This paper investigates the extent of macroeconomic volatility caused by the transfer pricing behavior of multinational corporations. The study examined two possible transmission channels through which transfer pricing causes macroeconomic volatility, namely, terms of trade and budget policy channels. Using the EGARCH model with annual data on selected variables from 1980 to 2017, the paper found evidence of macroeconomic volatility caused by transfer pricing. The size of the shock from transfer pricing is high and statistically significant in the terms of trade and budget policy channels. Negative shock from multinational corporations shifting taxable income between high and low tax regimes had a larger effect than a positive shock on the country’s budget policy. The volatility caused by transfer pricing was short-lived in the terms of trade channel. However, in the budget policy channel, past volatility of transfer pricing persisted for a longer period to explain current volatility.
The Relation Between Exports of Main Products And Economic Growth of Key Econ...inventionjournals
This paper clarifies the literature of key product export growth and regional economic growth. The paper analyses impacts of key product export on regional economic growth and vice versa. The paper provides recent empirical evidence of the relation. Besides an evaluation of the recent relation between export growth and economic growth in Viet Nam, the paper assesses the relation between key product export and economic growth during 1996-2012 period based on quantitative and qualitative approaches. With constructed models, the paper examines the relation between key product export and economic growth and concludes that it is positive. The research findings show that key product export in every economic region contributes positively to regional economic growth although it varies in different regions. Based on existing literature and empirical analysis, the paper provides a number of strategies to improve key product export contribution to key economic regions in the most effective manner and vice versa. The paper creates a fundament for researchers and policy makers both regionally and nationally in order for developing effective orientations, policies and measures for promoting export and sustainable eoconomic development.
The main goal of this research was identifying non-resource non-energy goods with the highest
export potential for export to China from all the variety and complexity of the product range that Russia is able
to export. Under the new bilateral cooperation framework Russia is able to unleash its export potential and
effectively diversify its exports to China, while China - to receive a profitable supplier for the long term.
Post Deregulation Evaluation of Non-Oil Export and Economic Growth Nexus in N...iosrjce
The impact of non-oil export on economic growth in Nigeria has been one of the most debated issues
in recent years. This study examines the role of non-oil export on economic growth since deregulation between
1986 when deregulation took effect and 2012 which previous studies might have ignored. In achieving the
objectives of the study, Ordinary Least Square Methods was employed. The study reveals that the impact of nonoil
export on the economic growth was significant and positive as a unit increase in non-oil export impacted
positively by 43% on the productive capacity of goods and services in Nigeria during the period. This is evident
in the study that the contribution of non-oil sector during the period in Nigeria has improved above the results
of other studies carried out from the pre-deregulation era. The study among other things encourages the
government to further reinforce the legislative and supervisory framework of the non-oil sectors in Nigeria and
diversify the economy to ensure utmost contributions from all faces of the non-sector to economic growth of Nigeria.
The Relation Between Exports of Main Products And Economic Growth of Key Econ...inventionjournals
This paper clarifies the literature of key product export growth and regional economic growth. The paper analyses impacts of key product export on regional economic growth and vice versa. The paper provides recent empirical evidence of the relation. Besides an evaluation of the recent relation between export growth and economic growth in Viet Nam, the paper assesses the relation between key product export and economic growth during 1996-2012 period based on quantitative and qualitative approaches. With constructed models, the paper examines the relation between key product export and economic growth and concludes that it is positive. The research findings show that key product export in every economic region contributes positively to regional economic growth although it varies in different regions. Based on existing literature and empirical analysis, the paper provides a number of strategies to improve key product export contribution to key economic regions in the most effective manner and vice versa. The paper creates a fundament for researchers and policy makers both regionally and nationally in order for developing effective orientations, policies and measures for promoting export and sustainable eoconomic development.
The main goal of this research was identifying non-resource non-energy goods with the highest
export potential for export to China from all the variety and complexity of the product range that Russia is able
to export. Under the new bilateral cooperation framework Russia is able to unleash its export potential and
effectively diversify its exports to China, while China - to receive a profitable supplier for the long term.
Post Deregulation Evaluation of Non-Oil Export and Economic Growth Nexus in N...iosrjce
The impact of non-oil export on economic growth in Nigeria has been one of the most debated issues
in recent years. This study examines the role of non-oil export on economic growth since deregulation between
1986 when deregulation took effect and 2012 which previous studies might have ignored. In achieving the
objectives of the study, Ordinary Least Square Methods was employed. The study reveals that the impact of nonoil
export on the economic growth was significant and positive as a unit increase in non-oil export impacted
positively by 43% on the productive capacity of goods and services in Nigeria during the period. This is evident
in the study that the contribution of non-oil sector during the period in Nigeria has improved above the results
of other studies carried out from the pre-deregulation era. The study among other things encourages the
government to further reinforce the legislative and supervisory framework of the non-oil sectors in Nigeria and
diversify the economy to ensure utmost contributions from all faces of the non-sector to economic growth of Nigeria.
Россия значительно улучшила свое положение в глобальных цепочках добавленной стоимости (global value chains или GVC) с середины 1990-х годов, говорилось в исследовании ЕЦБ, опубликованном прошлым летом. Авторы рассматривали изменения, произошедшие в период с 1995 по 2011 год.
This article seeks to examine the impact of the Bangladesh’s stock market development on its economic growth from the period of 1989-2012. We have used Johansen Cointegration test to estimate the long-run equilibrium relationship between the variables and the Granger causality test was conducted in order to establish causal relationship, while the model was estimated using the error correction model (ECM). Johansen co-integration test results show that the Bangladesh’s stock market development and economic growth are co-integrated. This indicates that a long run relationship exists between stock market development and economic growth in Bangladesh. The causality test results suggest a unidirectional causality from stock market development to the economic growth. On the other hand, there is no “reverse causation” from economic growth to stock market development. The evidence from this study reveals that the activities in the stock market tend to impact positively on the economy. It is recommended therefore that stock market regulatory authority should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness.
Foreign direct investment environment and economic growthnakije.kida
Abstract: This paper examines the models of economic growth and the dynamic interaction between
models from the Solow Model to New Endogenous Models. Long-term relationship of these models
is noticed to have been related in terms of causality. Model comparisons were made to examine their
dynamics which is not as complex as reflected. Results that growth is led by endogenous or
exogenous factors are not verified to be absolute but relative. Results indicate that FDI affect the
economic growth in many developing countries, but there are also many cases (developed countries)
that show that economic growth has led to a long term increase of FDI flow. It is also verified that the
impact of FDI on the environment is relative, based on the fact that there are exogenous factors that
may affect the reduction of externalities. Causal link among FDI, economic growth and their impact
on the environment makes the endogenous models be analysed with the dynamics, through which is
shown best which is the “cause-consequence” factor, that causes gaps of concepts and practices in
economic growth and environmental concerns.
The paper aims to see the effect of Nominal, Real (External) and Effective Exchange rates (EER) of the U.S dollar on its Terms of Trade with two of its APEC trading partners Australia and New Zealand for the period 1991 to 2010. For analysis, the whole values, percentage changes and relationships between Nominal, Real, EER and Terms of Trade of U.S with the two countries has been taken into consideration. In order to fully access the relationship between the EER and TOT of the U.S with the two trading partners, the Classical Regression analysis is used. It was found that the Real Exchange rate was overvalued as compared to the Nominal Exchange Rate. It was also found that when compared to Nominal exchange rate, Real exchange rate is more effective in explaining the TOT. The Real AUD/USD had both short run and long run impacts on the TOT of U.S.A with Australia but the Real NZD/USD had no impact on the TOT of U.S.A with New Zealand. The EER has been found to be the most effective in determining the TOT balance. The regression analysis showed a regression function of “Terms of Trade= -122.026 + 2.1 Effective Exchange Rate”. The relationship is found by coefficient correlation (r) and there is found to be a positive and strong relationship between the two variables. The 𝑟2 value shows that although some values of the TOT are caused by the EER, there are also other variables that might be influencing the EER as well. The t-values show that the values of β0 and β1 are significant. Also the F-test confirms the overall significance of the model and terms the results as authentic.
The research studies the impact of the exchange rate fluctuations of the local currency on the share dividends exchanged in the stock market, and stating whether there is a trace of the fluctuations occurring in the exchange rate on the fluctuations reflected on the stock returns in the stock market – during the political and economic crisis in Syria. The descriptive analytical approach was adopted to indicate whether there is any direct or indirect impact of fluctuations in the exchange rate of the pound (Lira) against the dollar on the exchange value of the Damascus Securities Exchange Index. The study community consists of all stock companies listed in Damascus Securities Exchange. It covers the total of 23 listed companies. It relied on the period from 1/7/2011 through 12/31/2013 to study the impact of exchange rate fluctuations on stock returns, where the crisis began on 18/03/2011, but reflections on economic life began to appear in mid-2011 when the severe fluctuations in the exchange rate and returns began as a result of lack of stability and economic siege Syria has been witnessing and the study stretched until the year 2013. The data is a sort of daily observations of each of the dependent and independent variable sending with 381 observations. The study reached the many results some of which include that there is an inverse weak between the Syrian pound exchange rate and Damascus Securities Exchange Index returns. The inefficiency of Damascus Securities Exchange Index on the weak level, where, as we have seen, this index is not subject to normal distribution and it is auto-correlated of the third degree and does not settle at the first level; instead, it settles at the first change.
The current global situation in agribusiness is characterized by rapid changes and endless challenges under the influence of many factors, some of which compete unidirectional. Many countries are slowly reforming agricultural policies. This has helped to increase trade and the greater role of the private sector in agriculture vis-à-vis the state. The population growth, income and urbanization, changing crop culture, eating crops, declining crops to feed the population have contributed to rising global food prices. At the same time, consumer requirements related to safety, quality, convenience of trading are increasing and the differential between agricultural and commodity prices is constantly increasing due to the differences in the technological provision of the two production processes. The changed paradigm in the diet of produced, processed and, above all, health-safe but higher-priced and differentiated agricultural products has created opportunities for agricultural entrepreneurs to transform the goods into consumer-demanded products. Small, highly mobile family agribusiness has prompted greater private sector involvement in agriculture and focusing on the development and improvement of agricultural value chain chains (AVCs) in terms of quality, productivity, efficiency and depth. The value chains are formalized relationships between producer groups, dealers, processors, service providers and non-governmental organizations that unite to achieve productivity gains and added value to their activities. Individual added value is achieved by bringing together participants in a single value chain, and its participants increase competitiveness and are better able to maintain the level of this competitiveness through a culture of innovation.The limitations of each participant in the value chain are eliminated by establishing synergies and rules for communications along the chain, with the ultimate goal of achieving higher value. The main commercial advantages of stakeholders to engage as part of an effective value chain can be defined as:- The ability to reduce the cost of doing business; increasing revenue increasing market impact; -Enhancing access to technology, information and capital for the process of innovation in manufacturing and marketing in order to gain higher added value and ensure higher quality of customers. These and other important aspects of the functioning of value chains are the subject of research in this work. As a result, some conclusions are drawn about the place of the Balkan countries in the agribusiness development chains as well as the prospects for the development of the process in the whole.
Россия значительно улучшила свое положение в глобальных цепочках добавленной стоимости (global value chains или GVC) с середины 1990-х годов, говорилось в исследовании ЕЦБ, опубликованном прошлым летом. Авторы рассматривали изменения, произошедшие в период с 1995 по 2011 год.
This article seeks to examine the impact of the Bangladesh’s stock market development on its economic growth from the period of 1989-2012. We have used Johansen Cointegration test to estimate the long-run equilibrium relationship between the variables and the Granger causality test was conducted in order to establish causal relationship, while the model was estimated using the error correction model (ECM). Johansen co-integration test results show that the Bangladesh’s stock market development and economic growth are co-integrated. This indicates that a long run relationship exists between stock market development and economic growth in Bangladesh. The causality test results suggest a unidirectional causality from stock market development to the economic growth. On the other hand, there is no “reverse causation” from economic growth to stock market development. The evidence from this study reveals that the activities in the stock market tend to impact positively on the economy. It is recommended therefore that stock market regulatory authority should therefore address policy issues that are capable of boosting the investors’ confidence through improved policy formulation and creation of awareness.
Foreign direct investment environment and economic growthnakije.kida
Abstract: This paper examines the models of economic growth and the dynamic interaction between
models from the Solow Model to New Endogenous Models. Long-term relationship of these models
is noticed to have been related in terms of causality. Model comparisons were made to examine their
dynamics which is not as complex as reflected. Results that growth is led by endogenous or
exogenous factors are not verified to be absolute but relative. Results indicate that FDI affect the
economic growth in many developing countries, but there are also many cases (developed countries)
that show that economic growth has led to a long term increase of FDI flow. It is also verified that the
impact of FDI on the environment is relative, based on the fact that there are exogenous factors that
may affect the reduction of externalities. Causal link among FDI, economic growth and their impact
on the environment makes the endogenous models be analysed with the dynamics, through which is
shown best which is the “cause-consequence” factor, that causes gaps of concepts and practices in
economic growth and environmental concerns.
The paper aims to see the effect of Nominal, Real (External) and Effective Exchange rates (EER) of the U.S dollar on its Terms of Trade with two of its APEC trading partners Australia and New Zealand for the period 1991 to 2010. For analysis, the whole values, percentage changes and relationships between Nominal, Real, EER and Terms of Trade of U.S with the two countries has been taken into consideration. In order to fully access the relationship between the EER and TOT of the U.S with the two trading partners, the Classical Regression analysis is used. It was found that the Real Exchange rate was overvalued as compared to the Nominal Exchange Rate. It was also found that when compared to Nominal exchange rate, Real exchange rate is more effective in explaining the TOT. The Real AUD/USD had both short run and long run impacts on the TOT of U.S.A with Australia but the Real NZD/USD had no impact on the TOT of U.S.A with New Zealand. The EER has been found to be the most effective in determining the TOT balance. The regression analysis showed a regression function of “Terms of Trade= -122.026 + 2.1 Effective Exchange Rate”. The relationship is found by coefficient correlation (r) and there is found to be a positive and strong relationship between the two variables. The 𝑟2 value shows that although some values of the TOT are caused by the EER, there are also other variables that might be influencing the EER as well. The t-values show that the values of β0 and β1 are significant. Also the F-test confirms the overall significance of the model and terms the results as authentic.
The research studies the impact of the exchange rate fluctuations of the local currency on the share dividends exchanged in the stock market, and stating whether there is a trace of the fluctuations occurring in the exchange rate on the fluctuations reflected on the stock returns in the stock market – during the political and economic crisis in Syria. The descriptive analytical approach was adopted to indicate whether there is any direct or indirect impact of fluctuations in the exchange rate of the pound (Lira) against the dollar on the exchange value of the Damascus Securities Exchange Index. The study community consists of all stock companies listed in Damascus Securities Exchange. It covers the total of 23 listed companies. It relied on the period from 1/7/2011 through 12/31/2013 to study the impact of exchange rate fluctuations on stock returns, where the crisis began on 18/03/2011, but reflections on economic life began to appear in mid-2011 when the severe fluctuations in the exchange rate and returns began as a result of lack of stability and economic siege Syria has been witnessing and the study stretched until the year 2013. The data is a sort of daily observations of each of the dependent and independent variable sending with 381 observations. The study reached the many results some of which include that there is an inverse weak between the Syrian pound exchange rate and Damascus Securities Exchange Index returns. The inefficiency of Damascus Securities Exchange Index on the weak level, where, as we have seen, this index is not subject to normal distribution and it is auto-correlated of the third degree and does not settle at the first level; instead, it settles at the first change.
The current global situation in agribusiness is characterized by rapid changes and endless challenges under the influence of many factors, some of which compete unidirectional. Many countries are slowly reforming agricultural policies. This has helped to increase trade and the greater role of the private sector in agriculture vis-à-vis the state. The population growth, income and urbanization, changing crop culture, eating crops, declining crops to feed the population have contributed to rising global food prices. At the same time, consumer requirements related to safety, quality, convenience of trading are increasing and the differential between agricultural and commodity prices is constantly increasing due to the differences in the technological provision of the two production processes. The changed paradigm in the diet of produced, processed and, above all, health-safe but higher-priced and differentiated agricultural products has created opportunities for agricultural entrepreneurs to transform the goods into consumer-demanded products. Small, highly mobile family agribusiness has prompted greater private sector involvement in agriculture and focusing on the development and improvement of agricultural value chain chains (AVCs) in terms of quality, productivity, efficiency and depth. The value chains are formalized relationships between producer groups, dealers, processors, service providers and non-governmental organizations that unite to achieve productivity gains and added value to their activities. Individual added value is achieved by bringing together participants in a single value chain, and its participants increase competitiveness and are better able to maintain the level of this competitiveness through a culture of innovation.The limitations of each participant in the value chain are eliminated by establishing synergies and rules for communications along the chain, with the ultimate goal of achieving higher value. The main commercial advantages of stakeholders to engage as part of an effective value chain can be defined as:- The ability to reduce the cost of doing business; increasing revenue increasing market impact; -Enhancing access to technology, information and capital for the process of innovation in manufacturing and marketing in order to gain higher added value and ensure higher quality of customers. These and other important aspects of the functioning of value chains are the subject of research in this work. As a result, some conclusions are drawn about the place of the Balkan countries in the agribusiness development chains as well as the prospects for the development of the process in the whole.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
American Journal of Multidisciplinary Research and Development is indexed, refereed and peer-reviewed journal, which is designed to publish research articles.
Foreign capital flows depends on the prevailing monetary forces as supported by capital flows
theory and the mechanism linking these two variables is that contraction of net domestic assets through an
open market sale of bonds will place upward pressure on domestic interest rates. Higher interest rates attract
foreign funds, generating a capital inflow which relieves the pressure on domestic interest rates. Has this
actually happened? It is against this backdrop that the present study investigated the impact of monetary policy
on international capital inflows in Nigeria for a period of 22 years (1994-2015) using time series data. The
autoregressive distributed lag technique revealed that the short-run and long-run significant determinants of
foreign capital inflows are largely from broad money supply, nominal exchange rate, inflation rate and interest
rates spread except inflation rate that is insignificant in the long-run. This outcome upholds theoretical
prediction. Long-run equilibrium relationship was found between the dependent variable and the regressors.
Further examination of the short run dynamics of the model showed that the speed of adjustment coefficients
ECM (-1) to restore equilibrium have a negative sign and statistically significant at 1% level, ensuring that
long-run equilibrium can be attained and about 89% of the short-run deviation from the equilibrium (long-run)
position is corrected annually to maintain the equilibrium. Since the empirical evidence revealed that monetary
aggregates such as broad money supply, nominal exchange rate, inflation rate and interest rates spread
influence foreign capital inflows, it is therefore recommended that government should continue to pursue
expansionary monetary policy and foreign exchange policies that would ensure competitiveness of the
economy in order to attract the much needed foreign capital inflows that would engender economic growth.
After the fall of Bretton Woods System, exchange rates become the focus of researchers and politicians. When a floating exchange rate system was started researchers investigated the impact of exchange rate volatility on international trade but the development of derivative instruments changed the researchers focus from currency volatility towards the impact of currency appreciation or depreciation on international trade. The main objective of this research was to investigate the short run and long run relationship between Turkey’s merchandise trade deficit and real effective exchange rate. The monthly data was collected from Central Bank of Republic of Turkey from March 2005 to September 2017. Autoregressive distributed lag (ARDL) approach and Error correction model (ECM) was used for the analysis. The finding shows that the variables have long run relationship but it is not significant at 5% significance level. The short run model also shows the insignificant results. These findings have the following policy implication: Turkey cannot improve the merchandise trade deficit by devaluating its currency.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
QUALITY ASSURANCE FOR ECONOMY CLASSIFICATION BASED ON DATA MINING TECHNIQUESIJDKP
Researchers in the quality assurance field used traditional techniques for increasing the organization income and take the most suitable decisions. Today they focus and search for a new intelligent techniques in order to enhance the quality of their decisions. This paper based on applying the most robust trend in computer science field which is data mining in the quality assurance field. The cases study which is discussed in this paper based on detecting and predicting the developed and developing countries based on the indicators. This paper uses three different artificial intelligent techniques namely; Artificial Neural Network (ANN), k-Nearest Neighbor (KNN), and Fuzzy k-Nearest Neighbor (FKNN). The main target of this paper is to merge between the last intelligent techniques applied in the computer science with the quality assurance approaches. The experimental result shows that proposed approaches in this paper achieved the highest accuracy score than the other comparative studies as indicates in the experimental result section.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
The study is on the effect of Net capital inflow on inclusive growth in Nigeria. This study seeks to deepen the understanding on how capital inflow creates opportunity for inclusive growth in Nigeria through increase in GDP per capita. The objective of the study were to : determine the effect of Net capital inflow , Net foreign direct investment and trade openness on inclusive growth in Nigeria. The study employed the time series data in its analysis. The period of analysis spanned through 1980-2015 and the dataset required for the analysis were sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin and National bureau of statistics publications. The study conducted trend analysis, descriptive analysis. The data were also tested for stationarity using the Augmented Dickey Fuller (ADF) unit root test and Ordinary Least Square (OLS) analytical techniques, cointegration test and error correction mechanism. It was evident from the unit root test that the variables were fractionally integrated while the cointegration test reveals that long run relationship exists among the variables. The findings equally reveal that capital inflow exerts significant negative influence on GDP per capita. This could be attributed to the problem of managing external capital flows which has been sub-optimal in most developing economies including Nigeria. The implication of this finding is that the perceived benefits that are associated with capital inflows tend not to hold sway in Nigeria over the sampled period which may be attributed to institutional and governance failure. Owing to the findings, this study recommends for the adoption of investment friendly policies and ensure transparency and good governance, appropriate economic management practices capable of supporting reforms in the Nigerian financial system and guide international capital inflows to ensure that the associated economic turnarounds are people-centered.
The aim of this study is to assess the impact of stock market characteristics on African economic
growth. We perform a panel smooth threshold regression (PSTR) analysis developed by Gonzalez et al. (2005)
using two panels of African countries from 1990 to 2020 for the first panel and 2006 to 2020 for the second
panel. The findings indicate that there is a specific threshold above which the stock market has an impact on
economic growth, namely market size and asset turnover, both of which positively affect growth. Market
liquidity, on the other hand, has a negative impact on growth. Our main recommendations are to share market
liquidity between private investors and the government on the one hand, and to increase market liquidity on the
other
Asymmetric Co-integration between Exchange Rate and Trade Balance in ThailandPremier Publishers
This paper empirically examines the long-run exchange rate pass-through into trade balance in Thailand. The study incorporates political stability in the short run model to ascertain its effect on the trade balance. Asymmetric co-integrating adjustment method proposed by Enders and Siklos (2001) is employed for the study. The empirical findings revealed that there exists an asymmetric cointegration relationship between exchange rate and trade balance as well as exchange rate and imports & exports volumes after conducting a momentum-threshold autoregressive (M-TAR) and threshold autoregressive (TAR) tests respectively. The results of the short run effects showed that political stability has no meaningful effect on trade balance of Thailand. The findings have further shown that changes in real exchange rate have contributed to the presence of trade balance deficit in Thailand during the period under study; which is most likely to be as a result of massive imports of crude oil between the late 1990’s and through to 2010.
Similar to Transfer Pricing of Multinational Corporations and Macroeconomic Volatility: Evidence from the U.S. (20)
This study examined the influence of the characteristics of the audit committee on Palestinian firms’ value. The research explores precisely the effect on the Audit Committee characteristics’ efficiency, namely, independence, expertise, evaluating the relationship among dependent and independent variables. Secondary data collected from a list of companies were registered in the Palestine Stock Exchange from 2011 to 2018. Individual variables considered are the independence & expertise of the audit committee, whereas the ROA is employed as the dependent variable as an indicator of a firm’s value. The results showed that the Audit Committee’s independence & expertise substantially positive with ROA. The study concluded that the audit committee’s characteristics are enhancing firm performance. The implications of this study’s findings can be used by decisions and policymakers, the firm’s management, and other stockholders’ interests to create reliable ties between agents and the principals.
There is increasing acceptability of emotional intelligence as a major factor in personality assessment and effective human resource management. Emotional intelligence as the ability to build capacity, empathize, co-operate, motivate and develop others cannot be divorced from both effective performance and human resource management systems. The human person is crucial in defining organizational leadership and fortunes in terms of challenges and opportunities and walking across both multinational and bilateral relationships. The growing complexity of the business world requires a great deal of self-confidence, integrity, communication, conflict, and diversity management to keep the global enterprise within the paths of productivity and sustainability. Using the exploratory research design and 255 participants the result of this original study indicates a strong positive correlation between emotional intelligence and effective human resource management. The paper offers suggestions on further studies between emotional intelligence and human capital development and recommends conflict management as an integral part of effective human resource management.
This paper examines the role of loan characteristics in mortgage default probability for different mortgage lenders in the UK. The accuracy of default prediction is tested with two statistical methods, a probit model and linear discriminant analysis, using a unique dataset of defaulted commercial loan portfolios provided by sixty-six financial institutions. Both models establish that the attributes of the underlying real estate asset and the lender are significant factors in determining default probability for commercial mortgages. In addition to traditional risk factors such as loan-to-value and debt servicing coverage ratio lenders and regulators should consider loan characteristics to assess more accurately probabilities of default.
This study examined the impact of financial innovation on money demand in Nigeria, using quarterly time series for the period 2009-2019. The dependent variable was money demand, represented by broad money, while the independent variable was financial innovation represented by modern payment channels such as volume of Automated Teller Machines (ATMs) transactions, volume of Point of Sales (POS) transactions, volume of Internet banking transactions, and volume of Mobile banking transactions. The study employed the ordinary least squares (OLS) regression technique as the estimation method within the cointegration, granger causality, and error correction modeling. The result obtained showed that financial innovation has mixed impact on money demand in Nigeria during the period of analysis. For instance, financial innovation has positive impact on money demand through volume of ATM transactions in the current period, two periods lagged of volume of mobile banking transactions, current period and one period lagged of volume of internet banking transactions, and current period’s volume of Point of Sales (POS) transactions in Nigeria. On the other hand, financial innovation has negative impact on money demand through one period lagged of volume of point of sales in Nigeria. On the stability of the demand for money function, the result of the stability tests based on the CUSUM test and CUSUM of squares test showed that the demand for money function was stable during the evaluation period. The study recommended that monetary policy strategy of the central bank of Nigeria (CBN) should be fine-tuned to ensure it is well suited to deal with the challenges posed by financial innovation by way of proliferation of sophisticated payment channels.
Equity financing is one of the sources of funding available to non-bank financial institutions which is quite prevalent in developed financial markets for small or start-up firms. This study empirically determined the effect of the Equity Financing Scheme on a sustainable increase in productivity of agro-allied small businesses in Nigeria. Data for this study were elicited through the use of a questionnaire structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that the equity financing scheme had a positive and significant effect on the sustainable productivity of agro-allied small businesses in South-South Nigeria. The study recommended that efforts should be made to educate the small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This study seeks to evaluate the impact of public borrowing on economic growth in Nigeria using time series data from 1980 to 2018. Specifically, the study seeks to analyze the effect of domestic debt (proxy by Federal Government Bonds-FGB) and external debt (proxy by International Monetary Fund Loan-IMFL) on Nigerian’s Gross Domestic Product (GDP). To achieve this objective, secondary data was collected from the Central Bank of Nigeria Statistical bulleting and the Debt Management Office of Nigeria. A multiple regression model involving the dependent variable (GDP) and the independent variables (FGB and IMFL) was formulated and subjected to econometric analysis. These variables were adjusted with the Jarque-bera test of normality while the correlation result was used to check the possibility of multi-collinearity among the variables. The t-test was used to answer the research questions and test the formulated hypotheses at the 5percent statistical level. Results from the analysis show that a positive relationship exists between IMF Loan and Nigeria’s gross domestic product, while a negative relationship exists between FG Bonds and Nigeria’s gross domestic product, which violates the Keynesian theory of public debt. The study concludes that both domestic and external debt significantly affect economic growth in Nigeria. Therefore, it was recommended that public borrowing should be efficiently used and contracted solely for economic reasons and not for social or political reasons as this will help to avoid accumulation of debt stock over time.
Equity investment financing is an innovative way of financing the real sector which has considerable developmental potential. The study empirically determined the effect of Equity investment financing on sustainable increase in productivity among agro-allied small businesses in South-South Nigeria. The instrument of data collection is the research questions structured in a five-point likert scale. The evaluation of the relationship between the dependent and independent variables was performed using the Ordinary Least Square regression technique. The study revealed that equity investment financing has a positive and significant effect on the sustainable productivity of businesses in Nigeria. The study recommended educating small business entrepreneurs on the benefits of equity financing as a viable option towards business growth and expansion and that the government through the various intervention agencies should restructure the long-term loan policies to give access to more growth-oriented agro-allied businesses, to increase their presently low capacity to procure heavy-duty technology to increase productivity and achieve food security in Nigeria. Small business owners should take advantage of the membership of cooperative societies and as well maintain good business relationships with suppliers; this will guarantee a continuous supply of needed materials and uninterrupted operations of the business.
This paper aims to explore the relationships of the performance of producer responsibility organizations (PROs) for waste oil, waste electrical and electronic equipment (WEEE), and end-of-life vehicles (ELV). The methodology consists in estimating the cointegration equations between the variables of lubricating oil production (SIG), electric and electronic equipment (EEE), and vehicle production (VP) using dynamic ordinary least squares (DOLS). Subsequently, elasticities are got based on estimates for Spain over the period 2007-2019 using quarterly data. The main results were that SIG and EEE were cointegrated variables. The elasticity of the SIG variable up to EEE was positive at 2, 4166. Additionally, the elasticity of the SIG variable up to VP was 2, 4050. However, SIG and VP are not cointegrated variables; subsequently, it was not a stable relationship between these variables. Results suggest it was because EPR was applied in WEEE PRO join with a deposit refund system (DRS); meanwhile, EPR in ELV PRO had been applied without subsidies to purchase cars.
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In Bangladesh, migrant worker’s remittances constitute one of the most significant sources of external finance. This paper investigates the existence of relation between remittance inflow and GDP and the causal link between them in Bangladesh by employing the Granger causality test under a VECM framework. Using time series data over a 38 year period, we found that growth in remittances does lead to economic growth in Bangladesh. In addition to the relationship, this paper also points out some issues that are working as impediments in getting remittance and give some recommendations to overcome those impediments.
In the context of the 4.0 revolution, technology applications, especially cloud computing will have strong impacts on all areas, including accounting systems of enterprises. Cloud computing contributes to helping the enterprise accounting apparatus become compact, help automate the input process, improve the accuracy of the input data. Besides, the issur of accounting, reporting, risk control and information security also became better, contributing to improving the effectiveness of accounting. However, besides the positive impacts, businesses also face many difficulties in deploying and applying cloud computing. However, this application requirement will become an inevitable trend contributing to improving the operational efficiency of enterprises. To promote this process requires from the State as well as businesses themselves must have awareness and appropriate decisions. Breakthroughs in information technology have dramatically changed the accounting industry and the creation of financial statements. The Internet and the technologies that use the power of the Internet are playing an important role in the management and accounting activities of businesses - who always tend to be ready to receive and use public innovations technology in collecting, storing, processing and reporting information.
In recent years, Vietnam has joined international intergration by strong export agreements of bilateral and multilateral; Vietnam’s merchandise export in 1995 was only US $5.4 billion, in 2018 Vietnam’s merchandise export increased by 45 times compared to 1995 with US $244 billion. Vietnam’s imports increased by 29 times in 2018 compared to 1995. This study is an attempt to test a method of estimating the influence of exports on several Supply-sidefactors such as production value, value added and imports through the expansion of the standard system W. Leontief I.O and Miyazawa-style economic-demographic relations. This study also tries to make an experiment in the “Leontief Paradox”.The result is that Vietnam’s export value spread to production and imports but spread low to added value, especially in the processing industry group’s fabrication. The study is based on the non-competitive I.O table in 2012 and 2018 with 16 sectors.
The profitability of commercial banks is influenced by a number of internal and external factors. This paper attempts to identify the internal factors which significantly influence the profitability of commercial banks in Bangladesh. In this study, profitability is measured by ROA and ROE which may be significantly influenced by the internal factors such as IRS, NIM, CAR, CR, DG, LD, CTI and SIZE of the bank. Data are collected from published annual reports during 2014--2018 of 23 commercial banks. Using simple regression model, it is found that CR has significant effect on the profitability and CAR has significant influence on ROA only. In addition to this, DG has significant effects on PCBs’ profitability (ROE only) where as IRS and CTI have significant influence on profitability (ROA only) of ICBs. Further, none of these variables have significant effects on the profitability of SCBs but CAR and CR are correlated with profitability (ROA only) and the causes may be the nature of services provided by SCBs to its clients. The internal policy makers should manage the influential internal factors of the banks in order to increase their profitability so that they can meet stakeholders’ expectations.
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to their last period’s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to the private sector because of its strategic importance in creating and generating growth of the economy.
This paper investigates if forecasting models based on Machine Learning (ML) Algorithms are capable to predict intraday prices in the small, frontier stock market of Romania. The results show that this is indeed the case. Moreover, the prediction accuracy of the various models improves as the forecasting horizon increases. Overall, ML forecasting models are superior to the passive buy and hold strategy, as well as to a naïve strategy that always predicts the last known price action will continue. However, we also show that this superior predictive ability cannot be converted into “abnormal”, economically significant profits after considering transaction costs. This implies that intraday stock prices incorporate information within the accepted bounds of weak-form market efficiency, and cannot be “timed” even by sophisticated investors equipped with state of the art ML prediction models.
Applying the Arrow-Debreu-Mundell-Fleming model as an economic standard model, with combining axiological framework and epistemological model, it is proposed to analyze economic policies with using a synthetic model, where interest, exchange and tax rates are integrated together. Except normal monetary and fiscal policies mainly via interest and tax rates, there are feasible ways to utilize modified strategies via exchange and tax rates. When ones need to simulate national local market, ones can raise the exchange rate. Otherwise, when ones need to promote international global trade, ones may lower the exchange rate. It is found that tax reduction is good policy when tax rate is higher than normal and that tax increase is good social policy when tax rate is lower than normal, during economic depression. Also it is revealed that tax reduction is good social policy when tax rate is lower than normal, and that tax increase is good policy when tax rate is higher than normal, during economic overheat. While economic system seeks efficiency and social system pursues equality, common interest modifications with elastic exchange and tax rates could be applied for balancing efficiency and equality.
In recent times, agricultural sector has returned to the forefront of development issues in Nigeria given its contribution to employment creation, sustainable food supply and provision of raw materials to other sectors of the economy. In lieu of that, this study examines the impact of agriculture on the economic growth in Nigeria using annual time series data covering the sample period of 1981 to 2018. To analyse the data collected, Autoregression Distributed Lag (ARDL) model through the bounds testing framework is employed to measure the presence of cointegrating relations between real GDP, agricultural productivity, labour force, and agricultural export. Results show the presence of both short-run and long-run relationship among the variables, and that agriculture has a positive and significant impact on economic growth in Nigeria. These findings inform the Nigerian government on the need to expedite labour force (human capital) and agricultural export (non-oil) development with the view to achieving sustainable growth and development. In addition, developing skills and competencies of labour force through capacity building in the agricultural sector will encourage research and development thereby increase the export size, hence essential for long-term growth.
The article illustrates the results of the economic development of the first fifteen years of the XXI century under the conditions of unprecedented economic freedom, globalization and the appearance of new informational sectors up to and including the first attempts at revising liberalism. The analysis of statistical data demonstrates an obvious increase in the percentage of well-off people in many countries as well as the increased economic capabilities of small, medium and large businesses, whose assets are distributed among an ever-increasing number of owners. This provides the impetus to review our collective approach to liberalization and globalization, as well as to view its unexpected strong sides that make human progress possible.
This paper investigates the relationship between working capital management and financial performance of Pharmaceuticals and Textile firms listed at the Dhaka Securities Exchange in Bangladesh. The data analysis was carried on ten Pharmaceuticals and Textile firms for a period of 2013 to 2017. Secondary Data was analyzed by applying Descriptive Statistics, Regression and Correlation analysis to findthe relationship of current ratio, inventory conversion period and average payment period with Return on Asset. The findings indicate that the Pharmaceuticals and Textile firms’ performance is influenced by the variables relating to working capital. There is a positive relationship between profitability and current ratioand Inventory Turnover period shows a negative relationship with profitability but Average payment period shows insignificant impact on profitability. The study concludes that there exists a relationship between working capital managementand financial performance of Pharmaceuticals and Textile firms in Bangladesh. The study recommends that for the Pharmaceuticals and Textile firms to remain profitable, they should employ working capital management practice that will help in making decisions about investment mix and policy, matching investment to objective, asset allocation for institution and balancing risk against profitability.
Organizational behaviour involves the design of work as well as the psychological, emotional and interpersonal behavioural dynamics that influence organizational performance. Management as a discipline concerned with the study of overseeing activities and supervising people to perform specific tasks is crucial in organizational behaviour and corporate effectiveness. Management emphasizes the design, implementation and arrangement of various administrative and organizational systems for corporate effectiveness. While the individuals, and groups bring their skills, knowledge, values, motives, and attitudes into the organization, and thereby influencing it, the organization, on the other hand, modifies or restructures the individuals and groups through its structure, culture, policies, politics, power, and procedures, and the roles expected to be played by the people in the organization. This study conducted through the exploratory research design involved 125 participants, and result showed strong positive relationship between the variables of interest. The study was never exhaustive due to limitations in terms of time and current relevant literature, therefore, further study could examine the relationship between personality characteristics and performance in the public sector, where productivity is not outstanding, when compared with the private sector. Based on the result of this investigation it was recommended that organizations should provide emotional intelligence programmes for their membership as an important pattern of increasing co-operative behaviours and corporate effectiveness.
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Transkredit Finance Company Products Presentation (1).pptx
Transfer Pricing of Multinational Corporations and Macroeconomic Volatility: Evidence from the U.S.
1. International Journal of Economics and Financial Research
ISSN(e): 2411-9407, ISSN(p): 2413-8533
Vol. 4, Issue. 8, pp: 266-273, 2018
URL: http://arpgweb.com/?ic=journal&journal=5&info=aims
Academic Research Publishing
Group
*Corresponding Author
266
Original Research Open Access
Transfer Pricing of Multinational Corporations and Macroeconomic Volatility:
Evidence from the U.S.
Patrick Ofei*
Zenith University College, Ghana
Abieku Neizer-Ashun
Hampton University, Virginia
George Owusu-Antwi
Higher Colleges of Technology, UAE
Evans Darnor Maka
Graduate School of Public Policy, University of Tokyo, Japan
Abstract
This paper investigates the extent of macroeconomic volatility caused by the transfer pricing behavior of
multinational corporations. The study examined two possible transmission channels through which transfer pricing
causes macroeconomic volatility, namely, terms of trade and budget policy channels. Using the EGARCH model
with annual data on selected variables from 1980 to 2017, the paper found evidence of macroeconomic volatility
caused by transfer pricing. The size of the shock from transfer pricing is high and statistically significant in the terms
of trade and budget policy channels. Negative shock from multinational corporations shifting taxable income
between high and low tax regimes had a larger effect than a positive shock on the country’s budget policy. The
volatility caused by transfer pricing was short-lived in the terms of trade channel. However, in the budget policy
channel, past volatility of transfer pricing persisted for a longer period to explain current volatility.
Keywords: Transfer pricing; Macroeconomic volatility; Principal component analysis; Terms of trade; Budget policy.
CC BY: Creative Commons Attribution License 4.0
1. Introduction
Economic globalization is perceived with much optimism by multinational corporations due to the opportunity
for expanded markets and global production networks. Multinational corporations seek to achieve economies of
scale through production networks established globally and expanded markets through mergers and acquisitions.
Consequently, intra-firm trade among multinational corporations has grown significantly across different
geographical borders, fueling foreign trade and investment. Nonetheless, this phenomenon has generally resulted in
censured chicaneries of multinational corporations, due to the vulnerability of affected economies to absorb external
shocks. Thus, globalization has an impact on both multinational corporations and economic policy makers.
The contribution of foreign trade to macroeconomics volatilities across countries cannot be overemphasized
(Cariolle, 2012). To this end, policy makers have developed countercyclical and, sometimes, pro-cyclical policies
and strategies that can determine the magnitude of volatility experienced by their economies (Cariolle, 2012; Rodrik,
1998;2000). Economic policy managers are usually confronted with the dilemma of growing their economies
through foreign investments and developing strong institutions on the one hand and developing mechanisms and
internal controls to absorb shocks from the volatilities created by foreign investors on the other. Consequently,
multinational corporations continue to face the challenge of double taxation from their operations in multiple
locations, as tax administrators seek to tax the same income more than once (OECD, 2013). Thus, multinational
corporations with profit as their objective function, likewise develop strategies to circumvent double taxation by
shifting taxable income from high to low tax regimes (Ofei, 2018).
The unprecedented economic crisis witnessed over the past decades in many economies has made the analysis
of macroeconomic volatility a key issue in the economics and public finance discourse. Thus, the contribution made
by international trade to macroeconomic volatility is one of the major themes commonly investigated in the literature
(Cariolle, 2011; Guillaumont, 2010; Loayza and Raddatz, 2007). According to the foregoing literature,
macroeconomic volatility covers a wide spectrum of indicators. Therefore, it is of utmost significance to understand
the role of such volatility indicators on economic performance. Notwithstanding, there is a diverse range of methods
available for measuring volatility (Gelb, 1979; Tsui, 1988).
Other supporting literature on sources of macroeconomic volatility (Combes and Guillaumont, 2002;
Guillaumont, 2010), focused on external sources of volatility, namely, exports, global prices, terms of trade, or
global interest rates. The internal forms of volatility identified were economic policy and natural disaster. Mauro and
Becker (2006) investigated and showed that external shocks are the causes of growth shocks, a notable example
being deterioration in terms of trade and a sudden decline in the flow of capital.
2. International Journal of Economics and Financial Research
267
Economic volatility was assessed to emanate partly from terms of trade and budget policy (Fatas and Mihov,
2007; Raddatz, 2007). This study draws on the findings of Fatas and Mihov (2007) and Raddatz (2007) to
investigate macroeconomic volatility that could emanate from transfer pricing. Existing literature has not adequately
examined the economic volatility caused by transfer pricing. However, the impact of transfer pricing on tax revenue
was researched by Ofei (2018). The motivation of this study is to expand on the scope of the existence of transfer
pricing, its determinants, and its impact on government revenue as researched by Ofei (2018) to examine the
volatilities in the general economic landscape. Thus, the study hypothesizes that transfer pricing has a causal effect
on macroeconomic volatility through two key channels, namely, (a) the terms of trade channel and (b) the budget
policy channel.
The study therefore seeks to (a) investigate the transmission channels through which transfer pricing by
multinational corporations cause macroeconomic volatility and (b) ascertain the extent to which macroeconomic
volatility causes transfer pricing. To this end, the study deploys a more quantitative approach through the use of
volatility clustering models, particularly the ARCH family of models, to achieve its purpose. This study is significant
and an original contribution to knowledge on how transfer pricing causes macroeconomic volatility. The study
elucidates the discovery of new facts, innovative reinterpretation of known data, and established ideas on transfer
pricing theory and practice. The study finds strong evidence of volatility caused by transfer pricing behavior of
multinational corporations with a high and statistically significant impact on the size of volatility in the terms of
trade and budget policy channels.
2. Review of Related Literature
Literature on transfer pricing examined for this study was broadly categorized under three thematic areas:
theoretical framework, existence of transfer pricing, and determinants of transfer pricing. The strand that examined
the theoretical framework of transfer pricing were found in the works of Eccles (1985), Hirshleifer (1956), Grabski
(1985), and Kanodia (1979). The second strand of literature examined the existence of transfer pricing (Clausing,
2003; Harris, 1993; Lall, 1973; Ofei, 2018; Swenson, 2001). The third strand of literature examined the determinants
of transfer pricing (Mulyani, 2010; Ofei, 2018; Serrasqueiro, 2009). Nonetheless, literature that focuses explicitly
and extensively on transfer pricing as a causal factor in macroeconomic volatility does not exist. Even if it does, it is
very rare and remains limited, leaving this critical issue largely unexplored.
Cariolle (2012) synthesized existing literature on measuring macroeconomic volatility and outlined the principal
methods used for calculating macroeconomic volatility. The study compared the methods and their properties based
on export revenue data for 134 countries from 1970 to 2005. The study attempted to draw a distinction between
measurements of the magnitude of volatility and those of asymmetry, using a diverse range of volatility indicators
such as export revenue, global prices, terms of trade, and international interest rates.
Ramey and Ramey (1995) examined the effect of economic volatility on growth rate using GDP per capita.
Using a sample of 92 countries and a sample of OECD countries, the study showed that countries with higher
volatility experienced lower growth. The study presented empirical evidence against the standard dichotomy in
macroeconomics that separates growth from the volatility of economic fluctuations. It further postulated that
government spending-induced volatility was negatively associated with growth.
Serven (1998) examined the effects of volatility on the investment in sub-Saharan Africa by using two measures
of macroeconomic volatility: (a) standard deviation and (b) coefficient of variation of several economic aggregates
such as terms of trade, black-market premium, and inflation. Using large cross-country time series data, the paper
presented empirical evidence on the negative association between investment and uncertainty. The findings showed
that uncertainty and instability were important factors behind the poor investment record of most African countries
over the last two decades.
Di Giovanni and Levchenko (2010) examined the impact of a high level of exposure to external shocks
combined with measures of macroeconomic volatility using the standard deviation of the growth rates of terms of
trade, GDP per capita, and exports. The study showed that the measure of standard deviation was strongly correlated
with terms of trade and output volatility. However, the standard deviation did not exhibit any close relationship with
the level of income, trade openness, and country characteristics.
Raddatz (2007) examined the contribution of external shocks to the volatility in output in developing countries
using measures based on the standard deviation of growth rate of selected macroeconomic variables such as price of
primary products, terms of trade, aid per capita, GDP per capita, and London Interbank Offered Rate (LIBOR). The
study quantified the effect of external and internal shocks using a panel Vector Auto Regression (VAR) approach
and compared the relative contributions of both shocks to output volatility. It found that the effect of external shocks
to output was relatively small in absolute terms.
Fatas and Mihov (2007) examined fiscal policy and macroeconomic volatility in Latin America. The study
found a negative impact of volatility in budget policy on growth in both OECD and developing countries. The study
concludes that economic volatility results partly from the volatility in budget policy.
3. Analytical Framework
This study provided a theoretical illustration of how transfer pricing of multinational corporations causes
economic volatility. The literature on economic volatility, particularly in developing countries, underscores the
contribution of both internal and external shocks to the vulnerability of these countries (Cariolle, 2011; Guillaumont,
2010). Two transmission channels of economic volatility stemming from transfer pricing were hypothesized,
3. International Journal of Economics and Financial Research
268
following the findings of Fatas and Mihov (2007) and Raddatz (2007). The channels were categorized into the terms
of trade channels — which identify terms of trade as a conduit through which transfer pricing causes macroeconomic
volatility — and the budget or fiscal policy channel, which identifies tax revenue as a conduit through which transfer
pricing causes macroeconomic volatility.
3.1. The Terms of Trade Transmission Channel
Terms of trade was identified as a key source of macroeconomic volatility (Mauro and Becker, 2006; Raddatz,
2007). It is defined, for the purpose of this study, as the relative price of export and import of goods and services
between two countries Deardorff (2016). Thus, a higher export price relative to import price improves the trade
balance for an exporting country and the converse is true for an importing country.
The findings of Xing and Detert (2010), in their study, support the importance of export and import pricing.
They studied how pricing of exports and imports of iPhone components and finished parts between China and the
U.S. worsened and improved the trade balance of the U.S. and China respectively. From the perspective of
multinational corporations with global production networks and subsidiaries, underpricing or overpricing of their
intra-firm transactions could cause a trade imbalance among the countries. Specifically, the terms of trade for the
country whose export has been underpriced would deteriorate and vice-versa. This suggests that manipulation of
export prices in intra-firm transactions between high and low tax regimes could cause macroeconomic volatility.
Therefore, it is plausible to carry out measures of volatility, based on the variance or coefficient of variation to
differentiated series of terms of trade (Cariolle, 2012).
3.2. The Budget Policy Transmission Channel
Afonso and Furceri (2010) supports Fatas and Mihov (2007) in emphasizing the negative effect of budget policy
volatility on growth in OECD and developing countries. A budget is an instrument of a fiscal policy, which entails
government tax revenue, government expenditure, fiscal balance, and primary balance. From a country’s fiscal
policy standpoint, the transfer pricing behavior of multinational corporations could be attributable to income-shifting
from a higher to lower tax rate jurisdiction (Ofei, 2018), as higher taxes tend to deplete the profits of multinational
corporations (Klassen and Laplante, 2012). This suggests that multinational corporations are able to keep income out
of the reach of the IRS by retaining their foreign income abroad (Ofei, 2018).
When mulitinational corporations shift taxable income from high to low tax regimes, it narrows the tax revenue
base of governments to support the budget and developmental initiatives. This affects primary balance in the affected
country. Primary balance describes the condition where expenditures, excluding interest payment and debt
redemption, are covered by tax revenues. It is computed by determining the balance of general expenditures and the
tax burden for the year under review. In recent years, the U.S. has been experiencing a considerable deficit in
primary balance (Bohn, 1998).
4. Methodology
4.1. Data
Time series data on variables with annual frequency was used to achieve the objectives of this study. The
variables are transfer pricing, nominal effective exchange rate, terms of trade, government revenue, tax revenue, and
trade openness. Transfer pricing data was obtained by computing the spread between the ratio of the total income tax
after credit to total sales (receipts) of foreign-controlled domestic corporations (FCDC) and domestic corporations
(DCC) (Ofei, 2018). The data was obtained from the U.S. (Internal Revenue Service, 2012) (IRS) statistics of
income.
The annualized time series data on nominal effective exchange rate from 1980 to 2017 was obtained from the
IMF international financial statistics (IFS) database. Data on terms of trade was obtained by computing the ratio of
the U.S. value of export to import from 1980 to 2017 denominated by the price deflator obtained from the IMF
World Economic Outlook (WEO) database. Trade openness was obtained by computing the ratio of the U.S.’s total
volume of trade to GDP with volume of export and import data from 1980 to 2017 obtained from the IMF WEO
statistical database. The data on government and tax revenues from 1980 to 2017 were obtained from IMF IFS. The
first difference of the selected series has been taken to ensure that the variables are mean reverting. Figure 1 in the
appendix shows the variables in their levels;
4.2. Empirical Model
4.2.1. Model Justification
The mainstream econometric analysis assumes a constant variance of the disturbance term over time. However,
the use of models and techniques to model the volatility (variance) of financial series has gained much attention in
financial econometrics in recent times (Asteriou and Hall, 2011). This underscores the fact that financial and
economic time series do show periods of unusually high volatility followed by a period of low volatility.
This implies that the expectation of the disturbance term might be greater in some periods than in others. In this
case, the assumption of homoskedasticity is limiting and a more robust means of examining the pattern to allow the
variance to depend on its history is preferable. The Autoregressive Conditional Heteroskedasticity (ARCH) family of
models, particularly the GARCH model built to deal with conditional variance (Engle, 1995), is considered for this
study. The study aims to examine the volatility caused by transfer pricing in relation to selected macroeconomic
4. International Journal of Economics and Financial Research
269
indicators of volatility; therefore, it assumes asymmetries in the response. That is, negative and positive shocks to
transfer pricing may impact differently on the selected indicators of macroeconomic volatility.
However, in the simple GARCH (1, 1) process, bad news and good news, that is, negative and positive shocks
are deemed to have the same impact on the conditional variance. Thus, to allow for an asymmetric volatility effect in
the conditional variance, the Exponential GARCH introduced by Nelson (1991) was chosen for this study.
4.2.2. Model Specification
First, the specification starts by modeling the conditional volatility as a GARCH (1,1) process.
The GARCH (p,q) model has the following form:
Yt= α +β1
Xt + ut [1]
Where ut |Ωt ᷉῀ iid N(0,ht)
Thus, ht enters the model as:
ht = γ0 + ∑ iht-1 + ∑ ju2
t-1 [2]
The above specification indicates that the value of the variance parameter ht depends on the historical value of
the shocks, for which the model captures at the lagged squared residual error term and on the past values of itself,
which the model captures at ht terms.
The simplest form of the GARCH (p,q) model is the GARCH(1,1) model with a variance equation indicated as
follows:
ht = γ0 + δ1ht-1 + γ1u2
t-1 [3]
Now, introducing the asymmetric term into the variance equation transforms the model to the Exponential
GARCH (1, 1), which was first developed by Nelson (1991), given by:
log(ht) = γ + ∑ j|
√
| + ∑ j
√
+ ∑ ilog(ht-1) [4]
Where γ, φs, σs, and βs are the parameters to be estimated and log(ht) is the logarithm of the variance series. In
effect, this makes leverage effect exponential and not quadratic. This implies that the estimate of the conditional
variance is expected to be non-negative. When σj < 0, then a positive shock (good news) generates less volatility than
a negative shock (bad news) (Asteriou and Hall, 2011).
The model is augmented further to include explanatory variables in the variance equation, since it is assumed
that there are other factors, apart from transfer pricing, that cause variability in the selected macrocosmic volatility
indicates.
Thus, the study estimates the EGARCH (1,2) process as follows:
∆ln(TOT) = β0 + β1i ∑ t-I ) + β 2i ∑ t-I ) + β3i ∑ t-I ) +ut [5]
∆ln(GR) = β0 + β1i ∑ t-I ) + β 2i ∑ t-I ) + β3i ∑ t-I ) +ut [6]
Where ut ᷉῀ iid N(0,ht) and ht = b1e2
t-1 + b2ht-1
5. Empirical Result and Analysis
Given the important role played by volatility clustering in the implementation of macroeconomic policies,
measuring the degree of volatility is of key interest to this study. As a result, the empirical analysis focuses on the
variance equation rather than the mean equation as shown in Table 1 in the appendix.
The parameter estimation in the variance equation indicates coefficients of -2.691 and 2.358, showing an impact
of the magnitude (size) of shock from transfer pricing to the terms of trade and budget policy channels respectively.
Having controlled for exchange rate and trade openness, the values are high and statistically significant.
Interestingly, the negative sign on the size coefficient for the terms of trade channel implies that transfer pricing
behavior has a relative effect, suggesting that when multinational corporations shift taxable income from high to low
tax regimes, it increases the volatility in one regime and reduces the volatility in the other. This observation is not
true for the budget policy channel.
The positive and negative coefficients of 2.729 and -1.461 for the terms of trade and budget policy channels,
respectively, indicates a positive leverage effect for the terms of trade channel and a negative leverage effect for the
budget policy channel. This implies that, given a positive shock from transfer pricing behavior of multinational
corporations and having controlled for exchange rate, trade openness, and tax revenue, the impact outweighs that of
a negative shock. However, a negative shock from multinational corporations shifting taxable income between high
and low tax regimes has a larger effect on a country’s budget policy than a positive shock.
The coefficients -0.271 and -0.103 that measure the persistence of conditional volatility — that is, how past
volatility explains current volatility for the terms of trade channel as depicted in Figure 2 in the appendix are
negative, small, and statistically insignificant. However, the coefficients 1.647 and -0.874 for the budget policy
channel are relatively large above 0.8 and statistically significant. This indicates that the volatility of transfer pricing
does not persist (short-lived) in the terms of trade channel. Conversely, the past volatility of transfer pricing persists
to explain current volatility in the budget policy. The conditional variance graph in Figure 2 in the appendix depicts
some ebbs and flows with much volatility witnessed, particularly from 1980 to 1989 and 2001 to 2003.
6. Robustness Check
In an attempt to interpret empirical results, some important caveats cannot be overlooked. As such, the empirical
model deployed by this study can be subject to major specification problems. As a result, alternative specifications
with an equally robust volatility model were considered to ascertain the degree of variance caused by transfer pricing
5. International Journal of Economics and Financial Research
270
on terms of trade and government budget, after controlling for exchange rate, trade openness, and tax revenue. This
study further hypothesized that there could be other factors whose omission could cause overestimation of the
parameters in the parsimonious EGARCH (1, 2) model.
The study chose the principal component analysis (PCA) model to capture variability and interdependence
among the selected variables. The PCA aims at reducing the dimensionality of the dataset in which there is a large
set of interrelated variables. The model works by identifying a set of principal components, which are linear
combinations of the original variables, while retaining much variation present in the original dataset. The new set of
principal components (PCs) are characterized by two properties: (a) That each principal component is uncorrelated
and (b) The PCs are arranged according to how much variation they possess (Sharma, 1996). The result is presented
in Table 2 in the appendix:
The result of the PCA shows that transfer pricing is the major source of volatility through the terms of trade
channel. From the table, the second and third PCs hold the substantial portion of the terms of trade variability.
Cumulatively, 89% of the original dataset is contained in the third PC and, by asymptotically analyzing the loadings,
it can be inferred that transfer pricing contains greater weight in the third PC than in all the other variables.
The result from Table 3 below shows that transfer pricing is the major source of volatility through the budget
policy transmission channel. Similar to the analysis under the terms of trade channel, cumulatively, PC 2 contains a
significant proportion of the original data set with a variance proportion of 27% and a cumulative variance of 77%;
thus, this study selects the component for further analysis. It can be observed that transfer pricing contains the
highest weight in PC 2 to underscore the fact that it causes much volatility relative to the other variables.
7. Conclusion
The recent economic crisis fueled by budget misalignments in both developed and developing countries has
called for fiscal consolidation and improvement in the primary balance across countries. Achieving primary balance
is necessary for medium-term debt sustainability, which has become a major concern for policy makers. While
individual and corporate income tax has been declining steadily in major advanced economies like the U.S., their
debt to GDP ratio continues to increase (Bohn, 1998). This discourse provides succinct evidence that corporate
institutions have adopted unconventional mechanisms of circumventing tax payments. Given that the U.S. tax rate
was consistent for all entities, the shortfall in tax values could be attributed to transfer pricing activities of
multinational corporations (Ofei, 2018). Transfer pricing is seen as a plausible strategy through which these
corporate institutions could achieve their goal of shifting taxable income from higher to lower tax rate jurisdictions.
It is crucial to assess the importance of transfer pricing activities of multinational corporations on the economy.
Nonetheless, very limited literature on transfer pricing and macroeconomic volatility exists. Consequently, this paper
aims to fill the current knowledge gap. The study attempted to investigate the impact of transfer pricing on
macroeconomic volatility through two key channels: terms of trade and budget policy. The study applied the
Exponential GARCH model to examine volatilities in the two channels using annual frequency U.S. data on transfer
pricing, nominal effective exchange rate, terms of trade, trade openness, government revenue, and tax revenue.
From the result of the estimation of the two models presented in Table 1, the study draws a valid conclusion:
Firstly, testing for the impact of magnitude of a shock showed that transfer pricing had a high impact on both the
terms of trade and budget policy channels. The magnitude of the impact was high and statistically significant in both
channels. Secondly, testing for asymmetries of bad (negative shock) and good news (positive shock) showed that
negative shock from the activities of multinational corporations in shifting taxable income between high and low tax
regimes had a larger effect than a positive shock on the country’s budget policy, even with the same impact
magnitude. Thirdly, testing for the persistence of past volatility showed that the volatility caused by transfer pricing
was not persistent in the terms of trade channel, but was persistent in the budget policy channel for a longer period.
The findings of the study offer a formidable framework through which policy makers could ascertain the degree
of volatility caused to the structural economy by the transfer pricing behavior of multinational corporations. Overall,
the findings of the study imply that countries can be affected by global movement in relative prices, particularly
through the terms of trade accounting and budget policy dynamics. The result, therefore, has an implication for
policy makers in both advanced and small economies. Though the movements in global prices transcend the control
of economic policy makers in specific country settings, policy makers can influence how such global prices
movements affect their economies. To achieve this, there is a need for international policy coordination and
guidelines on transfer pricing across member countries.
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Appendix
Figure-1. Time series plot of variables in their levels
Source: Authors’ own computation
Table-1. Result from an EGARCH (1, 2) model
Dependent Variables: Model (1) Terms of trade and Model (2); Government revenue
Parameters Coefficients(Model 1) Coefficients (Model 2)
Constant -0.024 (33.13***) -0.007 (-6.12***)
Transfer pricing 0.009 (6.79***) 0.002 (9.90***)
Trade openness -0.268 (61.45***) 0.111 (4.59***)
Nominal effective exchange rate -0.247 (23.97***)
Tax revenue 0.987 (14.59***)
Variance Equation
Constant -7.531 (-6.92***) -3.260 (-9,26***)
Arch effect -2.691 (-3.36***) 2.358 (3.63***)
Asymmetric effect 2.729 (4.95***) -1.461 (-3.08***)
GARCH (1) effect -0.271 (-1.63) 1.647 (12.54***)
GARCH (2) effect -0.103 (-1.59) -0.874 (-7.63***)
R2
-0.217 0.907
S.E of regression 0.068 1.120
Note (1): ***, **. * indicates 1% ,5% and 10% significant levels respectively. T-statistics reported in parenthesis (2)
Model 1 estimates the terms of trade channel while model (2) estimates the budget policy channel
Source: Author’s own computation from EGARCH (1, 2) Model
Figure-2. Conditional Variance Graph
Source: Authors’ own computation from the EGARCH (1, 2) model
.5
.6
.7
.8
.9
1980 1985 1990 1995 2000 2005 2010 2015
TOT
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1980 1985 1990 1995 2000 2005 2010 2015
TP
20
40
60
80
100
120
140
1980 1985 1990 1995 2000 2005 2010 2015
NEER
0
400,000
800,000
1,200,000
1,600,000
2,000,000
2,400,000
1980 1985 1990 1995 2000 2005 2010 2015
TR
0
400,000
800,000
1,200,000
1,600,000
2,000,000
2,400,000
2,800,000
1980 1985 1990 1995 2000 2005 2010 2015
GR
120
140
160
180
200
220
240
260
1980 1985 1990 1995 2000 2005 2010 2015
TO
.000
.004
.008
.012
.016
.020
.024
.028
1985 1990 1995 2000 2005 2010 2015
Conditional variance
8. International Journal of Economics and Financial Research
273
Table-2. Principal Component Analysis (The Terms of Trade Channel)
Loadings: PC 1 PC 2 PC 3 PC 4
Terms of trade 0.183 0.764 -0.519 0.335
Transfer pricing -0.126 0.594 0.792 -0.059
Nominal effective exchange rate -0.713 -0.115 0.024 0.690
Trade openness 0.664 -0.222 0.320 0.637
Importance of components:
Proportion of variance 0.38 0.28 0.23 0.11
Cumulative proportion 0.38 0.66 0.89 1
Standard deviation 1.53 2.64 3.56 4.00
Author’s own computation from PCA model
Note: PCs denotes principal components
Table-3. Principal Component Analysis (The Budget Policy Channel)
Loadings: PC 1 PC 2 PC 3 PC 4
Government revenue 0.683 0.047 0.218 -0.695
Transfer pricing -0.038 0.871 0.459 0.166
Trade openness -0.255 -0.457 0.851 -0.014
Tax revenue 0.683 -0.169 0.125 0.699
Importance of components:
Proportion of variance 0.51 0.27 0..22 0.00
Cumulative proportion 0.51 0.77 0.99 1
Standard deviation 2.02 1.06 0.89 0.02
Authors own computation from PCA model