Wagner or Keynes for Ghana? Government Expenditure and Economic Growth Dynamics. A ‘VAR’ Approach
Pages 177-183
Kofi Kamasa and Grace Ofori-Abebrese

DOI: http://dx.doi.org/10.6000/1929-7092.2015.04.18

Published: 27 November 2015

Abstract: This paper analysed empirically the causal relationship between government expenditure growth and GDP growth in Ghana from 1980 – 2010. The study employed vector autoregressive (VAR)/Granger causality analysis developed by Sims (1980) and Granger (1969). The cointegration results provided evidence of a unique cointegrating vector. Granger causality test conducted revealed that causality exist only from GDP growth to government expenditure growth and not the vice versa. This implication supports Wagner’s law of expanding state activities for Ghana. This result means that in estimating government expenditure, GDP growth must be taken into account so as to avoid the problem of misspecification and biasness of estimates generated. The findings also suggest that government must focus on policies that would create the enabling environment for growth to thrive rather than increasing its expenditure with the aim of increasing GDP growth.

International Investor Sentiment and Emerging Equity Markets in Central and Eastern Europe
Pages 165-176
Magdalena Sokalska

DOI: http://dx.doi.org/10.6000/1929-7092.2015.04.17

Published: 18 November 2015

Abstract: This paper uses the vector Markov switching method of Hamilton (1990) to measure market sentiment in a group of countries. We investigate the apparent co-movement of equity returns in the Czech Republic, Hungary and Poland. We argue that the main underlying forces moving stock returns in small open emerging markets are of an exogenous nature. The main factor driving prices in the region is modeled as an unobservable variable labeled “international investor sentiment”. This latent variable is represented as a two-state Markov chain and makes stock returns switch from a growth regime to a depression regime, or in the opposite direction. In such a framework, the stock return process comes from a mixture of two multivariate normal distributions. The estimated latent variable shows significant correlation with a number of data series on global capital flows, mutual fund flows, regional emerging and developed markets’ equity returns as well as with other popular market sentiment or economic uncertainty indicators. It does not show a strong association with a comprehensive set of contemporaneous local economic factors with the exception of the quarterly change in industrial production.

Examining the Asymmetric Behavior across the Phases of Capacity Utilization Rates in Turkey
Pages 159-164
Ismail Onur Baycan

DOI: http://dx.doi.org/10.6000/1929-7092.2015.04.16

Published: 22 October 2015

Abstract: This is the first study that explicitly models and characterizes the asymmetric state dependent dynamics of the Turkish capacity utilization rates of the manufacturing industry. The analysis employs hidden Markov models to the mean and variance that are robust to potential structural breaks. The model parameters are estimated using EM algorithm together with the nonlinear filter to provide the maximum likelihood estimates without imposing any a priori restrictions on model parameters and infer the states through statistical estimation. The results reveal nonlinearity, determine the number of regimes and identify the nonlinear heteroscedasticity across different phases. The paper provides the smoothed probabilities of low, moderate and high capacity utilization regimes along with the fitted values for the Turkish capacity utilization rates. A three state specification with regime-dependent mean and variance dynamics is identified. The study also employs the estimated transition probabilities and determines the durations and persistence of staying in each particular regime for the capacity utilization rate fluctuations of the manufacturing industry in Turkey..

Does Capital Account Liberalization Affect the Financial Stability: Evidence from China
Pages 152-158
Yuanyuan Shen and Lu Yang

DOI: http://dx.doi.org/10.6000/1929-7092.2015.04.15

Published: 30 September 2015

Abstract: This paper seeks to investigate the relationship between capital account liberalization and the financial stability in China. Furthermore, The Finite Distributed Lag Model is employed to quantify relationship between capital account liberalization and monetary crisis. And a general conclusion can be drawn that capital account liberalization is harmful to the stability official market in one year period, while the overall capital account liberalization effect can facilitateChina’s financial stability in a long run. Moreover, some suggestions are provided on China's capital account liberalization policies.

Revising Fiscal Policy and Growth in Saudi Arabia
139-146

Janelle Mann and Peter Sephton

DOI: http://dx.doi.org/10.6000/1929-7092.2015.04.13

Published: 30 July 2015

Abstract: This article empirically investigates how private investment and different categories of public expenditure (defense, education, health care, and housing) impact real non-oil GDP in Saudi Arabia. The econometric analysis couples unit root, stationarity, and cointegration analysis with vector error correction models. Impulse response functions are applied to examine the impacts of different shocks to the system. We find that public expenditures on health care and defense have decreased real non-oil GDP while public expenditure on education and housing have very little impact. Interestingly, public expenditures on health crowds-out private investment.