Journal of Economics and Development

Threshold effects of public debt on economic growth in Africa: a new evidence

Arcade Ndoricimpa — Thu, 08 Oct 2020 11:33:25 +0700

Purpose
The purpose of this study is to seek to re-examine the threshold effects of public debt on economic growth in Africa.

Design/methodology/approach
This study applies panel smooth transition regression approach advanced by González et al. (2017). The method allows for both heterogeneity as well as a smooth change of regression coefficients from one regime to another.

Findings
A debt threshold in the range of 62–66% is estimated for the whole sample. Low debt is found to be growth neutral but higher public debt is growth detrimental. For middle-income and resource-intensive countries, a debt threshold in the range of 58–63% is estimated. As part of robustness checks, a dynamic panel threshold model was also applied to deal with the endogeneity of debt, and a much higher debt threshold was estimated, at 74.3%. While low public debt is found to be either growth neutral or growth enhancing, high public debt is consistently detrimental to growth.

Research limitations/implications
The findings of this study show that there is no single debt threshold applicable to all African countries, and confirm that the debt threshold level is sensitive to modeling choices. While further analysis is still needed to suggest a policy, the findings of this study show that high debt is detrimental to growth.

Originality/value
The novelty of this study is twofold. Contrary to previous studies on Africa, this study applies a different estimation technique which allows for heterogeneity and a smooth change of regression coefficients from one regime to another. Another novelty distinct from the previous studies is that, for robustness checks, this study divides the sample into low- and middle-income countries, and into resource- and nonresource intensive countries, as debt experience can differ among country groups. Further, as part of robustness checks, another estimation method is also applied in which the threshold variable (debt) is allowed to be endogenous.

The cost efficiency of Vietnamese banks – the difference between DEA and SFA

Phong Hoang Nguyen, Duyen Thi Bich Pham — Fri, 09 Oct 2020 04:09:56 +0700

Purpose
The paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when measuring cost efficiency. The purpose of the study is to assess the consistency in issuing policies to improve the cost efficiency of Vietnamese commercial banks.

Design/methodology/approach
The cost efficiency of banks is assessed through the data envelopment analysis (DEA) and the stochastic frontier analysis (SFA). Next, five tests are conducted in succession to analyze the differences in cost efficiency measured by these two methods, including the distribution, the rankings, the identification of the best and worst banks, the time consistency and the determinants of efficiency frontier. The data are collected from the annual financial statements of Vietnamese banks during 2005–2017.

Findings
The results show that the cost efficiency obtained under the SFA models is more consistent than under the DEA models. However, the DEA-based efficiency scores are more similar in ranking order and stability over time. The inconsistency in efficiency characteristics under two different methods reminds policy makers and bank administrators to compare and select the appropriate efficiency frontier measure for each stage and specific economic conditions.

Originality/value
This paper shows the need to control for heterogeneity over banking groups and time as well as for random noise and outliers when measuring the cost efficiency.

Financial integration and macroeconomic volatility in Zimbabwe

Richard Makoto — Fri, 09 Oct 2020 04:12:31 +0700

Purpose
Many developing countries are pursuing policies that foster international financial integration after decades of financial repression. Greater access to foreign financial markets may have both positive and negative impact on the performance of the economy. One of the concerns of international financial integration is macroeconomic volatility which may affect both monetary and real sectors. Zimbabwe has chosen to pursue a financial liberalization strategy in the form of imperfect financial integration following periods of excessive domestic shocks. An upsurge of capital flows since the epic of economic crisis in the 2000s has been observed with varying macroeconomic impacts. This study empirically examines the impact of partial international financial integration on the volatility of macroeconomic variables.

Design/methodology/approach
The study utilized an ARDL Model suggested by Pesaran et al., (2003) which is appropriate for short time periods.

Findings
The results show that financial integration has a negative effect on output volatility while insignificant on consumption volatility.

Practical implications
The study recommends that the country should gradually liberalize the capital account and properly sequence financial development reforms in order to minimize losses from global financial integration.

Originality/value
The study used time series for Zimbabwe during a period of external imbalance, repeated economic cycles, sudden stops in capital flows and limited scope of imperfect financial integration. Findings in such an economy will be a referral for policymakers in other economies that would want to pursue international financial integration.

Interdependence between banking earnings, banking security and growth achievement: case study in the ASEAN community

Minh Phu Pham — Fri, 09 Oct 2020 04:15:05 +0700

Purpose
The main purpose of this paper is to examine the existence of interdependence amongst banking earnings, banking security and growth performance across the Association of Southeast Asian Nations (ASEAN) region.

Design/methodology/approach
This paper utilizes a panel autoregressive distributed lag method with the annual data of nine ASEAN members over 1996–2017.

Findings
Only the short-run Granger causal impact of banking profitability on economic expansion is supported, while the long-run Granger causality between all the variables is strongly recognized. Increased banking well-being supports economic development, while higher banking security might have inverse impacts. However, increasing the banking profit without the corresponding better soundness can be detrimental to the economic growth in the short run and much more in the long run. Thus, improving banking profitability and stability simultaneously has positive net effects on the economic development.

Research limitations/implications
This research is restricted to unavailable data and limited measurements of both banking profitability and stability. Further inclusion of other macro-economic variables, other banking development aspects or even non-banking indicators should also be considered.

Practical implications
National governments should emphasize a convenient financial environment, which can strongly enhance the positive relationship between banking earnings, banking safeness and output growth. Also, the relevant policies on higher banking well-being and stricter security obligations have to be simultaneously maintained.

Originality/value
Few papers have inspected the interrelationship between banking stability, banking profitability and economic growth, particularly in the ASEAN region. This causes the banking literature shortage, as well as insufficient insights for the financial policymakers into their endogenous dynamics. Thus, the study is the first attempt to fulfil the research gap.

Corruption and SME financing structure: the case of Vietnamese manufacturing

Mai Hong Phan, Lan Archer — Fri, 09 Oct 2020 04:27:42 +0700

Purpose
Corruption has been evidenced as one of the major factors that drive a firm's dynamics and growth. This study examines the relationship between corruption and financing structure decisions of small and medium-sized enterprises (SMEs) in Vietnam.

Design/methodology/approach
The authors use a longitudinal data set from the Vietnam's SME Survey in the period 2007–2013 and adopt the two-stage least squares method to deal with endogeneity.

Findings
After controlling for endogeneity and firm heterogeneity, the authors find that, overall, corruption does significantly affect the decisions of financing sources. Given that, corruption increases the use of informal debt and decreases the levels of formal debt, owner's equity and retained earnings.

Practical implications
The findings suggest implications for corruption-combating actions and policies.

Originality/value
Different from previous studies that either provide evidence of government corruption and a firm's capital structure at the country level or focus on corruption and debt only, we deliver a more comprehensive analysis on the nexus between corruption and various financing sources.

Population growth, income growth and savings in Ghana

John Gartchie Gatsi, Michael Owusu Appiah — Fri, 09 Oct 2020 04:32:53 +0700

Purpose
The study explores the relationship among economic growth, population growth, gross savings and energy consumption over the period 1987– 2017.

Design/methodology/approach
The autoregressive distributed lag (ARDL) bounds test approach by Pesaran et al. (2001) was employed to investigate variables for the study.

Findings
In the key findings, both gross savings and population growth negatively affect economic growth. However, energy consumption has positive impact on economic growth.

Practical implications
These findings call for policy portfolios to address the impacts of gross savings and population growth on economic development. In particular, the financial sector needs to be revamped to be more efficient in channeling funds from the surplus units to the deficit units. It is recommended that investment be made in financial and technological innovation to provide efficient access to credits and other financial products even though individual savings may not move with economic growth.

Originality/value
Many studies have explored the nexus between savings and economic growth without considering population growth and energy consumption. In this study, the relationship among savings, economic growth, population growth and energy consumption provide additional knowledge in policy formulation.

Assessing the influence of exchange rate on agricultural commodity export price: evidence from Vietnamese coffee

Trung Tuyen Dang, Caihong Zhang, Thi Hong Nguyen, Ngoc Trung Nguyen — Fri, 09 Oct 2020 04:37:34 +0700

Purpose
The purpose of this paper is to evaluate the influence of VND/USD exchange rate on Vietnamese coffee export price (PVN).

Design/methodology/approach
The study uses cointegration test, Granger causality test and vector autoregression (VAR) model.

Findings
The results reveal that there is no co-integrating equation between two variables. It means the exchange rate does not have an effect on PVN in the long run. Furthermore, there is one Granger causality relationship between VND/USD exchange rate and PVN in the short run, but not vice versa. The study suggests that the first previous period of PVN is the most closely related variable which has the greatest impact on the variation of PVN among the selected variables, meanwhile the effect of VND/USD exchange rate on it, contrarily, is positive and very trivial.

Originality/value
In overall, the impact of VND/USD exchange rate on Vietnamese coffee export price (PVN) has been analyzed deeply in this research by applying new approaches.

A mixed data sampling approach to the asymmetric impacts of world oil price on macroeconomic variables in Vietnam

Trinh Thi Tuyet Pham, Nhan Phan Ai Le — Fri, 09 Oct 2020 04:55:29 +0700

Purpose
This paper aims to analyse the asymmetric impacts of world oil price on macroeconomic variables in Vietnam, including domestic oil price, inflation and output growth.

Design/methodology/approach
The mixed data sampling (MIDAS) approach is employed to examine the impact of world oil price changes on macroeconomic variables as the former is high-frequency data (daily), and the latter is low-frequency data, usually monthly or quarterly.

Findings
Changes in world oil price cause asymmetric impacts on domestic oil price and inflation, but no significant effects on output growth. In terms of magnitude, a positive change in world oil price causes a stronger effect than a negative change in world oil price. In terms of timing, a positive change in world oil price causes a slow pass-through impact on domestic oil price and inflation. Meanwhile, domestic oil price and inflation decrease quickly following a negative change in world oil price.

Originality/value
This study investigates the asymmetric impact of oil price on the Vietnam economy in terms of both magnitude and timing, which is not explored by previous studies. In addition, it exploits daily information of oil price changes to analyse macroeconomic variables in lower frequency by employing MIDAS approach.

Modelling the synergy between fiscal incentives and foreign direct investment in Ghana

Fri, 09 Oct 2020 05:10:14 +0700

Purpose
The purpose of the paper was to investigate the role of fiscal incentives in driving foreign direct investment (FDI) inflows into the Ghanaian economy based on data from 1975 to 2017 with the Eclectic paradigm as the theoretical basis. FDI inflows was the dependent variable whiles trade openness, corporate tax rate, exchange rate and market size were the independent variables with corporate tax rate as the main explanatory variable of interest.

Design/methodology/approach
The autoregressive distributed lag (ARDL) bounds test technique was employed to investigate Cointegration in the model. The results showed the presence of cointegration among the variables.

Findings
The results revealed that corporate tax rates have a significant negative impact on FDI inflows into the Ghanaian economy in the long run and significant positive impact on FDI inflows in the short run. In the context of Ghana, the positive short-run relationship observed is attributed to the lag effect of tax policy on FDI inflows.

Research limitations/implications
One obvious limitation of the research is that, it does not identify the specific foreign businesses that are more deserving of a low corporate rate and to what extent can that boost FDI inflows in Ghana. Another limitation is that the data analyzed in the paper is exclusively for Ghana and the findings may not be generalized for other countries.

Practical implications
Based on the research findings, it is recommended that the Ghana Revenue Service (GRA) restructures the corporate tax regime in the country to deal with the policy lapses. It is also recommended that low corporate rates should be maintained especially in respect of foreign companies that are into the production of goods and services for which indigenous companies in Ghana have a comparative disadvantage in order to drive FDI into the Ghanaian economy.

Originality/value
This paper is unique for providing up to date and dynamic insights into the tax incentive and FDI nexus in the Ghanaian context

Ownership structure and demand for independent directors: evidence from an emerging market

Quoc Trung Tran — Fri, 09 Oct 2020 05:13:48 +0700

Purpose
In this study, we examine how ownership structure affects the use of independent directors in Vietnam – an emerging stock market.

Design/methodology/approach
We develop logit and tobit regression models to investigate the effects of ownership structure on the propensity to use independent directors and the number of independent directors on the board, respectively. Insider ownership and the use of independent directors are proposed to have a non-linear relationship.

Findings
With a sample of 1,318 observations collected from 192 listed firms over the period from 2008 to 2017, we find that insider ownership and independent director appointment have a U-shaped relationship. It is positive when insiders hold a small proportion of shares, and turns out to be negative when insiders hold a large percentage of shares. In addition, both state ownership and foreign ownership are negatively related to firm decisions of appointing independent directors.

Practical implications
Our findings imply that minority shareholders should have appropriate actions to reduce agency costs and protect their own interests. In addition, policymakers should improve the effectiveness of corporate governance legislation to increase the presence of independent directors in order to protect minority shareholders. Moreover, government agencies also need to increase the number of independent directors in state-controlled firms as a means to improve their corporate governance. Foreign investors may be a substitute for independent directors; therefore, firms without independent directors are able to improve their corporate governance by attracting foreign investors.

Originality/value
While the extant literature shows that independent directors can help firms decrease agency costs of equity in financial decisions and performance, there are relatively few studies investigating corporate decisions to use independent directors. This paper contributes to the literature of corporate governance mechanisms through independent directors in emerging markets.