TRADE OPENNESS, OIL PRICES, FINANCIAL INSTABILITY ON ECONOMIC GROWTH IN ASIAN COUNTRIES: EVIDENCE OF SECOND-GENERATION TECHNIQUES

Sameer A. A. AlZoughool, Ahmed Azrin Adnan, Dia Khalaf Ahmed AlQatawneh, Tamer Hussain Ahmad AlQudah

Abstract


Asian economic growth experienced a great increase in their real growth domestic product (RGDP). Consequently, very few countries reached a high level of income and wealth, as well as the majority of them, were below the world average. The study aimed to investigate the influence of financial instability, oil prices and trade openness on economic growth in Jordan, Malaysia, Philippines, Thailand, Indonesia and Singapore. The study employed Westerlund cointegration techniques and found that there is the existence of cointegration linkages among the variables in the all six countries. Moreover, the results of Wald test Granger causality test revealed a bidirectional causality between financial instability and economic growth in Jordan, Philippines, Indonesia and Singapore. However, the result showed one-way causality running from economic growth to financial instability, economic growth to trade openness index in Malaysia, from economic growth to trade openness index in Jordan, from economic growth to oil prices in Philippines, from economic growth to financial instability in Thailand, from oil prices to economic growth in Indonesia, from trade openness index to economic growth in Singapore. In addition, the Panel Dumitrescu and Hurlin heterogeneous causality showed unidirectional causality running from financial instability to economic growth, and from trade openness index to economic growth. Consequently, the government should provide sufficient institutions that can generate relationships among macro stability and economic growth to decreases uncertainty reinforces reliability and increases the general macroeconomic environment.

 

JEL: F43, O40, O43, O53

 

Article visualizations:

Hit counter

DOI

Keywords


real gross domestic product, financial instability, oil prices, trade openness index, Westerlund cointegration test, Panel Dumitrescu and Hurlin heterogeneous

Full Text:

PDF

References


Abu-Bader, S., & Abu-Qarn, A. S. (2008). Financial development and economic growth: The Egyptian experience. Journal of Policy Modeling, 30(5), 887-898.

Abu‐Bader, S., & Abu‐Qarn, A. S. (2008). Financial development and economic growth: empirical evidence from six MENA countries. Review of Development Economics, 12(4), 803-817.

Adam, A. M., & Siaw, F. (2010). Does financial sector development cause investment and growth? Empirical analysis of the case of Ghana (No. 39634). University Library of Munich, Germany.

Adusei, M. (2013). Finance-Growth Relationship in Africa: A Panel Generalized Method of Moments Analysis. Asian Economic and Financial Review, 3(10), 1314.

Ahmed, S. M., & Ansari, M. I. (1998). Financial sector development and economic growth: The South-Asian experience. Journal of Asian Economics, 9(3), 503-517.

Ahn, S. K. (1993). Some tests for unit roots in autoregressive-integrated-moving average models with deterministic trends. Biometrica 80(4), 855–868.

Ake, B and Jin D., (2010). The role of stock market development in economic growth: Evidence from some Euronext countries. International Journal of Financial Research, 1(1), 14-20.

Al-Yousif, Y. K. (2002). Financial development and economic growth: another look at the evidence from developing countries. Review of Financial Economics, 11(2), 131-150.

Amsler, C. and J. Lee (1995). An LM test for a unit root in the presence of structural change. Econometric Theory 11(2), 359–368.

Andersen, T. B., & Tarp, F. (2003). Financial liberalization, financial development and economic growth in LDCs. Journal of international development, 15(2), 189-209.

Arshad, M., (2012). The impact of foreign direct investment on trade and economic growth of Pakistan: A co-integration analysis. Int. J. Eco. Res, 3(4), 42-75.

Asafu-Adjaye, J. (2000). The relationship between energy consumption, energy prices, and economic growth: time series evidence from Asian developing countries. Energy Economics, 22(6), 615-625.

Asongu, S., El Montasser, G., & Toumi, H. (2015). Testing the relationships between energy consumption, CO2 emissions, and economic growth in 24 African countries: a panel ARDL approach. Environmental Science and Pollution Research, 1-11.

Aziz, A. A. (2011). On the causal links between energy consumption and economic growth in Malaysia. International Review of Business Research Papers, 7(6), 180-189.

Bencivenga, V. R., and B.D. Smith, (1991), “Financial intermediation and endogenous

growth”, Review of Economic Studies, 58, 195-209.

Berthelemy, J. C. and A. Varoudakis (1996), “Economic Growth, Convergence Clubs, and the Role of Financial Development”, Oxford Economic Papers, New Series, 48,300-328.

Bhattacharya, P. C., & Sivasubramanian, M. N. (2003). Financial development and economic growth in India: 1970–1971 to 1998–1999. Applied Financial Economics, 13(12), 925-929.

Bhattacharya, M., Paramati, S. R., Ozturk, I., & Bhattacharya, S. (2016). The effect of renewable energy consumption on economic growth: Evidence from top 38 countries. Applied Energy, 162, 733-741.

Bouzid, A. (2012). The relationship between energy prices and economic growth in Tunisia: A vector error correction model analysis. The Romanian Economic Journal, 43.

Calderon, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321-334.

Cuñado, J., & de Gracia, F. P. (2003). Do energy prices shocks matter? Evidence for some European countries. Energy Economics, 25(2), 137-154.

Chang, T., & Caudill, S. B. (2005). Financial development and economic growth: the case of Taiwan. Applied Economics, 37(12), 1329-1335.

Cunado, J., & De Gracia, F. P. (2005). Energy prices, economic activity, and inflation: evidence from some Asian countries. The Quarterly Review of Economics and Finance, 45(1), 65-83.

Demirguc-Kunt, A. and R. Levine (1996), "Stock Markets, Corporate Finance and Economic Growth: An Overview," the World Bank Economic Review, 10(2): 223-40.

Demetriades, P., and Hook Law, S., (2006) Finance, institutions and economic development, International Journal of Finance and Economics, 11(3), 245-260.

Dritsaki, C., & Dritsaki, M. (2014). CO Emissions, Energy Consumption, Financial Development and Economic Growth. World Applied Sciences Journal, 32(2), 309-321.

Engle, R. F. and Granger C. W. J. (1987). Co-integration and error correction representation, estimation, and testing.Econometrica.255-276.

Farhani, S., Chaibi, A., & Rault, C. (2014). A study of CO2 emissions, growth, energy consumption, and trade Business School Working Paper Series (No. 2014-056). http://www.ipag.fr/fr/accueil/larecherche/publicationsWP.html

Greenwood, J. and B. Jovanovic (1990), “Financial Development, Growth, and the Distribution of Income,” The Journal of Political Economy, 98, 1076-1107.

Guillaumont, S., and Kpodar, R. (2004).” Financial Development, Financial instability and Poverty” Working Paper No. 2004-13, CERDI.

Guisan, M. C., & Exposito, P. (2001). Economic Growth and Cycles in Asia and Africa in the 20th Century. The World, 2(1.40), 1-56.

Herrero, G., A., & Del Rio Lopez, P. (2003). Financial stability and the design of monetary policy. Banco de Espana Working Paper 0315.

Hossain, M. S. (2011). Panel estimation for CO 2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries. Energy Policy, 39(11), 6991-6999.

Im, K. S., Pesaran, M. H., Shin, Y., (2003) Testing for unit roots in heterogeneous panels. Journal of Econometrics 115, 53–74.

IMF World Economic Outlook (WEO), October 2015

Islam, N., (1995) Growth empirics: a panel data approach. The Quarterly Journal of Economics, 1127-1170.

Kakar, Z. K., & Khilji, B. A. (2011). The impact of FDI and Trade Openness on Economic Growth: A Comparative Study of Pakistan and Malaysia. Theoretical and Applied Economics, 11(11), 53.

Klomp, J., & de Haan, J. (2009). Central bank independence and financial instability. Journal of Financial Stability, 5(4), 321-338.

Kumar, R. R., Stauvermann, P. J., Loganathan, N., & Kumar, R. D. (2015). Exploring the role of energy, trade and financial development in explaining economic growth in South Africa: A revisit. Renewable and Sustainable Energy Reviews, 52, 1300-1311.

Lee, C. C., & Chang, C. P. (2005). Structural breaks, energy consumption, and economic growth revisited: evidence from Taiwan. Energy Economics, 27(6), 857-872.

Lee, C.-C., and Y.-B. Chiu (2011). Oil prices, nuclear energy consumption, and economic growth: New evidence using a heterogeneous panel analysis. Energy Policy 39(4), 2111–2120.

Levin, A., Lin, C.F., Chu, C., (2002) Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics 108, 1–24.

Linh, D. H., & Lin, S. M. (2014). CO2 Emissions, Energy Consumption, Growth and Foreign direct investment in Vietnam. Managing Global Transitions, 12(3 (Fall)), 219-232.

Liu, X., Burridge, P., & Sinclair, P. J. (2002). Relationships between economic growth, foreign direct investment, and trade: evidence from China. Applied Economics, 34(11), 1433-1440.

Loayza R.and Ranciere (2002). “Financial Development, Financial Instability and Growth” CESifo Working Paper No. 684.

Mahadevan, R., & Asafu-Adjaye, J. (2007). Energy consumption, economic growth and prices: A reassessment using panel VECM for developed and developing countries. Energy Policy, 35(4), 2481-2490.

Mankiw, N. G., Romer, D., and Weil, D. N., (1992) A contribution to the empirics of economic growth, National Bureau of Economic Research.

Moon, H. R., and Perron, B. (2004) Testing for a unit root in panels with dynamic factors, Journal of Econometrics, 122, 81–126.

Mugableh, M. I. (2015). Economic Growth, CO2 Emissions, and Financial Development in Jordan: Equilibrium and Dynamic Causality Analysis. International Journal of Economics and Finance, 7(7), 98.

Narayan, P. K. and R. Smyth (2008). Energy consumption and real GDP in G7 countries: New evidence from panel cointegration with structural breaks. Energy Economics 30(5), 2331–2341.

Ndako, U. B. (2010). Financial development, economic growth and stock market volatility: evidence from Nigeria and South Africa (Doctoral dissertation, University of Leicester).

Pesaran, M. H. (2004) General diagnostic test for cross section dependence in panels, Cambridge Working Papers in Economics, No. 0435, Faculty of Economics, University of Cambridge.

Pesaran, M. H. (2007) A simple panel unit root test in the presence of cross-section dependence, Journal of Applied Econometrics, 22, 265–312.

Polat, A., Shahbaz, M., Rehman, I. U., & Satti, S. L. (2015). Revisiting linkages between financial development, trade openness and economic growth in South Africa: Fresh evidence from combined cointegration test. Quality & Quantity, 49(2), 785-803.

Pradhan, R. P., Arvin, M. B., Norman, N. R., & Bennett, S. E. (2015). Financial depth, internet penetration rates, and economic growth: country-panel evidence. Applied Economics, 48(4), 331-343.

Robinson, J. (1952), “The rate of interest and Other Essays,” Macmillan, London

Sbia, R., & Al Rousan, S. (2015). Does Financial Development Induce Economic Growth in UAE? The Role of Foreign Direct Investment and Capitalization (No. 64599). University Library of Munich, Germany.

Schmidt, P. and C. B. P. Phillips (1992). LM tests for a unit root in the presence of deterministic trends. Oxford Bulletin of Economics and Statistics 54(3), 257–87.

Shahbaz, M., Rehman, I. U., & Muzaffar, A. T. (2014). Re‐Visiting Financial Development and Economic Growth Nexus: The Role of Capitalization in Bangladesh. South African Journal of Economics, 83(3), 452-471.

Sharma, R., & Bardhan, S. (2016). Finance-growth nexus across Indian states: evidence from panel cointegration and causality tests. Economic Change and Restructuring, 1-20.

Siddique, H. M. A., & Majeed, M. T. (2015). Energy Consumption, Economic Growth, Trade and Financial Development Nexus in South Asia. Pakistan Journal of Commerce and Social Science, 9(2), 658-682.

Stern, D. I., & Cleveland, C. J. (2003). Energy and economic growth. Encyclopedia of Energy, 2, 35-51.

Tang, C. F., Tan, B. W., & Ozturk, I. (2016). Energy consumption and economic growth in Vietnam. Renewable and Sustainable Energy Reviews, 54, 1506-1514.

Thangavelu, S. M., & Jiunn, A. B. (2004). Financial development and economic growth in Australia: An empirical analysis. Empirical Economics, 29(2), 247-260.

Westerlund, J. and D. L. Edgerton (2008). A simple test for cointegration independent panels with structural breaks. Oxford Bulletin of Economics and Statistics 70(5), 665–704.


Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 Sameer A. A. AlZoughool, Ahmed Azrin Adnan, Dia Khalaf Ahmed AlQatawneh, Tamer Hussain Ahmad AlQudah

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2015 - 2018. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.