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The long-run impact of idiosyncratic and common shocks on industry output in Ghana

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  • Philip Kofi Adom
  • Kwaku Amakye
  • Charles Barnor
  • George Quartey

Abstract

This study explores the long-run impact of idiosyncratic and common shocks on industry output in Ghana while controlling for the effects of investment. In order to deal with the second-order bias problem, this study employed canonical cointegration and fully modified ordinary least-squares (OLS) regressions, which are more robust to second-order bias problems. Different models are, therefore, specified and estimated. Fully modified OLS and canonical cointegration are extended in successive steps in order to verify if the inclusion of idiosyncratic and common shocks improves the statistical properties of the model. Secondly, a backward approach, in which idiosyncratic and common shocks are excluded successively, is also adopted. Preliminary findings showed signs of long-run equilibrium. The a priori expectation and the statistical importance of investment are established in both fully modified OLS and canonical cointegration models. This result is robust using both the Bartlett and Parzen kernels. However, while the elasticity value for investment is invariant to the model and kernel type used for fully modified OLS, the opposite result is found for canonical cointegration. Importantly, the absolute value of the investment elasticity is kept within the limits of 0 and 1. The impacts of idiosyncratic and common shocks are negative and statistically significant in the long run for both fully-modified OLS and canonical cointegration. This result is robust to the Bartlett and Parzen kernels. Result based on the fully modified OLS also showed that the sizes of the elasticity values for both idiosyncratic and common shocks are sensitive to the model type and kernel type used. Despite the differences in the elasticity values, result for both models are qualitatively similar.

Suggested Citation

  • Philip Kofi Adom & Kwaku Amakye & Charles Barnor & George Quartey, 2015. "The long-run impact of idiosyncratic and common shocks on industry output in Ghana," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 39(1), pages 17-52, March.
    • Handle: RePEc:bla:opecrv:v:39:y:2015:i:1:p:17-52
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    File URL: http://hdl.handle.net/10.1111/opec.12039
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    Citations

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    Cited by:

    1. Adom, Philip Kofi, 2016. "The DDT Effect: The case of Economic Growth, Public Debt and Democracy Relationship," MPRA Paper 75022, University Library of Munich, Germany, revised 11 Nov 2016.
    2. Manga, Muge & Cengiz, Orhan & Destek, Mehmet Akif, 2022. "Is export quality a viable option for sustainable development paths of Asian countries?," MPRA Paper 117552, University Library of Munich, Germany.
    3. Olorunfemi Yasiru Alimi & Akinola Christopher Fagbohun & Mohammed Abubakar, 2021. "Is population an asset or a liability to Nigeria’s economic growth? Evidence from FM-OLS and ARDL approach to cointegration," Future Business Journal, Springer, vol. 7(1), pages 1-12, December.
    4. Erkişi Kemal & Boğa Semra, 2023. "Does Financial Inclusion Improve Income Equality? The Case of Türkiye," Economics, Sciendo, vol. 11(2), pages 79-95, December.
    5. Ercan Özen & Letife Özdemir & Simon Grima, 2020. "The Relationship between the Exchange Rate, Interest Rate and Inflation: The Case of Turkey," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 67(2), pages 259-275, March.
    6. Adom, Philip Kofi & Agradi, Mawunyo Prosper & Bekoe, William, 2019. "Electricity supply in Ghana: The implications of climate-induced distortions in the water-energy equilibrium and system losses," Renewable Energy, Elsevier, vol. 134(C), pages 1114-1128.
    7. Adom, Philip Kofi, 2016. "Electricity Supply and System losses in Ghana. What is the red line? Have we crossed over?," MPRA Paper 74559, University Library of Munich, Germany, revised 11 Nov 2016.

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