Using an innovative threshold estimation technique, this study examines whether the growth effect of financial development in countries with distinct levels of institutional development differs. The ...results demonstrate that there is a threshold effect in the finance-growth relationship. Specifically, we found that the impact of finance on growth is positive and significant only after a certain threshold level of institutional development has been attained. Until then, the effect of finance on growth is nonexistent. This finding suggests that the financial development-growth nexus is contingent on the level of institutional quality, thus supporting the idea that better finance (i.e., financial markets embedded within a sound institutional framework) is potent in delivering long-run economic development.
Rapid increases in energy consumption and economic growth over the past three decades are considered the driving force behind rising environmental degradation, which remain a threat to people and ...healthy environment. This study investigates the impact of energy consumption on environmental quality in the MINT countries using a panel PMG/ARDL modelling technique, and the Granger causality test spanning from 1971 to 2017. The empirical results confirm the existence of long-run nexus among the variables employed. The results also reveal that economic growth, energy consumption and bio-capacity have a positive and statistically significant effect on environmental degradation during the long run period. We find that a 1% increase in primary energy consumption leads to 0.4172% increase in environmental deterioration in the long-run period, but it is insignificant in the short run. This implies that energy consumption deteriorates environmental quality through a negative effect of ecological footprint. The result also suggests that as MINT countries increase the use of energy to accelerate pace of economic growth, environmental quality would deteriorate through increased ecological footprints. The coefficient of the error correction term (ect) is negative and significant (− 0.2306), suggesting that ecological footprint, a measure of environmental degradation would converge to its long-run equilibrium in the MINT region by 23.06% speed of adjustment every year due to contribution of economic growth, energy consumption, urbanization and biocapacity. The Granger non-causality test results reveal a unidirectional causal relationship from economic growth, energy consumption, and urbanization to ecological footprint and from economic growth to biocapacity. The results further show bi-directional causality between biocapacity and ecological footprint as well as between biocapacity and economic growth. Moreover, urbanization causes economic growth and biocapacity Granger-causes urbanization. Based on these findings, policy implications are adequately discussed.
Using banking sector and stock market development indicators, we examine the effect of institutional quality on financial development in developed and developing countries. Empirical results are ...based on dynamic system generalized method of moments estimations and demonstrate that a high-quality institutional environment is important in explaining financial development, specifically for the banking sector. However, the stock market development-institution relationship is contingent one, characterized by a non-monotonic pattern. The results are robust to two measurements of institutions and governance indicators, as well as estimation methods.
In this paper, we investigate the systemic link between economic freedom, foreign direct investment (FDI) and economic growth in a panel of 85 countries. Our empirical results, based on the ...generalized method-of-moment system estimator, reveal that FDI by itself has no direct (positive) effect on output growth. Instead, the effect of FDI is contingent on the level of economic freedom in the host countries. This means the countries promote greater freedom of economic activities gain significantly from the presence of multinational corporations (MNCs).
This study uses a threshold regression model and finds new evidence that the positive impact of FDI on growth “kicks in” only after financial market development exceeds a threshold level. Until then, ...the benefit of FDI is non-existent.
We examine whether the relationship between financial development and income inequality varies with levels of institutional quality. The empirical evidence based on the threshold regression approach ...shows that there indeed exists an institutional quality threshold effect in the relationship between financial development and income inequality. Financial development tends to reduce income inequality only after a certain threshold level of institutional quality has been achieved. Until then, the effect of financial development on income inequality is nonexistent. This finding suggests that institutional quality affects the link between financial development and income inequality, reflecting the notion that better quality finance results in more equal income distribution.
This study investigates the dynamic effects of globalisation on institutions and financial development in East Asian economies using panel data tests. Our empirical results demonstrate that ...globalisation has a significant influence on institutional quality, and that institutional reforms in turn facilitate and support financial development, in particular the development of the banking sector in East Asia. Globalisation is also found to have a favourable direct impact on stock market development without passing through an institutional quality channel.
•This paper examines the threshold effects of political institutions on the relationship between financial development and economic growth in emerging market and developing countries.•Threshold ...restrictions implied by political institutions on finance-growth nexus are robust and, in most cases, less restrictive.•Developing countries with high-quality political institutions benefit from financial development.•Developing countries with low-quality political institutions have no clear gain from financial deepening.•Pragmatic reforms targeting the political institutional binding constraints are crucial to improve the growth dividends due to financial development.
The empirical evidence predicts that political institutions are the core component of institutional matrix. They set stages for other institutions to be devised and influence the economic growth. Applying Kremer et al.’s (2013) dynamic panel threshold regression to a selected panel of 77 emerging market and developing countries over the period 1976–2010, we provide compelling evidence in favor of a split base on political institutions in the finance-growth nexus. The asymmetric impact of institutions on growth sets in around the optimum threshold level. Minimizing political risks through improvement in the quality of political institutions can improve the growth dividend due to financial development. Our empirical results appear to be robust across a wide range of alternative empirical strategies, several new disaggregate measures of political institutions, and also when addressing the endogeneity issues of the regressors.
Climate change is a global phenomenon in the 21st century. Hence, achieving environmental sustainability has become a global initiative to tackle the repercussions of climate change. Fossil fuel ...energy consumption and economic growth remain critical amidst environmental degradation and emissions. Contrary to the previous attempts, this study examines the impacts of conflicts – internal and external –, urbanization, and globalization on environmental degradation and emissions in Somalia. The autoregressive distributed lag (ARDL) model, kernelized regularized least squares (KRLS) machine learning method, and vector error correction modeling (VECM) method are utilized with annual time series data spanning 1985–2016. The empirical results show that external conflict, globalization, and urbanization increase environmental degradation in the long run but not in the short run, except globalization which has a constructive role in enhancing environmental quality in the short-run. Notably, internal conflict is inconsequential both in the short- and long-run. The results of the study are robust for various analysis methods and environmental pollution indicators. In contrast, the VECM results indicate that urbanization, economic growth, and internal and external conflicts Granger cause environmental degradation both in the short and long-run, whereas globalization causes environmental degradation in the short run only. Notably, there is bidirectional causality between urbanization and environmental degradation in the short run only. A striking result is that both internal and external conflicts are neither caused by environmental degradation nor other regressors in the short- and long-run. Hence, relevant policy implications are suggested based on the empirical findings of the study.
This study assesses the impact of corporate social responsibility (CSR) on corporate financial performance (CFP) by using an innovative threshold estimation technique. We examine whether the CSR ...effect on CFP is varied with the distinct levels of market differentiation. The empirical analysis is based on a world automotive panel dataset for the period of 2011–2017. We unveil an inverted V‐shaped relationship between CSR and CFP and confirm that the increasing nonparametric regression line up to a certain threshold level indicates a positive effect on CFP, whereas a decreasing line indicates a negative effect. Hence, these findings support the idea that engagement in CSR can boost firm performance by incorporating with market differentiation, since higher firm performance is associated with strong differentiation (i.e., less substitutability), but CSR may not provide large benefits in firms with too high market differentiation.
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