IDEAS home Printed from https://ideas.repec.org/a/vrs/ecobus/v35y2021i1p133-148n3.html
   My bibliography  Save this article

Domestic Credit and the Balance of Payment Deficit: Evidence from a Heterogeneous Panel of Five Selected Mena Countries

Author

Listed:
  • Ghilous Azeddine
  • Ziat Adel

    (Farhat Abbas University Setif, Setif, Algeria)

Abstract

This study investigated the relationship between domestic credit and net foreign assets in the long run through the monetary approach to the balance of payments (MABP) for a panel of five selected MENA countries (Jordan, Egypt, Algeria, Morocco, Tunisia) during the period extending from 1980 to 2019. It employed the second-generation methods in panel data analysis to deal with cross-sectional dependence (CSD) and slope heterogeneity. According to the panel results for Common Correlated Effects Mean Group (CCEMG) and Augmented Mean Group (AMG) estimators, domestic credit has a significant negative impact on net foreign assets in the long run. The country-specific results for the AMG estimator strongly supported the MABP propositions in Jordan, Morocco, and to a lesser extent, in Egypt and Algeria. As for Tunisia, the results do not conform with what MABP predicted. The implicit conclusion is that an increase in domestic credit causes a continuous loss of net foreign assets in Egypt, Jordan, Morocco, and Algeria. Thus, monetary authorities should formulate an appropriate monetary policy to control the domestic credit creation as a mechanism toward improving the balance of payment (BOP) position. Furthermore, the policymakers should concentrate on other policy instruments to correct the BOP deficit rather than focusing on monetary tools, especially in Tunisia, where the findings showed that BOP was not a monetary phenomenon.

Suggested Citation

  • Ghilous Azeddine & Ziat Adel, 2021. "Domestic Credit and the Balance of Payment Deficit: Evidence from a Heterogeneous Panel of Five Selected Mena Countries," Economics and Business, Sciendo, vol. 35(1), pages 133-148, January.
    • Handle: RePEc:vrs:ecobus:v:35:y:2021:i:1:p:133-148:n:3
    DOI: 10.2478/eb-2021-0009
    as

    Download full text from publisher

    File URL: https://doi.org/10.2478/eb-2021-0009
    Download Restriction: no
    File URL: https://libkey.io/10.2478/eb-2021-0009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dhliwayo, R., 1996. "The Balance of Payments as a Monetary Phenomenon: An Econometric Study of Zimbabwe's Experience," Papers 46, African Economic Research Consortium.
    2. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(3), pages 446-447, August.
    3. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    4. Dornbusch, Rudiger, 1973. "Devaluation, Money, and Nontraded Goods," American Economic Review, American Economic Association, vol. 63(5), pages 871-880, December.
    5. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    6. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
    7. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 239-253.
    8. M. Hashem Pesaran & Aman Ullah & Takashi Yamagata, 2008. "A bias-adjusted LM test of error cross-section independence," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 105-127, March.
    9. Sidney S. Alexander, 1952. "Effects of a Devaluation on a Trade Balance," IMF Staff Papers, Palgrave Macmillan, vol. 2(2), pages 263-278, April.
    10. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    11. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    12. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(4), pages 644-646, November.
    13. Anonymous, 1952. "International Monetary Fund," International Organization, Cambridge University Press, vol. 6(1), pages 121-125, February.
    14. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    15. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    16. Ayad Hicham, 2020. "Government Expenditure and Economic Growth Nexus in Mena Countries: Frequency Domain Spectral Causality Analysis," Economics and Business, Sciendo, vol. 34(1), pages 60-77, January.
    17. Frenkel, Jacob A., 1971. "A theory of money trade and the balance of payments in a model of accumulation," Journal of International Economics, Elsevier, vol. 1(2), pages 159-187, May.
    18. Eberhardt, Markus & Bond, Stephen, 2009. "Cross-section dependence in nonstationary panel models: a novel estimator," MPRA Paper 17692, University Library of Munich, Germany.
    19. Johnson, Harry G., 1972. "The Monetary Approach to Balance-of-Payments Theory," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(2), pages 1555-1572, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eberhardt, Markus & Teal, Francis, 2008. "Modeling technology and technological change in manufacturing: how do countries differ?," MPRA Paper 10690, University Library of Munich, Germany.
    2. Andrew Adewale Alola & Glory Chiyoru Dike & Uju Violet Alola, 2022. "The Role of Legal System and Socioeconomic Aspects in the Environmental Quality Drive of the Global South," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(2), pages 953-972, September.
    3. Jin, Taeyoung, 2022. "Impact of heat and electricity consumption on energy intensity: A panel data analysis," Energy, Elsevier, vol. 239(PA).
    4. Qiao, Hui & Chen, Siyu & Dong, Xiucheng & Dong, Kangyin, 2019. "Has China's coal consumption actually reached its peak? National and regional analysis considering cross-sectional dependence and heterogeneity," Energy Economics, Elsevier, vol. 84(C).
    5. Muhammed BENLI, 2020. "The effect of external debt on long run economic growth in developing economies: Evidence from heterogeneous panel data models with cross sectional dependency," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(624), A), pages 127-138, Autumn.
    6. Schneider, Nicolas & Strielkowski, Wadim, 2023. "Modelling the unit root properties of electricity data—A general note on time-domain applications," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 618(C).
    7. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Fasanya, Ismail O., 2022. "Renewable and non-renewable energy consumption – Ecological footprint nexus in net-oil exporting and net-oil importing countries: Policy implications for a sustainable environment," Renewable Energy, Elsevier, vol. 189(C), pages 524-534.
    8. Dong, Kangyin & Sun, Renjin & Hochman, Gal & Li, Hui, 2018. "Energy intensity and energy conservation potential in China: A regional comparison perspective," Energy, Elsevier, vol. 155(C), pages 782-795.
    9. Mehmet MERCAN, 2014. "Feldstein-Horioka Hipotezinin AB-15 ve Turkiye Ekonomisi icin Sinanmasi: Yatay Kesit Bagimliligi Altinda Yapisal Kirilmali Dinamik Panel Veri Analizi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 14(2), pages 231-245.
    10. Buhari DOĞAN & Osman DEĞER, 2018. "The role of economic growth and energy consumption on CO2 emissions in E7 countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(615), S), pages 231-246, Summer.
    11. Lu, Yin & Tian, Tian & Ge, Chen, 2023. "Asymmetric effects of renewable energy, fintech development, natural resources, and environmental regulations on the climate change in the post-covid era," Resources Policy, Elsevier, vol. 85(PB).
    12. Michael Appiah & Bright Akwasi Gyamfi & Tomiwa Sunday Adebayo & Festus Victor Bekun, 2023. "Do financial development, foreign direct investment, and economic growth enhance industrial development? Fresh evidence from Sub-Sahara African countries," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 203-227, May.
    13. BAYAR Yilmaz & AKYUZ Fatma & EREM Isil, 2017. "Openness And Financial Development In Central And Eastern European Countries," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 12(3), pages 5-16, December.
    14. Syed Asif Ali Naqvi & Bilal Hussain & Ashfaq Ahmad Shah & Muhammad Atiq Ur Rehman Tariq & Muhammad Usman, 2022. "Influence of Economic Growth, Energy Production, and Subcomponents on the Environment: A Regional Level Analytical Modeling," Sustainability, MDPI, vol. 14(22), pages 1-22, November.
    15. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2022. "Which are the long-run determinants of US outward FDI? Evidence using large long-memory panels," Working Papers 2022.08, International Network for Economic Research - INFER.
    16. Yilmaz Bayar & Marius Dan Gavriletea, 2019. "Energy efficiency, renewable energy, economic growth: evidence from emerging market economies," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(4), pages 2221-2234, July.
    17. Katircioglu, Salih Turan & Sertoglu, Kamil & Candemir, Mehmet & Mercan, Mehmet, 2015. "Oil price movements and macroeconomic performance: Evidence from twenty-six OECD countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 257-270.
    18. Aliya Zhakanova Isiksal, 2021. "The financial sector expansion effect on renewable electricity production: case of the BRICS countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(6), pages 9029-9051, June.
    19. Dong, Kangyin & Hochman, Gal & Zhang, Yaqing & Sun, Renjin & Li, Hui & Liao, Hua, 2018. "CO2 emissions, economic and population growth, and renewable energy: Empirical evidence across regions," Energy Economics, Elsevier, vol. 75(C), pages 180-192.
    20. Tarik Dogru & Umit Bulut & Ercan Sirakaya-Turk, 2021. "Modeling tourism demand: Theoretical and empirical considerations for future research," Tourism Economics, , vol. 27(4), pages 874-889, June.

    More about this item

    Keywords

    Balance of Payments; Monetary Approach; Cross-sectional dependence; Heterogeneous Panel; Augmented Mean Group (AMG);
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:vrs:ecobus:v:35:y:2021:i:1:p:133-148:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.sciendo.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.