Journal of Economics & Development - National Economics University - Hanoi, Vietnam
The missing middle phenomenon in Indian manufacturing sector: myths or realities?
Purpose This study attempts to examine the missing middle (MM) phenomena in the context of the Indian manufacturing sector using the unit level information from the database of Ministry of Corporate Affair, Government of India. Design/methodology/approach Unlike the previous studies, the present study first bifurcated the missing enterprises into two categories such as “permanently” dropped and “reappeared,” in order to pursue a meaningful analysis and derive conclusions with policy insights. Various financial indicators were used to explain the causes of MM phenomena during 2009–2010 and 2016–2017, in a logistic framework. Findings The study found that profit margin ratio is higher for the group of medium sized enterprises which continued in comparison to the units which dropped out permanently. Similar is the case with the ratio of investment turnover. The econometric results, however suggest that the relationship between the chances of a firm being dropped out and financial indicators is weak as the coefficients of various financial indicators are found to be statistically significant only for a few years. Originality/value The study suggests that the missing middle phenomenon is not a myth in India as very large number of medium-sized firms have been disappearing from the market over the years. Based on firm level data it identifies the factors which resulted in such a phenomenon.
The competitiveness of small and medium enterprises in the tourism sector: the role of leadership competencies
Purpose This research aims to adopt competitiveness theory to analyse the effects of leadership competencies on the competitiveness of small and medium-sized enterprises (SMEs) in the tourism sector. Design/methodology/approach This research collected data from 200 participants, who are in management positions of tourism SMEs in Vietnam. Structural equation modelling was applied. Findings The results indicate satisfactory reliability and validity of the constructs and support for two models within a structural equation modelling to evaluate the influence of leadership competencies on the competitiveness of SMEs. The data from both customers and competitors show that the competitiveness and the performance of the enterprise are affected by hands-on experience; relationships building competencies; strategic vision; operations management competencies. Furthermore, customers also value professional knowledge of the enterprises' leaders. Practical implications The study suggests that the government agencies and tourism SMEs themselves should focus more on leadership. Training courses, exchange programs, seminars and workshops should be provided for SMEs leaders to improve their leadership competencies. Originality/value The research findings provide a more comprehensive view of internal and external factors affecting the competitiveness of SMEs in the tourism sector in Vietnam. This also contributes to competitiveness and leadership research by presenting the positive linkage between leadership competencies and the competitiveness of SMEs.
Does it pay to be green? An exploratory analysis of wage differentials between green and non-green industries
Purpose This paper investigates the potential wage impacts of a shift to more environmentally sustainable production patterns. Design/methodology/approach The empirical analysis is carried out using labour force survey data and interval regressions. Findings Estimates at the individual level suggest that small wage differentials exist: individuals employed in green industries earn about seven per cent more than those working in non-green industries. Originality/value To date, very little is known about the characteristics of jobs in the green industry and by extension, the labour force effects that can emerge or change as a result of transitioning towards a greener economy. While exploratory in nature, this analysis seeks to shed light on an underdeveloped area of research, namely, wage inequalities associated with transitioning towards green growth.
Determinants of financial performance of listed firms manufacturing food products in Vietnam: regression analysis and Blinder–Oaxaca decomposition analysis
Purpose This article studies the impact of micro and macro factors on firm performance in the context of an emerging economy just changed from a subsidized economy to a market economy. Design/methodology/approach The authors carried out an investigation into 30 listed food processing companies in Vietnam from 2014 to 2019. The data are analyzed by using STATA software. In this study, beside the regression analytical technique, the Blinder–Oaxaca decomposition analysis is used to study more deeply the effect of variables on financial performance of food processing companies, so its results are reliable base to give suggestions. Findings The results of empirical research help us to have some following conclusion. First, two variables consisting of total assets turnover ratio (ATR) and growth in sales significantly influence financial performance, when it is measured by return on equity (ROE) or return on sales (ROS). Second, leverage significantly negatively impacts return on sale. Third, there are difference in financial performance and the effect of predictors on dependent variable “ROS” between state-owned enterprises (SOEs) and non SOEs, and the causes come from the component effect. Originality/value In fact, although a range of previous researches on that topic have been carried out, none of them dig deeper reasons resulting to the differences in financial performance between SOEs and non SOEs, whereas Vietnamese economy has just changed to a market economy since 1986, making impacts of State ownership totally different from other countries. In this study, the authors use the t -test and analysis to have more accurate conclusions about that problem.
Effect of health outcome on economic growth in sub-Saharan Africa: a system generalized method of moment approach
Purpose Some progress have been made over time in improving health conditions in Sub-Saharan Africa (SSA). There are, however, contradicting reports on the relationship between health outcomes and economic growth in the region. The paper aimed at assessing the effect of health outcome on economic growth in SSA. Design/methodology/approach Data for 41 countries from 2000 to 2018 were obtained from WDI and WGI and analyzed using system generalized method of moment (sGMM) which is appropriate for the present scenario. AR(1) and AR(2) tests were used to assess the validity of the model while Sargan and Hansen tests were adopted to examine the validity of the instrumental variables. The robustness of the estimation was confirmed using the pooled OLS and fixed effect regression. Findings Health outcome (proxied by life expectancy), lagged GDP per capita, capital formation, labor force (LF), health expenditure (HE), foreign direct investment (FDI) and trade openness (TOP) significantly affected economic growth emphasizing the importance of health in the process of economic growth in the region. AR(1) and AR(2) tests for serial correlation and Sargan/Hansen tests confirmed the validity of the estimated model and the instrumental variables respectively. Robustness of the GMM results was established from the pooled OLS and the fixed effect model results. Social implications Improvement in the national health system possibly through the widespread adoption of National Health Insurance, increase government spending on healthcare alongside increased beneficial trade and ease of doing business to facilitate investment were recommended to enhance. Originality/value The study used up-to-date data with appropriate methodology.
Gender pay gap in Vietnam: a propensity score matching analysis
Purpose This paper investigates the extent, the determinants and the change in the gender pay gap in Vietnam in the period 2010–2016 in order to provide suggestions for policy adjustment to narrow gender pay inequality more effectively. Design/methodology/approach This study employs the propensity score matching (PSM) method to examine inequality in pay between female and male earners sharing identical characteristics. The analysis is conducted for both the full sample and various characteristic-based subsamples. This procedure is conducted for 2010 and 2016 separately to discover the change in gap and inequality during this period. Findings The matching results based on the data sets taken from the Vietnam Household Living Standards Survey (VHLSS) 2010 and 2016 affirm that gender income inequality in Vietnam, though persisted, decreased significantly in 2016 compared to 2010, and was insignificant in many subsamples in 2016. In addition to the observable determinants including educational level, occupation, economic sector and industry, unobservable factors are proved to also play an important role in creating the gender pay gap in Vietnam. Practical implications The research findings suggest that policies aimed at mitigating gender pay inequality should take into account both observable characteristics and unobservable factors such as unobservable gender differences that affect wages and gender discrimination in pay. Originality/value This is the first study using a matching technique to investigate gender wage gap in Vietnam. With up-to-date data, longer research period and the superiority of the method used in dealing with sample selection bias, the results obtained are more robust, more detailed and reliable.
Does financial system development, capital formation and economic growth induces trade diversification?
Purpose The purpose of this study is to investigate long-run and short-run relationships between trade diversification, financial system development, capital formation and economic growth. Design/methodology/approach ARDL estimation approach is applied to analyze long-run and short-run relationships between the financial system development, capital formation, economic growth and trade diversification in case of the Sultanate of Oman over the period 39 years starting from 1979 till 2017. Findings The results show that financial system development and economic growth has a positive impact on trade diversification in the short-run and long-run. However, capital formation has a negative impact on trade diversification in the short run and long run. The negative relationship between trade diversification and capital formation implies that over the period of study, the investment in capital goods was made to enhance the production capacity of the oil sector to maximize revenue. Research limitations/implications This research is limited to analyze long-run and short-run relationship between the financial system development, capital formation and economic growth and trade diversification in case of Sultanate of Oman. Practical implications To achieve the diversification goal, the policymakers need to formulate policies to strengthen the financial system and invest in infrastructure development to promote the non-oil sector. The research findings of this study will provide insights to the policymakers to formulate an effective diversification policy. Originality/value This research contributes to the existing literature by providing empirical evidence of the short-run and long-run analysis of the selected variables in the context of an oil-dependent country.
What drives target status decision in emerging markets acquisitions?
Purpose The purpose of this paper is to investigate the effects of cross-country characteristics on acquirers' target status choice in cross-border mergers and acquisitions across 41 emerging markets. Design/methodology/approach The paper first reviews the existing literature and develops the related hypotheses, in conjunction with the objectives of this paper. We then describe the data employed, variable measurement and examine the effects of cross-country characteristics on the acquirers' target status choice in cross-border mergers and acquisitions while controlling for firm-level and deal-specific characteristics. The paper continues to conduct the robustness check on cross-country determinants of target status choices using the difference independent variables rather than target country-level variables only. Findings This research found that the likelihood of a public firm acquired relative to private one is higher if the target firm is located in countries with stronger government quality, weaker economic freedom, better financial market development and lower cultural distance between the host and home countries. The results suggest that bidders actively assess cross-country characteristics as part of their acquisition planning. Originality/value Rather than commonly analysed determinants in the previous research such as firm- and deal-specific attributes, value creation and shareholder protection, this paper indicates that institutional environments and economic conditions are closely associated with acquisition risks and benefits and have direct influences on bidder firms' acquisition bidding planning and target choice decision-making.
The effect of government expenditure and free maternal health care policy (FMHC) on household consumption in Ghana
Purpose In Covid-19 pandemic era when most households' members have lost their jobs and incomes, the government assistance and programs in ensuring household consumption smoothing is very significant. The main objectives of this study are to analyze the impact of government expenditure and free maternal healthcare (FMHC) policy on household consumption expenditure in Ghana in both long run and short run. Design/methodology/approach They used the ARDL to estimate the impact of government expenditure on household consumption and Segmented Linear Regression to examine impact of FMHC policy household consumption using longitudinal data from 1967 to 2018. Findings The results revealed that government expenditure had a negative and statistically significant effect on household consumption expenditure suggesting that government expenditure crowed-out private consumption in Ghana. Also, it was observed that before the implementation of the FMHC policy, there was an increase household consumption expenditure, but after the introduction of the FMHC policy, the study household consumption expenditure decreases significantly suggesting that FMHC policy has strong association with household consumption in Ghana. Research limitations/implications Due to limited data availability, this study did not assess the impact of the FMHC policy at the household or district level. Also, Ghana has introduced a free senior high school education policy in 2017 so further research could analyze the implications of these policies for household consumption in Ghana at the micro-level using different estimation technique such as the difference in difference. Practical implications The study suggests the need to increase public spending on basic social amenities and also extend the free maternal healthcare policy to all pregnant women especially those in the rural areas of Ghana as these have a greater impact on household consumption in Ghana. The findings from this study have important implications for household savings and interest rate in Ghana. The findings from this study also have important implications for both fiscal policy and healthcare policy in Ghana and other developing countries. Originality/value To the best of my knowledge this is the first empirical study to examine the effect of government expenditure and free maternal healthcare policy on household consumption in Ghana.
Education and inclusive growth in West Africa
Purpose Many West African countries face the challenge of growth inclusiveness. The region is also facing challenges of equipping its teeming population with high-quality skills despite many reforms and initiatives introduced in the past. This study, thus, identifies education as a crucial contributory factor to growth inclusiveness in the region. It, therefore, examined the role of education in growth inclusiveness in West Africa between 1990 and 2017. Design/methodology/approach The study utilised different proxies to capture quantity and quality dimensions of education. The unit root and ARDL “Bounds” tests were employed at a preliminary stage. Based on the preliminary tests, the study explored autoregressive distributed lags modelling technique to capture the short-run and long-run dynamic effects. Findings The empirical results reveal a positive impact of school enrolment measures in most of the countries in both short-run and long-run. Education quality measure exerts positive impact and significant in few countries under consideration. Practical implications These countries should give adequate attention to quality when designing education policy to foster their inclusive growth. Originality/value This study highlights the critical role of education in the inclusive growth pursuit. Education quantity is important to growth inclusiveness but the quality of education is more fundamental. The quality of education possessed determine to a large extent, what individual can contribute to the productive activities within the economy and accessibility to benefits from economic prosperity.
Growth effect of foreign direct investment and financial development: new insights from a threshold approach
Purpose The purpose of this study is to examine the effect of foreign direct investment (FDI) on economic growth contingent on the development level of the local financial system in emerging and developing Asia during the period 1996–2017. Design/methodology/approach The study adopts the threshold approach, namely the panel smooth transition regression (PSTR) model, for the annual data collection of 18 emerging and developing Asian countries in 22 years. The authors analyze the alternative PSTR models on different proxies of financial development (FD). Findings The results show new findings of two distinct thresholds of FD in the FDI–growth nexus. The growth-enhancing effect of FDI is realized only when the FD lies between the two threshold values. Notably, at very high levels of FD, the beneficial effect of FDI on growth is vanishing. Originality/value The authors provide new insights into the growth effect of FDI and the role of FD. The estimated nonlinear effect of FDI on growth and the thresholds of FD can be benchmarks for emerging and developing Asia in assessment of their situations. The results suggest important implications to the region in setting the long-run policies to boost the effect of FDI on economic growth.
Exploring the magnitude of inclusion of Indian youth in the world of work based on choices of educational attainment
Purpose This study attempts to investigate the interrelationship between choice-based educational achievement and employability prospects across the skill-based occupations amongst the youth in India. Design/methodology/approach This study relies on the use of National Sample Survey (NSS) data on employment and unemployment for the 68th round (2011–2012) and the Periodic Labour Force Survey (PLFS) (2017–2018). To estimate the relative contributions of choice-based educational attainment affecting the skill-based employment of youth in a different category of occupations ( high/medium/low skilled), the multinomial logistic regression and its marginal effects have been used. Findings The study finds educational attainment both as an opportunity (improvising employability in the high and medium skill occupation) and a challenge (highest unemployment amongst the educated) while ensuring skill-based youth employability. Despite the growing enrolment of youth in education, youth from a general education background does not find sustained employability prospects in high-skill occupations. Research limitations/implications Vocational education highlights a brighter employability prospect but the acceptability of the same amongst the youth needs a policy intervention. Practical implications Educational choices need an intervention based on market-driven apprenticeships and training. Social implications The decline of overall employability in the low-skill occupation raises a threat to inclusive development as such youth results to Not in Employment, Education or Training (NEET), better identified as the unproductive economic youth. Originality/value This study attempts to investigate that “how far the choice of educational attainment (general/technical/vocational) is able to make youth a fit in the world of work?” in the Indian context, where the youth constitute the highest share in the population.
Re-examining the impact of financial intermediation on economic growth: evidence from Turkey
Purpose This study seeks to investigate the impact of financial intermediation on economic growth in Turkey using annual data spanning 1970–2017. Design/methodology/approach Based on the results of the augmented Dickey–Fuller and Phillips–Perron unit root tests for stationarity, the authors employ the Autoregressive Distributed Lag (ARDL) bounds testing to cointegration to establish the long-run impact of financial intermediation alongside other control factors on economic growth. The study also examines the short-run relationship between financial intermediation and economic growth by estimating the Error Correction Model (ECM). Findings The authors’ findings indicate that financial intermediation significantly influences economic growth in both short and long run. However, the effect is positive only in the short run, lending support to the supply-leading hypothesis. Regarding the control variables, the authors observe that while financial openness shows a positive significant impact on economic growth in the long run, gross fixed capital formation matters only in the short run. The results further infer that regardless of the time period, inflation impedes economic growth. Originality/value In the empirical analysis of the relationship between financial intermediation and economic growth, financial intermediation is always measured using a single variable. The authors argue that such studies could produce bias and misleading results given that a single proxy does not adequately reflect financial intermediation activities. Likewise, such findings may delude policy implementation. To provide a more vivid and robust analysis, the authors employ the Principal Component Analysis (PCA) to construct a composite index for financial intermediation based on three broad measures. The researchers’ are unaware of any study on the financial intermediation–economic growth nexus using a composite index of financial intermediation. Thus, this paper fills this lacuna in the literature.
Impact of the volatility of resource revenue on non-resource revenue volatility
Purpose This paper investigates the effect of the volatility of resource revenue on the volatility of non-resource revenue. Design/methodology/approach The empirical analysis has utilized an unbalanced panel data set comprising 54 countries over the period 1980–2015. The two-step system generalized methods of moments (GMM) is the main economic approach used to carry out the empirical analysis. Findings Results show that resource revenue volatility generates lower non-resource revenue volatility only when the share of resource revenue in total public revenue is lower than 18%. Otherwise, higher resource revenue volatility would result in a rise in non-resource revenue volatility. Research limitations/implications In light of the adverse effect of volatility of non-resource revenue on public spending, and hence on economic growth and development prospects, countries whose total public revenue is highly dependent on resource revenue should adopt appropriate policies to ensure the rise in non-resource revenue, as well as the stability of the latter. Practical implications Economic diversification in resource-rich countries (particularly in developing countries among them) could contribute to reducing the dependence of economies on natural resources, and hence the dependence of public revenue on resource revenue. Therefore, policies in favour of economic diversification would contribute to stabilizing non-resource revenue, which is essential for financing development needs. Originality/value To the best of our knowledge, this topic has not been addressed in the literature.
Measuring financial inclusion: a composite FI index for the developing countries
Purpose The purpose of this paper is to focus on measuring financial inclusion (FI) level for the developing countries. Design/methodology/approach By using a two-stage principal component analysis method, we construct a composite FI index to measure the degree of FI. Data are collected through secondary sources including World Bank and IMF reports for the period 2012–2018. Findings We have built an overall FI index which is considered as a comprehensive measure of FI, a useful tool for policymaking and policy evaluation. Comparison with other studies shows that our FI index corroborates with them. Practical implications Building a good FI measurement method is important for developing countries. It helps to assess and compare the level of FI of each country and between countries together, made easily and accurately. Originality/value This study emphasizes the important role of FI in the economy. From there, an FI solution is integrated into the construction and calculation of its impact on other factors. This will help policymakers to take effective measures to increase FI levels to achieve sustainable economic growth.
Investors’ attention: does it impact the Nigerian stock market activities?
Purpose The author investigates whether investors’ online information demand measured by Google search query and the changes in the numbers of Wikipedia page view can explain and predict stock return, trading volume and volatility dynamics of companies listed on the Nigerian Stock Exchange. Design/methodology/approach The multiple regression model which encompasses both the univariate and multivariate regression framework was employed as the research methodology. As part of our pre-analysis, we test for multicollinearity and applied the Wu/Hausman specification test to detect whether endogeneity exist in the regression model. Findings We provide novel and robust evidence that Google searches neither explain the contemporaneous nor predict stock return, trading volume and volatility dynamics. Similarly, results also indicate that trading volume and volatility dynamics have no relationship with changes in the numbers of Wikipedia pages view related to stock activities. Originality/value This study opens new strand of empirical literature of “investors' attention” in the context of African stock markets as empirical evidence. No evidence from previous studies on investors' attention exist, whether in Google search query or Wikipedia page view, with respect to African stock markets, particularly the Nigerian stock market. This study seeks to bridge these knowledge gaps by examining these relations.
Economic role of education in agriculture: evidence from rural Vietnam
Purpose This paper investigates the impact of education on output of rice farming households in Vietnam. Design/methodology/approach Given the literature review, this paper specifies three empirical models (i.e. linear constant coefficient model, partially nonlinear model and linear varied coefficient model) with variables that well describe the mechanism through which education affects output. The data were collected from 901 rice farming households randomly selected out of ten provinces and city in the Mekong River Delta (MRD) of Vietnam. The models are estimated using ordinary least squares (OLS) and Robinson's (1988) double residual estimators. Findings Estimates of the empirical models show that seed, fertilizer, labor and farm size have significant impacts on output of rice farming households while pesticide and herbicide do not. Education is also found to have a positive effect on output of rice farming households because it helps them better manage farms of larger size via combining various inputs in a more desirable way. Originality/value This paper confirms the positive impact of education on agricultural output, which implies that policies aiming to provide better education to rural people will greatly enhance their income as well as trigger long-term economic and agricultural growth.
Purpose In this paper, we investigate the impact of remittances on control of corruption in Nigeria for a period of 1986–2016. Design/methodology/approach The study uses ARDL modeling framework, dynamic OLS estimation, variance decomposition and impulse response analysis to examine the relationship between the two variables. Findings The study finds that remittances significantly improve the control of corruption in Nigeria. We further examine the robustness test of the results using dynamic OLS estimation, variance decomposition and impulse response analysis. Our results remain significant and consistent to the earlier one reported in ARDL framework which supports the extant literature. Practical implications Our study suggests that international remittances can be used, through the cross-border transfer of norms and practices, to significantly impact the socioeconomic progresses of a country by reducing corruption. Originality/value The existing studies on the relationship between corruption and remittances document conflicting results. In addition, study on corruption - remittances nexus that specifically focuses on any African country is largely absent despite the fact that most of the countries in the region are recognized as highly corrupt. This paper provides insights on how remittances can be used as part of tool kits to control corruption in African nation.
An RBC model with non-Ricardian households: lessons for Bulgaria (1999–2018)
Purpose The authors introduce non-Ricardian (“hand-to-mouth”) myopic agents into an otherwise standard real-business-cycle (RBC) setup augmented with a detailed government sector. The authors investigate the quantitative importance of the presence of nonoptimizing households for cyclical fluctuations in Bulgaria. Design/methodology/approach The authors calibrate the RBC model to Bulgarian data for the period following the introduction of the currency board arrangement (1999–2018). Findings The authors find that the inclusion of such non-Ricardian households improves model performance along several dimensions and generally provides a better match vis-a-vis data, as compared to the standard model populated with Ricardian agents only. Originality/value This is a novel finding in the macroeconomic studies on Bulgaria using modern quantitative methods.
The sustainability of Swedish fiscal policy: a re-examination
Purpose This study reexamines the sustainability of fiscal policy in Sweden. Design/methodology/approach To test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015). Findings Using the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period. Research limitations/implications A number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period. Originality/value The contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).
Credit composition and income inequality in Vietnam: an empirical analysis
Purpose This paper examines credit composition and income inequality reduction in Vietnam. In particular, the authors focus on the distinction between policy and commercial credits and investigate whether these two types of credit adversely affect on income inequality. The authors also examine whether the educational level and institutional quality condition the impact of policy credit on income inequality. Design/methodology/approach The authors use the primary data set, which contains a panel of 60 provinces collected from the General Statistics Office of Vietnam from 2002 to 2016. The authors employ the generalized method of moments to solve the endogenous problem. Findings The authors show that while commercial credit increases income inequality, policy credit reduces income inequality in Vietnam. In addition, we provide evidence that the institutional quality and educational level condition the impact of policy credit on income inequality. Based on the findings, the paper implies that it was not the size of the private credit but its composition that mattered in reducing income inequality due to the asymmetric effects of different types of credit. Practical implication The government should focus on credit for the poor by helping them to exit poverty through investing in human capital, health and micro enterprises activities. Originality/value This is the first study that examines the links between the two components of credit and income inequality as well as the constraints of the links. The authors argue that analyzing the separate effects of commercial and policy credits is more important for explaining the role of credit in income inequality than the size of total credit.
The environment, social and governance (ESG) activities and profitability under COVID-19: evidence from the global banking sector
Purpose This study investigated the impacts of the environment, social and governance (ESG) and its components on global bank profitability considering the COVID-19 outbreak. Design/methodology/approach This study used a system generalized method of moments (GMM) proposed by Arellano and Bover (1995) to investigate the relationship between ESG and bank profitability using an unbalanced sample of 487 banks from 51 countries from 2006 to 2021. Findings The findings generally found that ESG activities may reduce bank profitability, thus supporting the trade-off hypothesis that adopting ESG standards could increase bank costs while lowering profitability. In addition, there is a U-shaped relationship between ESG and bank profitability, suggesting that ESG activities can help improve bank performance in the long term. Such an effect is the first time observed in the global banking sector. This study’s results are robust across different models and settings (e.g., developed vs. developing countries, different levels of profitability, and samples with vs without US banks). Practical implications This study provides empirical evidence to support many countries' sustainable development policies. It also provides empirical incentives for bank managers to be more ESG-oriented. Originality/value This study provides a better understanding of the roles of ESG activity and its components in the global banking system, considering the recent crises.
COVID-19, clean energy stock market, interest rate, oil prices, volatility index, geopolitical risk nexus: evidence from quantile regression
Purpose The outbreak and the spreading of the COVID-19 pandemic have impacted the global financial sector, including the alternative clean and renewable energy sector. This paper aims to assess the impact of the pandemic, COVID-19 on the stock market indices of the clean energy sector using quantile regression methods. Design/methodology/approach This study utilized daily data sets on the four major categories of stocks: (1) Morgan Stanley Capital International Global Alternative Energy Index, (2) WilderHill Clean Energy Index, (3) Renewable Energy Industrial Index (RENIXX) and (4) the S&P 500 Global Clean Index. The study adopts a multifactor capital asset pricing model. Findings Clean and alternative energy stocks are powerful instruments for diversification. However, the impact of the volatility index induced by infectious disease is negative and significant across quantiles. Practical implications For investors and policymakers, considering how the uncertainty caused by COVID-19 and the geopolitical index influences renewable energy markets is of great practical importance. For investors, it throws insights into portfolio diversification. For policy makers, it helps to devise strategies to reboot the economy along the lines of the deployment of renewables. This study sheds light on a global green-energy transition and has practical implications for renewable energy resilience in post-pandemic times. Originality/value This paper can be considered as a pioneer that explores the nexus between oil prices, interest rates, volatility index, and geopolitical risk upon the stock indices of clean and alternative sources of (renewable) energy in the COVID-19 pandemic situation. The results have important insights into the area of energy and policy decision-making. Additionally, the paper's novelty lies in using the explanatory variables associated with the Covid 19 pandemic.
International portfolio investment: does the uncertainty matter?
Purpose This study investigates the effect of global and domestic uncertainty on the dynamics of portfolio investment in 21 economies (mostly advanced and larger emerging economies) from 2001–2016. Design/methodology/approach Specifically, the evolution of the net portfolio equity investment inflows (FPI net inflows) and the evolution of net portfolio investment (FPI net) are investigated in a context in which the degree and the volatility of domestic economic policy uncertainty (EPU) and world uncertainty index (WUI) varied. The authors provide an empirical analysis through the sequential (two-stage) estimation of linear panel data models for unbalanced panel data. Findings An increase in the degree and volatility of domestic EPU has a significant negative influence on FPI net inflows, while an increase in WUI has a significant positive one. Notably, a simultaneous increase in the domestic EPU and WUI enhances the net inflows of FPI, whereas a simultaneous increase in the volatility of these indicators reduces the net inflows of FPI. An increase in the degree and volatility of both domestic EPU and WUI have a significant positive effect on the net portfolio investment, implying that a significant net portfolio investment is going out of the country. Research limitations/implications The results of this study encourage international investors to consider uncertainty indicators (and, more specifically, their variations) in their portfolio strategy to optimize their position on the international markets. The findings of this study invite policy-makers from large countries to reduce the perceived domestic uncertainty since this parameter can influence international investors' sensitivity and willingness to diversify their position out of the country. Originality/value The authors' approach focuses on the variations of uncertainty (existing literature mainly works with the indicators). While the results confirm the role played by large markets in international portfolio investment management, it nuances the changes in the portfolio management behaviors toward other markets when facing a changing uncertainty.
Economic growth, international trade, and environmental degradation in Sub-Saharan Africa
Purpose This study investigates the relationship between economic growth, international trade, and environmental degradation in Sub-Saharan Africa (SSA), focusing on the validity of the environmental Kuznets hypothesis (EKC), the pollution havens hypothesis (PHH), and the factor endowment hypothesis (FEH). Design/methodology/approach The study uses annual data for 41 SSA countries between 1990 and 2017 and employs the bias-corrected least square dummy variable (LSDVC) estimation techniques. Environmental degradation is indicated by carbon dioxide (CO 2 ), delicate particulate matter (PM2.5) emissions, and deforestation. Findings The results confirm the validity of the EKC hypothesis for PM2.5 emissions and deforestation but not for CO 2 emissions. The results also indicate that international trade reduces deforestation and that both the PHH and FEH are valid for CO 2 emission but not for PM2.5 emissions and deforestation. Practical implications In this paper, the authors are able to illustrate that both economic growth and international trade can harm the environment if unchecked. Therefore, the conclusion of this study offers policy options through which SSA countries can achieve desired economic growth goals without affecting environmental quality. The study can be a benchmark for environmental policy in the region. Originality/value The authors provide an in-depth discussion of the growth-trade-environmental degradation nexus in SSA. The EKC, PHH, and FEH’s validity confirm that economic growth remains a threat to the local natural environment in SSA. Hence, the need for a trade-off between economic growth needs and environmental degradation and understanding where to compromise to achieve SSA's economic development priorities.
The production inefficiency of US electricity industry in the face of restructuring and emission reduction
Purpose The paper investigates the production inefficiency of the US electricity industry in the wake of restructuring and emission reduction regulations. Design/methodology/approach The study estimates a multiple-input, multiple-output directional distance function, using six inputs: fuel, labor, capital and annualized capital costs of sulfur dioxide (SO 2) , nitrogen oxides (NO X ) and particulate removal devices, two good outputs – residential and industrial-commercial electricity and three bad outputs – SO 2 , carbon dioxide (CO 2 ) and NO X emissions. Findings The authors find that restructuring in electricity markets improves deregulated utilities' technical efficiency (TE). Deregulated utilities with below-average NO X control equipment tend to invest less in these devices, but above-average utilities do the opposite. The reverse applies to particulate removal devices. The whole sample spends more on NO X , particulate and SO 2 control systems and reduces its electricity sales slightly. Increased investments in SO 2 and NO X control equipment do not reduce SO 2 and NO X emissions, but expansions of particulate control systems cut down SO 2 emissions greatly. Stricter environmental regulations have probably shifted the production frontier inwards and the utilities farther from the frontier over time. Practical implications Restructuring and environmental regulations do not make all utilities invest more in emission control systems. The US government should devise other schemes to achieve this goal. Originality/value The paper unveils heterogeneous reactions of US electric utilities in the wake of restructuring and emission regulations.
Residents’ preferred measures and willingness-to-pay for improving urban air quality: A case study of Hanoi city, Vietnam
Purpose This purpose of this paper is to understand residents’ choice of preferred measures and their willingness-to-pay (WTP) for the measures to improve the air quality of Hanoi city. Design/methodology/approach Questionnaire surveys were conducted to collect the opinions of 212 household representatives living in Hanoi City. The survey tools were tested and adjusted through an online survey with 191 responses. Multivariate probit and linear regression models were used to identify determinants of respondents’ choices of measures and their WTP. Findings Respondents expressed their strong preferences for three measures for air quality improvements, including: (1) increase of green spaces; (2) use of less polluting fuels; (3) expansion of public transportation. The mean WTP for the implementation of those measures was estimated at about 148,000–282,000 Vietnamese dong, equivalent to 0.09–0.16% of household income. The respondents’ choices appear to be consistent with their characteristics and needs, such as financial affordability, time on roads and their perceived impacts of air pollution. The WTP estimates increase with perception of air pollution impacts, time on roads, education and income; but are lower for older people. Practical implication Increase of green spaces can be the measure to which policy makers should pay more attention. The match-up of residents needs and well-informed plans will be an important key to success. Originality/value This appears to be the first attempt to test the validity of public opinions on choices of measures for improving urban air quality in Vietnam. Our WTP estimates also contribute to the database on the values of improved air quality in the developing world.
The interaction between FDI, host country characteristics and economic growth? A new panel evidence from BRICS
Purpose This study aims to assess the impact of foreign direct investment (FDI) on growth in presence of host country characteristics, namely, economic stability, human capital, financial development and trade openness, in the fastest emerging Brazil, Russia, India, China, South Africa (BRICS) economies, considered to be significant FDI destinations. Design/methodology/approach The panel data for the variables under study, collected from World Investment Reports published by World Bank, are analyzed using feasible generalized least squares method to examine the relationship between the dependent and explanatory variables over the period 1987–2018. The interaction effect has been studied to examine the growth impact of FDI in presence of host country characteristics. Findings The findings revealed that FDI does not exert a significant impact on the economic growth of BRICS individually but has a significant growth impact only in presence of host country characteristics. FDI on interacting with financial development, trade openness and human capital exerts a positive impact on the economic growth of BRICS economies, and on interacting with economic instability (inflation), FDI has a negative impact on growth. Practical implications The study has implications for policy makers of BRICS countries who are suggested to work toward the development of financial markets, trade liberalization and human capital development to realize the positive growth impact of FDI. Originality/value Very few studies have been conducted to examine the growth effect of FDI in BRICS economies, which are considered to be the fastest-growing economies and dominant players in the global investment landscape. Assessing the interaction of FDI with absorptive capacities/host country characteristics to study its growth impact in BRICS using long data and robust panel data methodology is an original contribution of this paper toward the existing body of knowledge.
Determinants of working poverty in Indonesia
Purpose The study’s first aim is to estimate the scale of working poverty using a nationwide household survey. The second aim is to answer the following research questions: is working enough to escape poverty, and what are the determinants of working poverty? Design/methodology/approach The focus is on working people in Indonesia who have per capita household expenditure below the provincial poverty line. The determinant analysis used logistic regression on the first quarter of 2013 Susenas microdata. Findings The study found that the scale of the working poverty problem is equivalent to the scale of the poverty, although the in-work poverty rate is lower than the poverty rate in all provinces. The logistic regression results conclude that the three factors, namely individual-level, employment-related and household-level variables, have significant contributions to the incidence of the working poor in Indonesia. Practical implications Some practical implications for reducing the incidence of working poverty are increasing labor earnings through productivity growth and improving workers' skills, encouraging the labor participation of the poor and reducing precarious work. This study also suggests the need to continue assisting the working poor, particularly by increasing access to financial credit. Originality/value Research aimed at studying working poverty in Indonesia in the peer-reviewed literature is rare until now based on the authors' search. This study will fill the gap and provoke further research on working poverty in Indonesia.
Monetary policies and bank lending in developing countries: evidence from Sub-Sahara Africa
Purpose The purpose of this paper is to examine monetary policies and bank lending in the emerging economies of Sub-Sahara Africa. Design/methodology/approach The dynamic system-generalized method of moments (GMM) that overcomes issues of unobserved period and country-specific effects, as well as potential endogeneity of explanatory variables, is applied in the estimation exercise. The study uses the data for 80 banks across 20 Sub-Saharan African countries from 2010 to 2019. Findings The findings show that expansionary monetary policy such as an increase in money supply stimulates bank lending, while contractionary monetary policies like increase in the monetary policy rates by the central banks lead to credit contraction, albeit a weak effect due to possible underdevelopment of financial markets, institutional constraints, bank concentration and other rigidities in the system characteristic of developing countries that undermine the effectiveness of monetary policy transmission. Capital adequacy ratio and size of economic activities are other variables that significantly influence bank lending channels. Practical Implication Sub-Sahara Africa countries can enhance the effectiveness of monetary policy transmission on bank lending through the effective use of the transmission mechanism of changes in money supply and monetary policy rate. Originality/value While greater empirical attention has been devoted to the nexus between monetary policies and macroeconomic variables in country-specific studies, the connection between monetary policies and bank lending at an extensive regional or cross-country level is still scanty. For Sub-Saharan Africa, there is a palpable lack of empirical evidence on this. This study, therefore, seeks to fill this gap in a region where the impact of monetary policies on credit intermediation is crucial to the economic diversification efforts of the governments of Sub-Sahara Africa.