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Testing the Governance-Productivity Nexus for Emerging Asian Countries
Ghulam Mustafa and Muhammad Jamil
Published:Jan - June 2018
This paper presents panel data estimates of the relationship between
governance, aggregate labor productivity (ALP) growth and total factor
productivity (TFP) growth for 12 Asian economies between 1996 and 2013. Our
results show that government effectiveness has a positive and significant effect on
ALP in both levels and first differences. Regulatory quality has a positive impact on
ALP only in first difference. Although both government effectiveness and regulatory
quality have a positive effect on TFP growth in first difference, only political stability
is significant and positive in the levels specification. Other findings indicate that
physical capital and human capital have a positive effect on ALP growth. We also
find evidence of positive spillover effects with respect to human capital. The positive
association between governance, economic growth and productivity provide a better
understanding of the role of governance in enhancing economic performance. Our
findings have policy implications for ways to achieve good governance to enhance
economic growth and productivity.
KEYWORDS:
total factor productivity,
economic growth,
governance.
JEL:
D24,
E24,
C23,
O40.
Inventory, Marketing and Markups of Exporters: The Case of Spinning, Weaving and Finishing Textile Sector of Pakistan
Imtiaz Ahmad and Zafar Mahmood
Published:July - Dec 2018
This paper studies the impact of inventory-intensity, marketing-intensity and firm size on the markups of exporting firms. We used audited financial statement data of publicly listed companies in the spinning, weaving and finishing industry within the textiles sector of Pakistan. We document five observations: 1) average markup of exporters is relatively higher than non-exporters; 2) there is higher dispersion in markups of non-exporters relative to exporters; 3) large firms have relatively higher markup and marketing-intensity; 4) firms which have higher marketing- and inventory-intensity also have higher markups; and 5) exporters have relatively higher markup elasticity with respect to marketing-intensity, inventory-intensity and growth in inventory-intensity.
KEYWORDS:
Markups,
inventory intensity,
marketing intensity,
firm size,
Pakistan.
JEL:
F14,
L11,
L25.
The China-Pakistan Economic Corridor (CPEC): Considering Contemporary Pakistan through Old-Fashioned Economics and Historical Case Studies
Matthew McCartney
Published:July - Dec 2018
As part of the massive One Belt One Road (OBOR) project or ‘New Silk Road’ the governments of China and Pakistan have announced that a significant ‘corridor’ will be constructed in Pakistan. This paper looks in detail at the $46 billion China-Pakistan Economic Corridor (CPEC) package of transport, energy and manufacturing projects and asks how we can analyse the impact of a transformative expansion of infrastructure. This paper draws lessons from various old-fashioned economics including Rostow, Hirschman and others and the historical case studies of transformative infrastructure expansion in the nineteenth century United States, Mexico, Germany and India to explore the conditions under which CPEC could promote sustainable long-run economic growth in Pakistan.
KEYWORDS:
Pakistan,
China,
China-Pakistan Economic Corridor (CPEC),
growth.
JEL:
O10.
Variance Persistence in the Greater China Region: A Multivariate GARCH Approach
John Francis Diaz, Peh Ying Qian and Genevieve Liao Tan
Published:July - Dec 2018
This paper utilizes three Multivariate General Autoregressive Conditional Heteroscedasticity (MGARCH) models to determine variance persistence in the Greater China region from 2009 to 2014. The first approach applies the Baba, Engle, Kraft and Kroner (BEKK) model and shows that the Shanghai Stock Exchange Composite Index (SSEI), Taiwan Capitalization Weighted Stock Index (TAEIX) and the Hang Seng Stock Index (HSEI) stock returns are all functions of their lagged covariances and lagged cross-product innovations. The second MGARCH approach applies two methodologies, namely, dynamic conditional correlation (DCC), and constant conditional correlation (CCC) estimations. The DCC model concludes both short- and long-run persistencies between Taiwan’s TAIEX and Hong Kong’s HSEI. Alternatively, the CCC model confirms the initial findings of the BEKK model, and adds that the relationships among these three strong economies are stable in the long-run. The log-likelihood values determine that the DCC model is better in judging volatility dynamics in the Greater China region, because of economic clauses brought by the Closer Economic Partnership Arrangement (CEPA), the Economic Co-operation Framework Agreement (ECFA) and the Hong Kong - Taiwan Business Cooperation Committee (BCC).
KEYWORDS:
Greater China Region,
stock market returns,
volatility dynamics,
MGARCH models.
JEL:
P45,
C30.
Role of Financial Services in Economic Growth: Policy Implications for Pakistan
Jamshed Y. Uppal and Inayat U. Mangla
Published:July - Dec 2018
In the last two decades, the financial services sector in Pakistan has seen remarkable growth and structural development. However, it is debatable whether the financial markets and institutions have contributed meaningfully towards promoting growth in the real economy. This paper provides a brief background of the theoretical and empirical literature on the linkage between the financial services sector and economic growth. It evaluates the development of Pakistan's financial markets and institutions in comparison to a cohort of developing countries. The country's governance and regulatory environment in light of these theories and the empirical evidence is compared with other countries. The weaknesses in the linkages between finance and economic growth are identified within the framework of the theoretical models and relevant empirical evidence. The final section discusses the challenges Pakistan faces in making its financial services sector become an effective driver of economic growth.
KEYWORDS:
Financial services,
economic growth,
Pakistan.
JEL:
O16.
Human and Social Capital Complementarities in the Presence of Credit Market Imperfections
Natasha Moeen
Published:July - Dec 2018
This paper models the individual-level social capital effect the credit market constraints that reduce the accumulation of costly human capital. Human capital, in turn, improves an individual’s income as well as the bequest that they intend to leave for their children. It also helps reduce inequality across a country. Finally, the model shows that investment in social capital has a negative relationship with the interest rate, so that the initial inherited bequest of every individual affects the output and investment in the short-run, as well as in the long-run.
KEYWORDS:
Social capital,
credit market,
investment,
interest rate.
JEL:
E24.
Is Pakistan Ready to Embrace Fintech Innovation?
Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
Published:July - Dec 2018
Pakistan is an emerging market for fintech, with increasing facilitation for digital payments, widespread internet and smartphone penetration, consumer preferences for social media and booming online commerce. Also, the State Bank of Pakistan provides sound regulations, which act as a platform for fintech growth. While regulations are necessary, they might also become a threat for an industry still in its infancy. This paper aims to provide a qualitative assessment of economic, demographic and technological factors that are conducive for the penetration and growth of fintech in Pakistan. A second, but no less important, objective of this paper is to look at the regulatory framework governing fintech and its contribution in making the segment an active or dormant player in the financial services industry.
KEYWORDS:
Fintech,
disruption,
innovation,
financial services,
emerging market,
Pakistan.
JEL:
K20,
O16,
G20.
Modified Variance Ratio Test for Autocorrelation in the Presence of Heteroskedasticity
Sohail Chand and Nuzhat Aftab
Published:Jan - June 2018
Given that autocorrelation tests do not perform well in the presence of heteroskedasticity and in variance-break cases, we present three modified weighted variance ratio tests of autocorrelation. The numerical results show that the proposed tests perform better for small samples. They provide a better approximation of asymptotic distributions and are more powerful when the lag length is mis-specified. The study also applies these tests to data on the daily returns of two companies listed on the Pakistan Stock Exchange.
KEYWORDS:
Regression,
variance break,
wild bootstrap.
JEL:
C40.
The Paradigm Shift in the Pakistan Stock Exchange’s Financial Integration Post-FTA and CPEC
Abdul Wahid and Muhammad Zubair Mumtaz
Published:Jan - June 2018
This paper examines whether regional connectivity causes return and volatility spillovers and the co-movement of stock exchanges to shift from international to regional markets. Using the China-Pakistan free trade agreement (FTA) of 2006 and the China-Pakistan Economic Corridor (CPEC) agreement to represent events of regional connectivity, we test this proposition based on data for two regional stock exchanges (the Pakistan Stock Exchange and Shenzhen Stock Exchange) and two global markets (the FTSE 100 and Nasdaq). We divide the convergence and co-integration of the stock markets into three phases: overall sample (2001–17), pre-FTA and post-FTA, and pre-CPEC and post-CPEC. Applying a GARCH (1, 1) model, co-integration, Granger causality and seasonality, we find that regional connectivity causes return and volatility spillovers and co-movements in the Pakistan Stock Exchange to shift from international markets to regional markets.
KEYWORDS:
Financial integration,
China-Pakistan economic corridor,
interdependency,
co-integration,
free trade agreement,
regional connectivity,
Pakistan.
JEL:
F15,
C22,
R58,
F21,
E44.
Exchange Rate Exposure and Firm Value: An Assessment of Domestic Versus Multinational Firms
Hajra Ihsan, Abdul Rashid and Anam Naz
Published:Jan - June 2018
This paper examines the impact of exchange rate changes on the stock returns of 232 nonfinancial firms listed on the Pakistan Stock Exchange, for the period January 2000 to June 2014. To mitigate the problem of heteroskedasticity, we use a generalized least squares estimator. The estimated regression models indicate that exchange rate variations have a significant effect on firm value and that firms are exposed significantly to one-period lagged variation in the exchange rate. Our results suggest that, in addition to exchange rate dynamics, increased exchange rate volatility appears to have significant and negative effects on firms’ stock returns. Compared to domestic firms, multinational firms experience greater exchange rate exposure. Finally, we show that exchange rate depreciation and appreciation have significant differential effects on firms’ stock returns. These effects vary significantly across domestic and multinational firms.
KEYWORDS:
Exchange rate exposure,
stock returns,
firm value,
domestic firms,
multinational firms,
volatility of exchange rate,
Pakistan.
JEL:
G23.