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Study on the Causality Nexus between Macro-Economic Variables using Vector Error Correction Modeling

Author

Listed:
  • SINGH, Shailander

    (Department of Commerce, SRM University, Amaravati, India)

  • HAWATI, Janor

    (Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Malaysia)

Abstract

The reason behind the execution of this research is to investigate the dynamic co-integration association of economic growth with its selected four determinants which include foreign direct investment (FDI), consumer price index (CPI), net export (NE) and personal remittances (PR) in Thailand, a developing economy. The paper examines empirically the association of economic growth with its determinants by employing Johansen Co-Integration Test, Granger Causality Test and Variance Decomposition between time-period of 1980-2013. Empirical results reveal the presence of co-integration among the considered variables whereby it is noticed that economic growth of Thailand is influenced by personal remittances and net exports. The Granger Causality Test supports unidirectional causality from LNE to LGDP (LNE→LGDP) and from LCPI to LNE (LCPI→LNE). Furthermore the study evidences feedback causality among LPR and LGDP. The variance decomposition results recommend that unsettling influences starting from LGDP incur most prominent variability of 69 percent followed by 31 percent of the variation explained by the remaining four variables. La relazione di causalità tra variabili macro-economiche tramite l’utilizzo di un modello Vector Error Correction Il fine di questo studio è analizzare l’associazione di cointegrazione dinamica del tasso di crescita economica in Tailandia, con 4 determinanti: gli investimenti diretti esteri, l’indice dei prezzi al consumo, le esportazioni nette e le rimesse personali. L’articolo esamina empiricamente questa relazione tramite l’utilizzo del test di cointegrazione di Johansen, del test di causalità di Granger e della scomposizione di varianza nel periodo 1980-2013. I risultati empirici evidenziano la presenza di cointegrazione tra le variabili considerate, laddove si nota che la crescita in Tailandia è influenzata dalle rimesse personali e dalle esportazioni nette. Il test di causalità di Granger suggerisce l’esistenza di causalità unidirezionale da LNE a LGDP e da LCPI a LNE, oltre ad un riscontro di causalità tra LPR e LGDP. I risultati della scomposizione di varianza evidenziano che importanti influenze provenienti da LGDP causano una variabilità massima del 69%, seguita dal 31% di variazione dovuta alle rimanenti 4 variabili.

Suggested Citation

  • SINGH, Shailander & HAWATI, Janor, 2019. "Study on the Causality Nexus between Macro-Economic Variables using Vector Error Correction Modeling," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(1), pages 1-22.
    • Handle: RePEc:ris:ecoint:0838
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Gross Domestic Product; ARDL; Granger Causality; Net Export; VECM;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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