Academic literature on the topic 'Generalised Method of Moment (GMM) Estimation Technique'

This study examines the impact of foreign aid instruments, namely Project Aid and Programme Aid, on economic growth of 27 aid-receiving countries. The study constructs a system of three equations, i.e. growth, investment and human capital. Using the Generalised Method of Moment estimation technique, the study concludes that while Project Aid has a positive and significant impact on economic growth, Programme Aid has an insignificant impact on economic growth. Additionally, the study finds that economic policies do enhance effectiveness of aid at aggregate level. Therefore, the capacity of aid-recipient countries to effectively use their resources for economic development needs due consideration. Keywords: Project Aid, Programme Aid, Economic Growth, Conditionality, Procurement Reform, System Equation Method, Generalised Method of Moment (GMM), Principal Component Analysis

The objective (aim) of this paper is to explore the impact of the Ease of Doing Business Indicators on FDI on transition economies in Europe. Authors have used the dynamic panel methodology, by using three methods: Pooled Ordinary Least Square (POLS), Fixed Effect (FE), and Two Step-System Generalised Method of Moments (GMM) estimation techniques. By referring to the GMM technique, it can be seen that variables such as: Starting a Business, Registering property, Getting electricity and Resolving insolvency have a positive and significant impact in attracting FDI in 16 European transition countries, while variables as: Dealing with construction permits, Getting credit, Paying taxes, Protecting minority investors, have shown negative impact, whereas Trading Across Border and Enforcing contracts have not shown any impact on attracting FDIs in European transition countries. This paper contributes to the enrichment of existing literature in this field by using these three methods.

Purpose The purpose of this paper is to explore the impact of leverage on firms’ discretionary investment in Africa. Design/methodology/approach The authors employ a dynamic panel data model estimated with generalised method of moments (GMM) estimation techniques on the panel data of listed African non-financial firms. A dynamic model and the generalised methods of moments estimations are handy in controlling for unobserved heterogeneity, endogeneity, autocorrelation, heteroscedasticity, etc. Findings In spite of different settings, markets, leverage levels and methodologies, the authors found evidence that leverage constrains investment in African firms. The negative impact is more pronounced in firms with low-growth opportunities than in firms with high-growth opportunities. The results are inclined to the theory that leverage plays a disciplinary role to avoid overinvestment. Research limitations/implications African firms’ investment policy does not solely depend on the neoclassical fundamentals determinants of profitability, net worth and cash flows. Financing strategy also has a considerable bearing on the investment policy. The results provide evidence that leverage is a negative externality to the firm’s discretional investment policy for both lowly levered and highly leveraged firms. African firms’ should consider maintaining their low debt levels and rely more on internally generated funds so as not to suppress any available cash flows to interest payments and loan covenants from debt holders. Originality/value The study contributes to the literature on investment and financial leverage by the authors providing evidence from Africa, a developing continent, that has not been explored. It shows how conservative leverage levels of African firms, which have been reported to be rising, are impacting on investments. Pertaining to empirical methodology, the authors employ a dynamic panel data model, the GMM estimation technique, which is robust in controlling endogeneity, and a possible bi-directional causality between leverage and investment which have not been used in literature. The study also enables a comparison of the effect of high leverage and low leverage on firm’s discretional investment.

This study analyzes the impacts of government spending on land use conversion from forest to agriculture based on national budget allocation in Indonesia. As agriculture expansion and the government spending on agriculture increase especially during this more than ten-year period, it is suspected that the conversion of land from forest to agriculture gradually increases. Therefore, the increase of government spending on agriculture may be one of the contributing factors to deforestation. Balanced panel data from 33 provinces in Indonesia that covers a ten-year period between 2006 and 2015 was used to examines the indirect effects of government spending on agriculture, total government spending over GRDP, and public spending on land use conversion. The generalized method of moment estimation (GMM) technique was applied in this research to investigate relationship between government spending and deforestation. The result showed that there is an indirect impact from increasing government spending: there is an increase in the total amount of land use conversion from forest to agriculture in Indonesia. This study depicts that an increase in government spending on agriculture and total government spending over GRDP have a significant positive impact on deforestation. Meanwhile, public spending has no significant effect on deforestation. Keywords: Deforestation, GMM, government spending Abstrak Penelitian ini bertujuan untuk menganalisa dampak belanja pemerintah terhadap deforestasi, berdasarkan anggaran nasional belanja pemerintah di Indonesia. Meningkatnya perluasan lahan pertanian yang diikuti dengan peningkatan belanja pemerintah untuk sektor pertanian dalam kurun waktu lebih dari 10 tahun terakhir ini memungkinkan terjadinya peningkatan konversi lahan. Peningkatan belanja pemerintah yang ditujukan untuk sektor pertanian dapat menjadi salah satu faktor pemicu deforestasi. Menggunakan panel data dari 33 provinsi di Indonesia selama 10 tahun, dari tahun 2006 s.d 2015, penelitian ini mengkaji dampak tidak langsung dari belanja pemerintah di bidang pertanian, total belanja pemerintah per PDRB, dan belanja pemerintah di public sector terhadap deforestasi. Menggunakan system generalized method of moment estimation (GMM), penelitian ini menganalisa hubungan antara belanja pemerntah dan deforestasi. Hasil empirik menunjukkan bahwa terdapat dampak tidak langsung dari peningkatan belanja pemerintah: adanya peningkatan konversi lahan dari hutan untuk pertanian. Penelitian ini juga menunjukkan bahwa peningkatan belanja pemerintah di bidang pertanian dan total belanja pemerintah per PDRB memiliki dampak siknifikan terhadap deforestasi. Sedangkan belanja pemerintah untuk sector public tidak memiliki dampak untuk meningkatkan deforestasi. Kata kunci : Deforestasi, GMM, belanja pemerintah

Given the importance of international trade and export performance in economic growth, this study attempts to examine the determinants of exports of Pakistan, using a time series data over the period 1975-2008. A simultaneous equation approach is followed and the demand and supply side equations are specified with appropriate variables. This is a country-wise disaggregated analysis of Pakistan versus its trade partners and the estimation strategy is based on two approaches. First we employ the Generalised Methods of Moments (GMM), which is followed by the Empirical Bayesian technique to get consistent estimates. The GMM technique is believed to be efficient for time series data provided the sample size is sufficiently large. In case of small samples, the estimates might not be precise and might appear with unbelievable sign and insignificant magnitudes. To avoid the sample bias and other problems, we employ the Empirical Bayesian technique which provides much precise estimates. The factual results obtained via the GMM technique are a little bit mixed, although most of the coefficients are found to be statistically significant and carry their expected signs. In order to compare and validate these results, the Empirical Bayesian technique is employed. This offers considerable improvement over the previous results and all the variables are found to be highly significant with correct sign across the countries concerned with the exception of a few cases. The price and income elasticities in both the demand and supply side equations carry their expected signs and significant magnitudes for the trading partners. The findings suggest that exports of Pakistan are much sensitive to changes in the world demand and world prices. This establishes the importance of demand side factors like world GDP, Real exchange rate, and world prices to determine the exports of Pakistan. On the supply side, we find relatively small price and income elasiticities. The results reveal that demand for exports is relatively higher for countries in NAFTA, European Union and Middle East regions. The study recommends particular concentration on the trade partners in these regions to improve the export performance of Pakistan. Keywords: Exports, GMM, Empirical Bayesian Method, Pakistan

Electricity theft is a common problem in many countries and energy worth billions of dollars is stolen annually from electricity grids. The problem has socioeconomic, political, environmental and technical roots, but the solution is generally sought solely through technical measures. This paper empirically investigates the effects of various factors including electricity price, per capita income, probability of detection, fines collected from offenders, weighted temperature index and load shedding, that may explain the theft. The study employed annual panel data obtained from nine electricity distribution companies in Pakistan for the period 1988–2010. The study estimates the Fixed Effects models through the least squares dummy variable (LSDV) technique and Generalised Method of Moments (GMM). Our results indicate that per capita income has significant negative and electricity price a positive effect on electricity theft with sufficiently high coefficient values. The probability of detection variable appears with a positive sign in both estimations indicating a poor deterrence. The results of LSDV show a positive impact of fine on conviction on electricity theft. But in GMM estimation, this variable appears with a right sign. The results from both models are robust in the case of load shedding and temperature variables. The findings show that economic variables are most significant in explaining electricity theft. The findings may also be applicable in other developing countries where hefty amounts of revenues are lost due to electricity theft. Keywords: Electricity Theft, Fixed Effects Model, Pakistan

Purpose This paper examines the effect of ownership structure on bank risk-taking and performance in emerging economies by using India as a case study. Design/methodology/approach We use generalised method of moments (GMM) estimation technique to analyse an unbalanced panel data set covering 217 bank-year observations from 2008 to 2011. Findings Overall, our study results suggest that government ownership is positively associated with default risk and negatively related to bank profitability. Interestingly, we find foreign ownership having a positive effect on default risk and a negative effect on profitability among the listed commercial banks. The effect of ownership concentration on bank risk-taking and profitability appears to be statistically insignificant. Originality/value This study is among the first to consider the impact of ownership on bank risk-taking and profitability from an emerging economy perspective. It also addresses the problem of endogenous relationships among ownership, risk-taking and performance of a bank. This study is likely to have implications for policymakers in undertaking regulatory reforms relating to ownership, risk management and banking sector stability.

This study endeavours to investigate the impact of fiscal decentralisation on the welfare concerns of poverty, and income inequality in Pakistan for the time period 1972 to 2013. In order to capture the multi-dimensional nature of fiscal decentralisation, three indicators are used namely; revenue decentralisation, expenditure decentralisation and composite decentralisation. Further, the role of institutional quality is also incorporated in apprehending the responsiveness of welfare issues towards the process of fiscal decentralisation. The estimation technique of Generalised Method of Moments (GMM) is employed for estimating the impact of fiscal decentralisation on poverty and income inequality. The empirical findings suggest that fiscal decentralisation has discretely resulted in increasing poverty and income inequality in Pakistan, but the presence of better institutional quality along with fiscal decentralisation can promise to mitigate the negative consequences of fiscal decentralisation for poverty and income inequality in Pakistan. Although, the indirect effect of fiscal decentralisation on welfare concerns, through institutional quality exhibits a fluctuating trend over time, but its average marginal effect is lower than the direct effect of fiscal decentralisation on welfare concerns. Hence, it can be perceived that the log-run welfare issues can be tackled effectively in the presence of institutional quality with a rational level of fiscal decentralisation. Also in order to reap the potential benefits of fiscal decentralisation for poverty and income inequality that has remained a catastrophe in case of Pakistan. JEL Classification: I3, 023 H53 Keywords: Fiscal Decentralisation, Welfare

Generalized method of moments (GMM) has been widely applied for estimation of nonlinear models in economics and finance. Although generalized method of moments has good asymptotic properties under fairly moderate regularity conditions, its finite sample performance is not very well. In order to improve the finite sample performance of generalized method of moments estimators, this paper studies higher-order mean squared error of two-step efficient generalized method of moments estimators for nonlinear models. Specially, we consider a general nonlinear regression model with endogeneity and derive the higher-order asymptotic mean square error for two-step efficient generalized method of moments estimator for this model using iterative techniques and higher-order asymptotic theories. Our theoretical results allow the number of moments to grow with sample size, and are suitable for general moment restriction models, which contains conditional moment restriction models as special cases. The higher-order mean square error can be used to compare different estimators and to construct the selection criteria for improving estimator’s finite sample performance.

Purpose – This study aims to examine the factors affecting the foreign direct investment (FDI) and foreign portfolio investment (FPI) flows among the 16 economies comprising the Middle East and North African (MENA) region. Design/methodology/approach – Panel data for the period 1984-2012 are used, and the generalized method of moment (GMM) technique is implemented. Findings – The results support the agglomeration effect, which indicates that countries which have already had FDI attract more FDI in the future. Economic risk affects FDI significantly and negatively, whereas trade openness has a significant and positive impact on FDI. Of the political risk factors considered, three of them, namely, law and order, ethnic tension and internal conflict, significantly affect FDI. The results on FPI show that the lag in FPI and the degree of openness play a significant role in attracting FPI into the MENA region. In addition, stock market capitalization, as well as the return on investment affects the FPI flow positively. The study also reveals a negative government structure impact on FPI, whereas, surprisingly, religious tension in the MENA region affects FPI positively. Originality/value – This research examines, simultaneously, the factors that determine not only FDI but also FPI flow. It uses a powerful econometric technique which avoids common estimation problems such as endogeneity, heteroskedasticity and autocorrelation. Policymakers in the MENA region recognized the need for outside capital as a major catalyst of development, economic growth and modernization. Therefore, it is essential to know the factors that would lead to a surge in capital flow to these countries.

This study analysed the effects of international trade on human development in two developing regions, the Association of Southeast Asian Nations (ASEAN) and the Southern African Development Community (SADC). The choice of comparing SADC and ASEAN is motivated by the many similarities between both regions half a century ago, and the stark divergence of their respective development pathways which has led to different development outcomes half a century later. Annual data from 2000 to 2018 and dynamic panel data econometric techniques were used in this study, controlling for individual country characteristics, endogeneity, serial correlation, heterocedasticity and interdependencies between the countries in each region. Two estimations were done in this study; sample wide estimations and country specific estimations. In the sample wide estimations the Generalised Method of Moments of Arellano and Bover (1995) with forward orthogonal deviations, and Feasible Generalised Least Squares of Parks (1967) and Kmenta (1986) were used, whilst Swamy’s Random Coefficients were used in the country specific estimations. Trade is measured using the current account balance as a percentage of GDP, whilst human development is captured by the United Nations’ Human Development Index (HDI). In the sample wide estimations, the study found that trade openness enhances human development for both SADC and ASEAN as measured by the Human Development Index (HDI). Gross fixed capital formation, economic growth and technological progress all had positive effects on human development in both regions. Unemployment had a counter intuitive positive effect on human development. This raises issues on the nature and quality of employment, including concerns on cheap production labour and vulnerable employment. The ASEAN region had a higher mean level of economic growth, a trade surplus and higher level of technological progress than SADC. This is consistent with the manufacturing focus of ASEAN, compared to the primary commodity exporting nature of SADC which had a trade deficit. However, in each region there were country specific differences in terms of what drives human development. The country specific disparities in drivers of human development have implications for the regional trade and development nexus. In particular, these disparities must be considered in the conceptualization and implementation of the SADC Industrialisation and Strategy Roadmap, and the most recent African Continental Free Trade Area. The policy implication is that such regional trade agreements should accommodate countries’ specific heterogeneity as the policy pathways will differ between countries.
Business Management
D. Phil. (Management Studies)