FDI can therefore be regarded as the major cause of low investment activity in Finland.
This document summarizes a research paper analyzing home bias in mutual fund investment strategies. It studied 30 randomly selected mutual funds across the US. It found that 73% exhibited home bias by overweighting industries prominent in their home state, and these funds achieved higher 7.45% average returns versus 4.95% for funds without home bias. Funds that invested most heavily in their home state's largest industry achieved the highest 9.04% returns. Smaller state economies showed weaker home bias and influence of local industries. The study provides evidence that home bias can be a profitable investment strategy for mutual funds.
The object of this study is to compare the economic structure through the intersectoral structure of the two economies, Vietnam and China. This research shows differences in levels of economic structure and induced impacts on output, value added, import, energy requirement and emissions of dioxin carbon in producing a final product unit. It also gives an overall picture of economy to help policy makers to make the best decisions for the economy and the environment. we find that on the surface, it seems that the economic structure of Vietnam and China have a lot of similarities, but when looking deeper into the economy, it shows diference between two economies, the economic structure of China has intersectoral linkage indexs better than these indexs of Vietnam, but Manufacturing industry in China has a high level of CO2 emission, which shows that the current technology cannot suffice for waste disposal. It also recommends that the countries attracting FDI from China should have a strict check for waste treatment.
A collection came from many sources based on my curiosity - synthesis all of information together with my personal awareness of future crisis. After having heard that China took a major shared of Toulouse Airport - located in the south of France, and many development came across the continents in the same time of economic crisis in Europe and many parts of the world, this is what I curiosly taking my time seeing what was the past performances made by this country. Thanks to many people doing their hard work providing interesting report and articles that I've never forgot to credit to each text and images. Bonne Lecture!
This document summarizes research on economic convergence and growth. It reviews a core article by Barro and Sala-i-Martin that found evidence of convergence across U.S. states, with poorer states growing faster than richer ones. The document also reviews several other studies on factors influencing convergence and growth, such as policies, technology diffusion, education levels, and trade liberalization. Many findings support the idea that convergence exists, though some studies also found evidence of increasing divergence among certain countries or regions.
An Ethnographic Investigation of Indigenous Management Thoughts and Practices...AJSSMTJournal
The application of Western management theories and philosophies in African societies have
been called to question by scholars, thus igniting calls for management principles and practices that reflect the
contextual nuances and environmental challenges of Africa. This paper examined the indigenous traditional
practices of Ido people of Kalabari, an Ijaw tribe in Rivers State, Nigeria, with a view to identifying the precolonial management thoughts and practices embedded in them. This is an ethnographic study which adopted
interviews, group discussion and observation as sources of data collection. Adopting the judgemental
sampling technique, 15 critical stakeholders of Ido Community – six males and nine females participated in the
interview and focused group sessions while the researchers lived as participant observers in the community to
identify the prevailing management practices and their underlying philosophy. The results of the study indicate
that the Ido people were already utilising indigenous management principles and practices before the advent
of colonialism. It was concluded that there is urgent need for more investigations into the traditional practices
of Africa and other developing economies to discover indigenous management theories and practices of these
geographies that will take cognizance of their contextual nuances and environmental peculiarities in order to
proffer solutions to their peculiar challenges.
This document provides an introduction to a publication summarizing the results of a survey of practices for estimating non-observed economic activities (NOE) in national accounts across 43 countries. The survey aimed to update previous inventories, increase country coverage, and allow for comparison of estimation methods and difficulties. Countries provided estimates of NOE's size in GDP and details on estimation methods. The goals were to present practices at different development stages, enable comparison of approaches, and serve as a reference for comprehensive GDP estimates.
Dykstra, K 2016, Cross-market correlation coefficient analysis of contagion d...Kim Knott
This document summarizes a report that analyzes cross-market correlation between Australia, Canada, Japan, and the UK with the US during the 2008 Global Financial Crisis. The report applies the cross-market correlation coefficient method to determine if contagion was present. It finds that correlation increased between the US and each case nation during the crisis, with Japan and the UK most impacted. While correlation rose, the effect was short-lived and did not decrease the effectiveness of international diversification overall. The report contributes to literature on measuring contagion and can inform government, monetary, and investor decisions regarding crisis response and portfolio diversification.
This document summarizes previous research on the relationship between foreign direct investment (FDI) and economic growth. Several studies have found that FDI positively correlates with growth only if the host country meets a minimum human capital threshold. This paper aims to build a theoretical framework incorporating this threshold and analyze potential policy actions. It reviews literature establishing the human capital threshold finding and discusses studies examining FDI's effects through technology spillovers and productivity/capital growth channels. The paper will develop a model based on Borensztein, De Greggario, and Lee's (1998) work and analyze how taxing foreign firms or subsidizing human capital formation could impact growth rates.
We apply Feldstein's (1997, 1999) analysis of the interactions between the tax system and inflation to two transition economies: Poland and Ukraine. We find that the taxrelated costs of inflation in these countries are significantly smaller than in mature market economies. Our analysis points out that the tax system in these two countries is superior to the tax system in developed market economies, as taxes on investment income are lower. It implies that transition countries should avoid replicating other tax systems and, instead, take advantage of the unique opportunity to design and entrench the features of their tax system which are superior to those in mature economies.
Authored by: Monika Blaszkiewicz, Jerzy Konieczny, Anna Myslinska, Przemyslaw Wozniak
Published in 2003
Development Potential: The Joint Influence of High Population Growth and a ...Anna McCreery
This document summarizes a study examining how population growth and economic strength influence a country's potential for future economic growth. A preliminary analysis found that higher population growth, a lower percentage of the population dependent on agriculture, and stronger trade balances were associated with higher GDP per capita. Countries were then classified based on population growth rates and economic conditions. Four maps were created from GIS data to visualize geographic patterns between these variables and analyze spatial autocorrelation between countries' attributes.
Predicting banking crisis in six asian countriesAlexander Decker
This document summarizes a study that aimed to create predictive models of banking crises in six Asian countries from 1999-2012. The study analyzed 15 explanatory variables grouped into 4 categories: macroeconomic factors, internal bank factors, institutional factors, and global factors. Logit analysis found that 9 variables can predict banking crises: real GDP growth, inflation, bank asset quality, liquidity, financial liberalization, central bank independence, world oil prices, U.S. economic growth, and U.S. inflation rate. The document provides context on theories of financial crises and prior research on indicators of banking crises in areas of macroeconomics, internal banking, institutions, and global factors.
Debt burdens and the interest rate response to fiscal stimulus, theory and cr...ADEMU_Project
This document presents research on the relationship between government spending and interest rates across countries. It finds that while theory predicts government spending should raise interest rates, the data show interest rates fall in response to spending in over half of OECD countries. The paper develops a theory that this is due to "debt-burdened households" whose consumption is constrained by minimum levels. Empirical analysis finds cross-country variation in interest rate responses is related to proxies for household debt burdens, supporting the theory. Microdata from the U.S. also shows low-wealth households consume more in response to income increases, as the theory predicts.
The economic landscape of the world is changing rapidly. The nations which were once categorized as developing are now swiftly emerging with eminent powers and are posing a threat to the already existing superpowers of the world. A superpower is a nation which has both the
capacity and the capability of projecting its dictating influence and power on any place all across the planet. Another definition suggests that a nation having a leading position in the global system in addition to the ability to dominate is a superpower.
This document analyzes the relationship between tax composition and long-run economic growth using a dataset of 69 countries from 1970-2009. It finds that increasing income taxes while reducing consumption and property taxes is associated with slower growth. Specifically, social security contributions and personal income taxes have a stronger negative effect on growth than corporate income taxes. Conversely, shifting taxes from income to property taxes or increasing VAT/sales taxes instead of income taxes is positively associated with growth. When dividing the sample by income level, high and middle-income countries show similar results to the full sample, but results are less robust for low-income countries possibly due to weaker tax administration.
Final group assignment, presentation, dr. dash, 25,11,2010 (0524)KOICA Cambodia Office
This document analyzes the economic and non-economic factors of Vietnam's business environment and how supportive it is to foreign investors. It discusses factors such as Vietnam's strong economic growth rates, inflation, exchange rates, unemployment, and balance of payments. Non-economic factors examined include Vietnam's political system, social and cultural aspects like language and education, and legal and technological environment. The document also analyzes challenges and supportive factors for foreign investors in Vietnam.
This paper aims to analyze the relationship between energy consumption and GDP per capita in Libya from 1970-2009 using techniques like Johnson cointegration. The results show there is a positive relationship between energy consumption and GDP per capita in Libya. Energy consumption leads to economic growth and acts as an incentive. Thus, Libya should adopt energy policies that stimulate economic growth and expand employment opportunities.
2003 jetro white paper on international trade and foreign direct investment b...Pim Piepers
This document is a 2003 white paper by the Japan External Trade Organization (JETRO) that analyzes global trade and foreign direct investment trends. Some key points:
1) Global trade showed mild recovery in 2002 but global FDI continued declining, falling to 40% of its 2000 peak.
2) China became Japan's top trading partner as China drove Japanese trade recovery. European FDI in Japan doubled from 2001 to 2002.
3) Growing East Asian consumer markets presented new potential opportunities for Japanese firms, but also increased competition in the region. Strategic action would be required.
This document provides background information on poverty and poverty reduction strategies. It summarizes Alternatives North's work addressing poverty in the NWT. It then reviews international and Canadian contexts of poverty before analyzing poverty reduction efforts in other jurisdictions. The core elements of effective poverty reduction strategies are outlined. The document goes on to assess poverty in the NWT and critique the NWT government's income security review and strategic plan in the context of an effective poverty reduction strategy.
This document summarizes recent studies that have examined the relationship between exchange rate volatility and exports using panel data estimation techniques. While earlier time series studies did not generally find a negative effect, more recent panel data studies have found some evidence of a negative impact. However, the results are not entirely robust. This study aims to extend the literature by applying different panel data estimation techniques, including generalized method of moments and random coefficient estimation, to examine the relationship for 12 industrial countries from 1977 to 2003.
This paper investigates the impact of exchange rate volatility on bilateral trade flows using monthly export data from 13 countries from 1980 to 1998. It finds that the relationship is nonlinear and depends on the interaction between exchange rate volatility and economic uncertainty in the importing country. In contrast to prior studies using aggregate data, this paper employs a measure of exchange rate volatility calculated from daily exchange rate data. It also controls for uncertainty in foreign income levels and includes an interaction term to capture indirect effects. The results show exchange rate volatility does not have a simple linear relationship with trade flows and that uncertainty in foreign income may significantly impact trade for some country pairs. This suggests the effects of exchange rate volatility are more complex than portrayed in previous empirical work.
This document summarizes a research paper analyzing home bias in mutual fund investment strategies. It studied 30 randomly selected mutual funds across the US. It found that 73% exhibited home bias by overweighting industries prominent in their home state, and these funds achieved higher 7.45% average returns versus 4.95% for funds without home bias. Funds that invested most heavily in their home state's largest industry achieved the highest 9.04% returns. Smaller state economies showed weaker home bias and influence of local industries. The study provides evidence that home bias can be a profitable investment strategy for mutual funds.
The object of this study is to compare the economic structure through the intersectoral structure of the two economies, Vietnam and China. This research shows differences in levels of economic structure and induced impacts on output, value added, import, energy requirement and emissions of dioxin carbon in producing a final product unit. It also gives an overall picture of economy to help policy makers to make the best decisions for the economy and the environment. we find that on the surface, it seems that the economic structure of Vietnam and China have a lot of similarities, but when looking deeper into the economy, it shows diference between two economies, the economic structure of China has intersectoral linkage indexs better than these indexs of Vietnam, but Manufacturing industry in China has a high level of CO2 emission, which shows that the current technology cannot suffice for waste disposal. It also recommends that the countries attracting FDI from China should have a strict check for waste treatment.
A collection came from many sources based on my curiosity - synthesis all of information together with my personal awareness of future crisis. After having heard that China took a major shared of Toulouse Airport - located in the south of France, and many development came across the continents in the same time of economic crisis in Europe and many parts of the world, this is what I curiosly taking my time seeing what was the past performances made by this country. Thanks to many people doing their hard work providing interesting report and articles that I've never forgot to credit to each text and images. Bonne Lecture!
This document summarizes research on economic convergence and growth. It reviews a core article by Barro and Sala-i-Martin that found evidence of convergence across U.S. states, with poorer states growing faster than richer ones. The document also reviews several other studies on factors influencing convergence and growth, such as policies, technology diffusion, education levels, and trade liberalization. Many findings support the idea that convergence exists, though some studies also found evidence of increasing divergence among certain countries or regions.
An Ethnographic Investigation of Indigenous Management Thoughts and Practices...AJSSMTJournal
The application of Western management theories and philosophies in African societies have
been called to question by scholars, thus igniting calls for management principles and practices that reflect the
contextual nuances and environmental challenges of Africa. This paper examined the indigenous traditional
practices of Ido people of Kalabari, an Ijaw tribe in Rivers State, Nigeria, with a view to identifying the precolonial management thoughts and practices embedded in them. This is an ethnographic study which adopted
interviews, group discussion and observation as sources of data collection. Adopting the judgemental
sampling technique, 15 critical stakeholders of Ido Community – six males and nine females participated in the
interview and focused group sessions while the researchers lived as participant observers in the community to
identify the prevailing management practices and their underlying philosophy. The results of the study indicate
that the Ido people were already utilising indigenous management principles and practices before the advent
of colonialism. It was concluded that there is urgent need for more investigations into the traditional practices
of Africa and other developing economies to discover indigenous management theories and practices of these
geographies that will take cognizance of their contextual nuances and environmental peculiarities in order to
proffer solutions to their peculiar challenges.
This document provides an introduction to a publication summarizing the results of a survey of practices for estimating non-observed economic activities (NOE) in national accounts across 43 countries. The survey aimed to update previous inventories, increase country coverage, and allow for comparison of estimation methods and difficulties. Countries provided estimates of NOE's size in GDP and details on estimation methods. The goals were to present practices at different development stages, enable comparison of approaches, and serve as a reference for comprehensive GDP estimates.
Dykstra, K 2016, Cross-market correlation coefficient analysis of contagion d...Kim Knott
This document summarizes a report that analyzes cross-market correlation between Australia, Canada, Japan, and the UK with the US during the 2008 Global Financial Crisis. The report applies the cross-market correlation coefficient method to determine if contagion was present. It finds that correlation increased between the US and each case nation during the crisis, with Japan and the UK most impacted. While correlation rose, the effect was short-lived and did not decrease the effectiveness of international diversification overall. The report contributes to literature on measuring contagion and can inform government, monetary, and investor decisions regarding crisis response and portfolio diversification.
This document summarizes previous research on the relationship between foreign direct investment (FDI) and economic growth. Several studies have found that FDI positively correlates with growth only if the host country meets a minimum human capital threshold. This paper aims to build a theoretical framework incorporating this threshold and analyze potential policy actions. It reviews literature establishing the human capital threshold finding and discusses studies examining FDI's effects through technology spillovers and productivity/capital growth channels. The paper will develop a model based on Borensztein, De Greggario, and Lee's (1998) work and analyze how taxing foreign firms or subsidizing human capital formation could impact growth rates.
We apply Feldstein's (1997, 1999) analysis of the interactions between the tax system and inflation to two transition economies: Poland and Ukraine. We find that the taxrelated costs of inflation in these countries are significantly smaller than in mature market economies. Our analysis points out that the tax system in these two countries is superior to the tax system in developed market economies, as taxes on investment income are lower. It implies that transition countries should avoid replicating other tax systems and, instead, take advantage of the unique opportunity to design and entrench the features of their tax system which are superior to those in mature economies.
Authored by: Monika Blaszkiewicz, Jerzy Konieczny, Anna Myslinska, Przemyslaw Wozniak
Published in 2003
Development Potential: The Joint Influence of High Population Growth and a ...Anna McCreery
This document summarizes a study examining how population growth and economic strength influence a country's potential for future economic growth. A preliminary analysis found that higher population growth, a lower percentage of the population dependent on agriculture, and stronger trade balances were associated with higher GDP per capita. Countries were then classified based on population growth rates and economic conditions. Four maps were created from GIS data to visualize geographic patterns between these variables and analyze spatial autocorrelation between countries' attributes.
Predicting banking crisis in six asian countriesAlexander Decker
This document summarizes a study that aimed to create predictive models of banking crises in six Asian countries from 1999-2012. The study analyzed 15 explanatory variables grouped into 4 categories: macroeconomic factors, internal bank factors, institutional factors, and global factors. Logit analysis found that 9 variables can predict banking crises: real GDP growth, inflation, bank asset quality, liquidity, financial liberalization, central bank independence, world oil prices, U.S. economic growth, and U.S. inflation rate. The document provides context on theories of financial crises and prior research on indicators of banking crises in areas of macroeconomics, internal banking, institutions, and global factors.
Debt burdens and the interest rate response to fiscal stimulus, theory and cr...ADEMU_Project
This document presents research on the relationship between government spending and interest rates across countries. It finds that while theory predicts government spending should raise interest rates, the data show interest rates fall in response to spending in over half of OECD countries. The paper develops a theory that this is due to "debt-burdened households" whose consumption is constrained by minimum levels. Empirical analysis finds cross-country variation in interest rate responses is related to proxies for household debt burdens, supporting the theory. Microdata from the U.S. also shows low-wealth households consume more in response to income increases, as the theory predicts.
The economic landscape of the world is changing rapidly. The nations which were once categorized as developing are now swiftly emerging with eminent powers and are posing a threat to the already existing superpowers of the world. A superpower is a nation which has both the
capacity and the capability of projecting its dictating influence and power on any place all across the planet. Another definition suggests that a nation having a leading position in the global system in addition to the ability to dominate is a superpower.
This document analyzes the relationship between tax composition and long-run economic growth using a dataset of 69 countries from 1970-2009. It finds that increasing income taxes while reducing consumption and property taxes is associated with slower growth. Specifically, social security contributions and personal income taxes have a stronger negative effect on growth than corporate income taxes. Conversely, shifting taxes from income to property taxes or increasing VAT/sales taxes instead of income taxes is positively associated with growth. When dividing the sample by income level, high and middle-income countries show similar results to the full sample, but results are less robust for low-income countries possibly due to weaker tax administration.
Final group assignment, presentation, dr. dash, 25,11,2010 (0524)KOICA Cambodia Office
This document analyzes the economic and non-economic factors of Vietnam's business environment and how supportive it is to foreign investors. It discusses factors such as Vietnam's strong economic growth rates, inflation, exchange rates, unemployment, and balance of payments. Non-economic factors examined include Vietnam's political system, social and cultural aspects like language and education, and legal and technological environment. The document also analyzes challenges and supportive factors for foreign investors in Vietnam.
This paper aims to analyze the relationship between energy consumption and GDP per capita in Libya from 1970-2009 using techniques like Johnson cointegration. The results show there is a positive relationship between energy consumption and GDP per capita in Libya. Energy consumption leads to economic growth and acts as an incentive. Thus, Libya should adopt energy policies that stimulate economic growth and expand employment opportunities.
2003 jetro white paper on international trade and foreign direct investment b...Pim Piepers
This document is a 2003 white paper by the Japan External Trade Organization (JETRO) that analyzes global trade and foreign direct investment trends. Some key points:
1) Global trade showed mild recovery in 2002 but global FDI continued declining, falling to 40% of its 2000 peak.
2) China became Japan's top trading partner as China drove Japanese trade recovery. European FDI in Japan doubled from 2001 to 2002.
3) Growing East Asian consumer markets presented new potential opportunities for Japanese firms, but also increased competition in the region. Strategic action would be required.
This document provides background information on poverty and poverty reduction strategies. It summarizes Alternatives North's work addressing poverty in the NWT. It then reviews international and Canadian contexts of poverty before analyzing poverty reduction efforts in other jurisdictions. The core elements of effective poverty reduction strategies are outlined. The document goes on to assess poverty in the NWT and critique the NWT government's income security review and strategic plan in the context of an effective poverty reduction strategy.
This document summarizes recent studies that have examined the relationship between exchange rate volatility and exports using panel data estimation techniques. While earlier time series studies did not generally find a negative effect, more recent panel data studies have found some evidence of a negative impact. However, the results are not entirely robust. This study aims to extend the literature by applying different panel data estimation techniques, including generalized method of moments and random coefficient estimation, to examine the relationship for 12 industrial countries from 1977 to 2003.
This paper investigates the impact of exchange rate volatility on bilateral trade flows using monthly export data from 13 countries from 1980 to 1998. It finds that the relationship is nonlinear and depends on the interaction between exchange rate volatility and economic uncertainty in the importing country. In contrast to prior studies using aggregate data, this paper employs a measure of exchange rate volatility calculated from daily exchange rate data. It also controls for uncertainty in foreign income levels and includes an interaction term to capture indirect effects. The results show exchange rate volatility does not have a simple linear relationship with trade flows and that uncertainty in foreign income may significantly impact trade for some country pairs. This suggests the effects of exchange rate volatility are more complex than portrayed in previous empirical work.
Effects of Exchange Rate Volatility on the volume & volatilty of Bilateral Ex...bc080200109
This document presents an empirical investigation of the effects of exchange rate volatility on bilateral trade volumes and trade flow volatility between 13 countries from 1980-1998. The authors find that exchange rate volatility has an indeterminate effect on trade volumes, but a consistently positive and significant effect on trade flow volatility. They develop a theoretical model suggesting exchange rate uncertainty should impact both the level and variability of trade flows. Through a bivariate GARCH model accounting for the time series properties of trade and exchange rate data, they generate proxies for volatility and find support for the effect on trade flow volatility but mixed results for the effect on trade volumes.
This document summarizes a study that investigates the impact of exchange rate volatility on bilateral trade flows between 13 countries from 1980 to 1998. It finds that the relationship is nonlinear and depends on the interaction between exchange rate volatility and economic uncertainty in the importing country. In contrast to prior studies using aggregate data, this study uses monthly bilateral trade data and computes exchange rate volatility from daily rates. It also introduces a new variable for foreign income uncertainty and its interaction with exchange rate volatility to account for potential nonlinearities. The results show exchange rate volatility can have indirect effects on trade through its interaction with income volatility, and income uncertainty itself may influence trade flows.
The document discusses micro insurance and its role in economic development in Pakistan. It provides a brief history and structure of micro insurance, describing typical policy types that provide life, health, disability and property risk coverage. It notes that micro insurance is recognized as a useful tool for economic development by helping people take more risks and providing financial protection. The literature review summarizes several articles discussing how micro insurance mobilizes health care resources, provides insurance access to the poor, and its encouraging response and impact in Pakistan despite current low insurance penetration.
Foreign Aid & Public Investment in Pakistanbc080200109
The document discusses public investment and foreign aid. It defines public investment and describes different types of public investment including productive and non-productive investment. It also lists various sources of public investment such as taxes, money printing, exports, bonds/equity, remittances, and foreign aid/debt. The objective of the study is to analyze the effect of foreign aid on public investment and economic growth in Pakistan. Several literature reviews on the relationship between foreign aid, investment, and growth in other countries are also summarized.
Foreign Aid and Economic Growth in the West African States: A Panel Frameworkinventionjournals
This paper examines the impact of economic variables namely, foreign direct investment (FDI), investment, export, foreign aid and broad money supply on economic growth, approximated by gross domestic product (GDP)using annual data covering a period 1981-2008 on a group of West African countries. The impact of variables on GDP is estimated using three panel estimation models: pooled model (pooled), fixed effects model (FEM) and random effects model (REM). We explore the hypothesis that foreign aid can promote growth in developing countries. We test this hypothesis using panel data series,while the findings of previous studies are generally mixed, our resultsindicate that foreign direct investment has purely positive effects on economic growth in West African countries
An empirical test of the relationship between private savingsAlexander Decker
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How Foreign Aid Impacts on Economic Development of Developing Countr.docxadampcarr67227
How Foreign Aid Impacts on Economic Development of Developing Countries Table of Content
Table of Content 1
1 Introduction 2
2 Literature Survey 3
2.1 Econometric Models in Earlier Studies 4
2.2 The Pro Foreign Aid Views: Foreign Aid May Undermine Economic Growth in Developing Countries 5
2.3 The Anti Foreign Aid Views: Foreign Aid May Undermine Economic Growth in Developing Countries 6
2.4 Gaps in Existing Literature Studies 7
3 Theoretical Arguments and Regression Analysis 7
3.1 The Data Survey 7
3.2 Theoretical Argument 8
3.3 Regression and Data Analysis 9
4 Conclusion 11
4.1 Summary 11
4.2 Recommendations 11
4.3 Limitations and Further Research 12
5 Reference 12
Introduction
It was just after the Second World War that the concept “foreign aid” was created, when the United States pumped in billions into the European economy, in order to help the economy to recover (Sogge, 2002). Since then, foreign aid is has been regarded as a way to directly benefit the economy of the country that receives the aid. The majority of the foreign aid givers donate foreign aid to other countries have strong belief of such association (World Bank, 1998). A number of earlier literature studies have used different approaches to examine whether or not foreign aid is capable of meeting such goal in reality. In other words, these literature studies aim to find out whether or not foreign aid is actually able to stimulate economic growth in developing countries based on empirical evidence. Despite of the rapid political, economical and social changes in the world since the Second World War, how foreign aid impacts economic growth in developing countries remains as an important and heated topic.
Similar to many other debates, scholars that analyze the topic tend to have two types of split views regarding to the actual effectiveness of foreign aid in economic growth in developing countries. Researchers that are against using foreign aid to help developing countries argue that it has an adverse effect over long-term economic growth. In contrast, researchers that support the use of foreign aid to help developing countries believe its effectiveness in lifting a stagnating economy. On the other hand, another more contemporary school of thoughts believe that the effectiveness of foreign aid in economic development in developing countries is dependent on a number of factors, which include characteristics of both donor and recipient countries.
Therefore, an empirical analysis of how foreign aids affect economic development in developing countries is essential in testing the effectiveness of foreign aid. Institutively, the research title of the study is:
How Foreign Aid Impacts on Economic Development of Developing Countries
The remaining parts of this research paper is structured in the following way. The second section is the literature survey, which analyses the existing literature studies regarding to the influence of foreign aid on economic development in developi.
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Despite a voluminous literature on the topic, the question of whether aid leads to growth is still controversial. To observe the pure effect of aid, researchers used instruments that must be exogenous to growth and explain well aid flows. This paper argues that instruments used in the past do not satisfy these conditions. We propose a new instrument based on predicted aid quantity and argue that it is a significant improvement relative to past approaches. We find a significant and relatively big effect of aid: a one standard deviation increase in received aid is associated with a 1.6 percentage points higher growth rate.
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1. Economic Modelling 22 (2005) 616 – 627
www.elsevier.com/locate/econbase
Foreign aid, domestic savings, and growth in LDCs:
An application of likelihood-based
panel cointegration
Manuchehr Irandousta,T, Johan Ericssonb,1
a ¨ ¨
Department of Economics (ESI), University of Orebro, SE-701 82, Orebro, Sweden
b
Department of Economics Statistics, Stockholm School of Economics, P.O. Box 6501,
SE-113 83 Stockholm, Sweden
Accepted 17 March 2004
Abstract
The foreign aid, domestic saving, and economic growth relationships are investigated for a panel
of African countries over the period 1965–2000. The departure from earlier studies of the role of
foreign aid on economic growth is in the asymptotic theory of likelihood-based panel cointegration
allowing for multiple cointegrating vectors. The results reveal that the variables contain a panel unit
root and they cointegrate in a panel perspective. The findings show that foreign aid and domestic
saving enhance economic growth for all countries in the sample.
D 2005 Elsevier B.V. All rights reserved.
JEL classification: F35; C32; 011
Keywords: Foreign aid; Domestic savings; Economic growth; Rank tests; Panel unit root tests; Panel
cointegration
T Corresponding author. Tel.: +46 19 30 33 98; fax: +46 19 33 25 46.
E-mail addresses: manuchehr.irandoust@esi.oru.se (M. Irandoust)8 johan.ericsson@hhs.se (J. Ericsson).
1
Tel.: +46 8 73 69 247; fax: +46 8 34 81 61.
0264-9993/$ - see front matter D 2005 Elsevier B.V. All rights reserved.
doi:10.1016/j.econmod.2004.03.004
2. M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627 617
1. Introduction
Foreign aid is a major source of economic growth to developing countries,
especially in Africa, where it averages 12.5% of gross domestic product and establishes
by far the important source of foreign capital (Pallage and Robe, 2001). Thus, foreign
aid has a potential to play a key role in boosting developing countries’ economic
growth. There are two strands of literature on the role of foreign aid on economic
growth. The first studies claim that foreign capital inflow is necessary and sufficient for
economic growth in the less developed countries. They assert that there is a positive
relationship between aid and economic growth because it not only augments domestic
resources, but also supplements domestic savings, assists to close the foreign exchange
gap, creates access to modern technology and managerial skills, and allows easier
access to foreign market (Chenery and Strout, 1966; Papanek, 1973; Gulati, 1975;
Gupta, 1975; Over, 1975; Levy, 1988; Islam, 1992; Dalgaard et al., 2001; Hatemi and
Irandoust, in press).
The second studies assert that external capital has significant negative effects on
the economic growth of recipient countries. According to this view, foreign aid is
fully consumed, substitutes rather than compliments domestic resources, assists
import of inappropriate technology, distorts domestic income distribution, and en-
courages a bigger, inefficient and corrupt government in developing countries (Grif-
fin, 1970; Griffin and Enos, 1970; Weisskoff, 1972a,b; Boone, 1994, 1996; Easterly,
1999).
Furthermore, a series of studies finds that the negative relation that might exist
between foreign aid flows and economic growth could be related to factors such as
economic policies, state intervention, business cycles, and stability of foreign aid flows
in the recipient countries. Singh (1985) takes government regulatory activities into
consideration. He suggests that state intervention in the economy has a negative impact
on economic growth and causes the aid-growth relationship statistically non significant.
Burnside and Dollar (2000) argue that the relationship between foreign aid and
economic growth may depend on the recipient’s having adopted sound economic
policies. Lensink and Morrissey (2000) examine the impact of aid uncertainty on
economic growth in developing countries. They reveal that the effect of foreign aid on
economic growth is a function, not only of aid levels, but also of the stability of aid
flows.
Finally, Pallage and Robe (2001) document empirical regularities in the foreign aid
flows to developing countries. They find that for the vast majority of recipients, aid flows
are a major source of income that is highly volatile and, most important, overwhelmingly
procyclical. This implies that, even if foreign aid were meant solely to assist foster
economic growth, serious concerns would nonetheless result from the fact that aid
disbursement patterns contribute to the volatility of developing countries’ disposable
income and, this in turn, affects growth negatively.
However, reviewing the existing literature on the aid, savings, and growth relationship
shows that the results are mixed and elusive. Furthermore, the models that were used in
most literature to explain the relationship between foreign aid and economic growth were
estimated using obsolete and inappropriate techniques ignoring non-stationarity and
3. 618 M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627
endogeneity problems.2 The purpose of this study is to examine the effect of foreign aid
and domestic saving on the economic growth in developing countries. The sample
countries are: Niger, Nigeria, Rwanda, Senegal, and Togo, and the sample period is 1965–
2000. We have restricted the sample to this period due to the availability of the data. The
reason for the choice of these countries is that they are important recipients of foreign aid
in Africa.
The departure from earlier studies of the role of foreign aid flows and domestic saving
on economic growth is in the methodology used to examine the interaction between
variables. Here we make use of panel unit root tests suggested by Levin et al. (2002) and
Im et al. (2003) who argue that adding a cross-sectional dimension to the data could
resolve well-known low power problems of conventional, pure time series unit root tests.
The methodology for panel cointegration used here is an extension of the Johansen
(1988, 1991, 1995) multivariate maximum likelihood developed by Larsson and Lyhagen
(1999) and Larsson et al. (2001). They have developed a likelihood-based panel test of the
cointegrating rank and a general likelihood-based framework for inference in panel-VAR
models with cointegration restriction, allowing for multiple cointegrating vectors. By
using this method, the assumption of a unique cointegrating vector and the problem of
normalization are relaxed. This is not the case with the usual residual-based tests of
cointegration developed by Kao (1999), Kao and Chiang (1999), and Pedroni (1995, 1997,
1999).3
Recently, Moon and Perron (2003) proposed a method to estimate seemingly unrelated
linear models with integrated regressors and stationary errors. The procedure in Moon and
Perron is rather simple compared to the one used in this paper. They exclude the possibility
that there exists a cointegrating relation among the regressors which is not the case in our
study. However, this study is probably the first attempt to test the impact of foreign aid on
the economic growth in the developing countries using panel cointegration techniques
based on likelihood inference of cointegrating vectors.4
The remainder of this paper is organized as follows: Section 2 introduces our model,
data, and methodology. Section 3, the empirical evidence is presented. Finally, Section 4
offers conclusions and policy implications.
2. Model, data, and methodology
In the light of the existing literature, we use the following two models:
PCYit ¼ c0i þ c1i SYit þ c2i PCAIDit þ eit ; i ¼ 1; N ; N ; t ¼ 1; N T ; ð1Þ
and
logðPCYit Þ ¼ c4 þ c4 logðPCAIDit Þ þ e4 ;
0i 1i it i ¼ 1; N N ; t ¼ 1; N ; T ; ð2Þ
2
One exception here is the study by Hatemi and Irandoust (in press) who apply residual-based panel
cointegration tests to examine the relationship between foreign aid and economic growth.
3
Phillips and Moon (2000) and Baltagi (2001) provide concise survey on recent developments in this field.
4
Ericsson and Irandoust (2004) use likelihood-based panel cointegration approach to test the PPP hypothesis.
4. M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627 619
where PCY is per capita real GDP, SY is the savings-GDP ratio, PCAID is per capita real
foreign aid, e t and e* are well-behaved disturbance terms. All variables are in terms of US
t
dollars, annual, and they cover the period 1965–2000. Domestic saving is used as a proxy
for investment from domestic sources. Since domestic saving is negative in some cases,
we cannot take log of this variable. The countries in the panel are Togo, Senegal, Niger,
Nigeria, and Rwanda. Data are collected from World Development Indicators (WDI)
published by the World Bank (2001). Tables A1–A3 in Appendix A show descriptive
statistics of the data used.
As a pre-test for the cointegration analysis, we first investigate panel non-stationarity of
the variables in Eqs. (1) and (2). Here two types of panel unit root tests are employed. The
t-bar test proposed by Im et al. (2003, IPS) and panel unit root test proposed by Levin et al.
(2002, LL). The motivation for using two tests for stationarity is due to the different
alternative hypotheses in the tests. Thus, suppose that the stochastic process y it is
generated by the following process:
Dyit ¼ bi yi; tÀ1 þ ami dmt þ uit ; i ¼ 1 N ; N ; t ¼ 1; N T ; ð3Þ
where d mt contains deterministic variables; d 1t ={}, d 2t ={1}, d 3t ={1,t} and u it are
independently and normally distributed random variables with zero means and finite
(possible) heterogeneous variances. The null hypothesis of unit roots in the IPS test is:
H0 : bi ¼ 0; i ¼ 1; N ; N ; ð4Þ
against the alternative:
H1 : bi b0; i ¼ 1; N ; N1 ; bi ¼ 0; i ¼ 1; N ; N2 : ð5Þ
Hence, the alternative allows for b i to differ across groups. The IPS t-bar statistics is
based on the mean of the individual Dickey–Fuller t-statistics of each unit in the panel.
Lags of the dependent variable may be introduced to allow for serial correlation in the
errors. The exact critical values of the t-bar statistic are given in IPS. After transformation
by factors provided in the paper, the C¯ statistic is distributed standard normal under the
t
null hypothesis of non-stationarity.
The LL test assumes that each individual unit in the panel shares the same AR(1)
coefficient, that is b i =b. Hence we have the null hypothesis:
H0 : b ¼ 0; ð6Þ
against the alternative:
H1 : bb0: ð7Þ
Lags of the dependent variable may be introduced to allow for serial correlation in the
errors. The test may be viewed as a pooled Dickey–Fuller test, or an Augmented Dickey–
Fuller (ADF) test when lags are included, with the null hypothesis that of non-stationarity
(I(1) behavior). After transformation by factors provided by LL, the t* statistic is
distributed standard normal under the null hypothesis of non-stationarity.
Therefore, for a panel data in question, if both tests accept the null, that implies a strong
evidence of panel non-stationarity. On the other hand, if the former (IPS) rejects and the
5. 620 M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627
latter (LL) accept the null, that gives rise to a mixed result. Assuming that the variables are
non-stationary and at most I(1), we continue with the panel cointegration analysis.
Let the p-vector of variables for group i at time t be given by yit y i1t , y i2t ,. . ., y ipt ]V
V=[
and define Yt =[y1t, y2t,. . ., yV ]V as the Np-vector of the panel of observations available at
V V NT
time t on the p variables for the N groups. Following Larsson and Lyhagen (1999) and
Larsson et al. (2001), we can write:
2 3 2 32 3
Dy1t P11 P12 N P1N y1tÀ1
6 Dy 7 6 P P2N 76 y2tÀ1 7
6 2t 7 6 21 P22 76 7
6 7¼6 76 7
4v 5 4v O v 54 v 5
DyN t PN 1 PN 2 N PN N yN tÀ1
2 32 3 2 3
C11; k C12; k N C1N ; k Dy1tÀk e1t
mÀ1 6
X 76 Dy 7 6e 7
6 C21; k C22; k C2N ; k 76 2tÀk 7 6 2t 7
þ 6 76 7þ6 7; ð8Þ
k¼1
4v O v 54 v 5 4v 5
CN 1; k CN2; k N CN N ; k DyN tÀk eN t
or more compactly written as:
X
mÀ1
DYt ¼ PYtÀ1 þ Ck DYtÀk þ et ; ð9Þ
k¼1
where qt is assumed to be multivariate normally distributed with mean zero and covariance
matrix W={X ij }. Then Pconsider the reduced rank specification of the panel model, where
the matrix C is of rank r i , 0Vr i Vp, specified as P=ABV, where the matrices A and B are
P
both of order Np  r i given by
È É
A ¼ aij ; ð10Þ
and
È É
B ¼ bij ; ð11Þ
such that A contains the short-run coefficients and B the long-run coefficients.
This model makes possible for simultaneous modelling of the long-run relations
between several variables for a panel of groups allowing for heterogeneous long-run
cointegration relations within each group. Cointegrating relations are only allowed for
within each of the N countries but the model allows for important short-run dependence
between the panel groups.
Based on the above panel model, we are interested in two different hypotheses. The first
hypothesis considers the rank of the panel group-specific matrices P i . The null hypothesis:
H0 : rankðPi Þ ¼ ri Vr; 8i ¼ 1; N ; N ; ð12Þ
is tested against the alternative:
H1 : rankðPi Þ ¼ p; 8i ¼ 1; N ; N : ð13Þ
using the likelihood ratio test. The test and its asymptotic distribution is presented in Larsson
and Lyhagen (1999).
6. M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627 621
Table 1
Panel unit root tests
Variable IPS test LL test
¯
t C¯
t p-value tT p-value
PCY À2.171 À1.766 0.039 À1.838 0.033
SY À2.006 À1.373 0.085 À1.593 0.055
PCAID À1.621 À0.459 0.323 À0.959 0.168
log(PCY) À2.017 À1.398 0.081 À1.556 0.059
log(PCAID) À1.604 À0.417 0.338 À0.830 0.203
Critical values for the ¯ test statistic are À2.020 and À2.160 using 10% and 5% significance level, respectively.
t
Given the assumption of equal rank, it is of interest to test the null hypothesis:
H0 : b1 ¼ b2 ¼ N ¼ bN ; ð14Þ
against the alternative:
H1 : bi pbj for some i pj: ð15Þ
The test statistic is again a likelihood ratio test statistics and is asymptotically v 2
distributed with (NÀ1)r( pÀr) degrees of freedom.
Finally, we check if the underlying assumptions are satisfied, i.e., if the residuals are
normal distributed. The normality test is a multivariate extension of the Bowman–Shenton
test developed by Doornik and Hansen (1994). Furthermore, we test for autocorrelation by
using the Ljung–Box test statistics.
3. Empirical results
As a pre-test for the cointegration analysis, we first investigate panel non-stationarity
among the variables. The results of IPS tests and LL tests are listed in Table 1. After
inspection of the data, we only include a constant term and no trend. When applying the
Schwartz criterion to decide the optimal lag length, the common lag length was set to four.
Using the IPS test, the p-values are larger than 5 for all variables, except for real GDP per
capita (PCY). The p-values for PCY are 3.9% and 3.3% for the IPS test and LL test,
respectively.5 Hence, the PCY series would be stationary on a 5% significance level.
However, since the p-values are close to 5% our overall judgment is that all variables seem
to support the null hypothesis of panel non-stationarity. Furthermore, note that our
approach does not exclude the possibility of including stationary variables. The effect of
one stationary variable in the system is that the rank order increases with one.
Turning to the cointegration analysis, we first consider the relationship between the log
of real GDP per capita (log(PCY)) and the log of real AID per capita (log(PCAID)). The
likelihood ratio tests are given in Table 2. The Bartlett corrected critical values are gained
by using the estimated model as data generating process when calculating the sample
mean. Using the Bartlett corrected critical values, the test rejects the null of 0 cointegrating
5
We prefer the IPS test because Monte Carlo simulations conducted by Karlsson and Lothgren (2000) show the
¨
better performance of the IPS test than other panel unit root tests regarding power properties.
7. 622 M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627
Table 2
Test for cointegrating rank
H0 As.crita B.ricb À2logQ T
R=0 216.56 251.84 260.04
RV1 83.15 145.37 133.19
a
The asymptotic critical values at 5% significance level.
b
Bartlett corrected critical values at 5% significance level.
rank but accepts the null of 1 cointegrating vector. Note that if we use the asymptotic
critical values, the estimated rank is 2.
The estimated cointegrating vectors are presented in Table 3, normalized with respect to
log(PCY). All coefficients on log(PCAID) are positive. This indicates that foreign aid has
a positive impact on the real GDP per capita for the sample countries. Furthermore, when
testing for a common cointegrating vector by using the likelihood ratio test, we obtain a
test value of 10.282 with the corresponding p-value of 3.6%. The rejection of common
cointegrating vector at 5% significance level is probably due to Nigeria, which differs
from the rest of the countries. Redoing the analysis with Nigeria excluded yields a p-value
of 5.1% and accepts the common cointegrating vector (À1.000, 0.752).
The tests for cointegrating rank for model (1) are presented in Table 4. Since we accept
the null of 1 cointegrating rank when using the Bartlett corrected critical values we
proceed and estimate the cointegrating vectors. These are displayed in Table 5.
According to Table 5, we can assert that foreign aid and domestic savings are positively
associated with economic growth for almost all countries in the sample. Exception is
Nigeria. In Nigeria, the coefficients for domestic saving and aid are negative and positive,
respectively. Since, the test for a common cointegrating vector has a very low p-value the
estimated common cointegrating vector is not reported. Once again, it seems that Nigeria
is different from the rest four countries. However, excluding Nigeria from the sample does
not improve the test for common cointegrating vector.6
In Table B1 in Appendix B, the results from the diagnostic tests are reported. It seems
that we do not have any problem with autocorrelation since all p-values are very high.
However, the null hypothesis of normality is rejected for Eq. (1) but not for Eq. (2). The
problem of normality could not be solved by using more lags.
4. Summary and conclusions
The models that have used in most literature to explain the relationship between foreign
aid and economic growth have estimated using obsolete and inappropriate techniques
ignoring non-stationarity and endogeneity problems. In other words, the previous aid-
growth work has estimated where savings behavior has been assumed to be exogenous and
no attentions have been paid to the time-series characteristics of the data employed. Under
these conditions, the fungibility of aid whereby aid is diverted from investment to
consumption is regarded as an exogenous phenomenon and, moreover, the application of
6
Obviously, Nigeria differs from the rest four countries. It seems that the power of homogeneity test must be
low so that these differences cannot be rejected due to small sample.
8. M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627 623
Table 3
Cointegrating vectors, normalized on log(PCY)
Togo Senegal Niger Nigeria Rwanda Common b
log(PCY) À1.000 À1.000 À1.000 À1.000 À1.000 À1.000
log(PCAID) 0.625 0.663 0.661 0.035 0.689 0.571
conventional econometric techniques to non-stationary (integrated) time-series can give
rise to misleading results and erroneous inferences. These problems cause analytical works
based on this approach vulnerable to the Lucas-critique. However, technical issues about
the choice of functional forms and econometric techniques are quite important in the
empirical studies of the effectiveness of foreign aid.
Thus, this study applies the new developments in the filed of likelihood-based panel
cointegration analysis to examine the long-run relationship between foreign aid, domestic
saving, and economic growth. The countries in the panel are: Niger, Nigeria, Rwanda,
Senegal, and Togo, and the sample period is 1965–2000. The departure from earlier
studies of the role of foreign aid on economic growth is in the asymptotic theory of panel
cointegration used to test the hypotheses. The tests are based on the Johansen (1988, 1991,
1995) multivariate likelihood-based inference in cointegrated VAR models and on a new
cointegration rank test for panel models proposed by Larsson and Lyhagen (1999) and
Larsson et al. (2001). This method allows for multiple cointegrating vectors, which is not
the case with the usual residual-based tests of panel cointegration developed by Kao
(1999), Kao and Chiang (1999), and Pedroni (1999). Hence, the assumption of a unique
cointegrating vector and the problem of normalization are relaxed.
The methodology used here is based on two steps: first, panel unit root tests developed by
Im et al. (2003) and Levin et al. (2002), and second, a panel cointegration approach
developed by Larsson and Lyhagen (1999) and Larsson et al. (2001). The estimation results
show that the variables are characterized by one panel unit root and the tests for panel
cointegration indicate one cointegrating vector. However, the findings show that foreign aid
and domestic savings are positively associated with economic growth in all countries in the
sample. This result is consistent with the economic theory of foreign aid which asserts that
overseas development assistance accelerates economic growth by supplementing the
domestic capital formation (Chenery and Strout, 1966; Papanek, 1973; Dalgaard et al.,
2001). In other words, foreign aid and domestic resources contribute to economic growth.
The economic implication of our results is that foreign aid has a potential to play a key
role in boosting developing countries’ economic growth. That is, there is a positive
relationship between aid and economic growth because it not only augments domestic
resources, but also supplements domestic savings, assists to close the foreign exchange
Table 4
Test for cointegrating rank
H0 As.crita B.ricb À2logQ T
R=0 469.85 633.53 661.24
RV1 260.27 508.66 396.37
RV2 106.07 274.30 169.76
a
The asymptotic critical values at 5% significance level.
b
Bartlett corrected critical values at 5% significance level.
9. 624 M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627
Table 5
Cointegrating vectors, normalized on PCY
Togo Senegal Niger Nigeria Rwanda
PCY À1.000 À1.000 À1.000 À1.000 À1.000
SY 7.008 11.838 5.887 À4.565 19.107
PCAID 6.831 6.691 5.268 24.671 5.638
gap, creates access to modern technology and managerial skills, and allows easier access
to foreign markets.
Acknowledgements
Valuable comments of two anonymous referees are greatly appreciated. Of course, we
alone remain responsible for any errors.
Appendix A. The descriptive statistics
Table A1
Growth (%) of real GDP per capita
Togo Senegal Niger Nigeria Rwanda
Mean 0.0315 À0.0824 À2.1004 0.4154 0.9049
S.D. 5.9369 4.5713 6.1776 8.0819 10.1008
Kurtosis 3.7190 3.0571 4.6833 4.3101 10.5225
Skewness À0.3252 0.0180 À0.9327 0.3984 À1.1033
Correlation matrix
Togo 1.0000 À0.2370 0.0569 0.0743 À0.0638
Senegal 1.0000 0.2839 0.0588 0.1213
Niger 1.0000 0.1269 0.0803
Nigeria 1.0000 0.0994
Rwanda 1.0000
Table A2
Growth (%) of real foreign aid per capita
Togo Senegal Niger Nigeria Rwanda
Mean 6.4871 7.4793 8.3845 5.0441 12.4372
S.D. 30.0242 31.0778 30.3416 39.8457 33.2343
Kurtosis 2.3865 3.7422 3.5636 11.8618 9.0431
Skewness 0.0627 1.1142 0.9599 2.6268 1.8067
Correlation matrix
Togo 1.0000 0.4233 0.2092 0.0776 0.2190
Senegal 1.0000 0.2926 0.1089 0.2545
Niger 1.0000 À0.1931 0.0997
Nigeria 1.0000 À0.2065
Rwanda 1.0000
10. M. Irandoust, J. Ericsson / Economic Modelling 22 (2005) 616–627 625
Table A3
Growth (%) of savings-GDP ratio
Togo Senegal Niger Nigeria Rwanda
Mean 174.0696 À2.4259 136.5267 7.3823 71.3528
S.D. 869.3388 121.6608 431.3733 30.7008 1452.3648
Kurtosis 29.5399 9.8570 13.2874 3.5027 18.3199
Skewness 5.2372 À2.0039 3.3478 0.9170 1.5425
Correlation matrix
Togo 1.0000 0.1739 À0.1152 À0.0576 À0.6075
Senegal 1.0000 0.2137 0.0575 0.0986
Niger 1.0000 0.2741 0.1354
Nigeria 1.0000 0.1879
Rwanda 1.0000
Appendix B. Diagnostic tests
Table B1
Diagnostic testsa
Normalityb Autocorrelationc
Model (1) PCYit =c 0i +c li SYit +c 2i PCAIDit +e it ,
0.0489 0.4066
Model (2) log(PCYit )=c * +c *log(PCAIDit )+e *,
0i li it
0.1608 0.3143
a
The table reports the p-values.
b
The test is a multivariate extension of the Bowman–Shenton
test developed by Doornik and Hansen (1994).
c
This is the Ljung–Box test statistics for autocorrelation.
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