Browsing by Subject "Autoregressive Distributed Lag"

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    Financial development and economic growth: evidence from Lesotho, 1981 - 2022
    (2025) Nteso, Ntsane; Nikolaidou, Eftychia
    This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the This research explores the significant impact of financial development on Lesotho's economic growth over the period 1981–2022, employing a methodology inspired by the endogenous growth model proposed by King and Levine (1993). The study utilizes the Autoregressive Distributed Lag (ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity.(ARDL) approach to cointegration, specifically applying the ARDL bounds-testing methodology. To capture the multifaceted aspects of financial development, four distinct proxy variables are used: ratio of liquid liabilities to GDP, private credit by deposit money banks and other financial institutions as a percentage of GDP, deposit money bank assets to deposit money bank assets and central bank assets and domestic credit to private sector as a percentage of GDP divided by domestic credit to private sector as a percentage of GDP plus credit to government and state-owned enterprises as a percentage of GDP. Initially, this study explores the influence of financial development on economic growth using all four proxy variables. Interestingly, only one variable - the ratio of liquid liabilities to GDP - emerges as statistically significant. However, its impact is negative in both the short and long run. Consistent with King and Levine's (1993) suggestions about the channels through which financial development affects economic growth, this research further explores the impact of the ratio of liquid liabilities to GDP on two crucial growth components: total productivity growth and the accumulation of physical capital. The results present a convincing narrative, revealing that the log of ratio of liquid liabilities to GDP has a negative impact on Lesotho's growth while having no significant effect on either total factor productivity growth or physical capital accumulation. This paper contends that financial liberalization in a poorly regulated environment may have contributed to this outcome. Consequently, the evidence suggests that the country may not be fully leveraging the potential benefits of financial development to drive economic prosperity.
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    Open Access
    The impact of capital inflows on economic growth in Malawi: an asymmetric analysis
    (2025) Zimba, Towani Mnyagala; Makanza, Christine
    This study investigates the impact of four capital flows: external debt, official development assistance (ODA), remittances, and foreign direct investment (FDI)- on Malawi's economic growth using annual data spanning 1980 to 2022. Previous studies in the literature focus on a single capital flow and assume a symmetric relationship between capital flows and growth. However, this study focuses on how various capital flows each impact growth and considers potential asymmetry in capital flows' effects. The study determines asymmetric long-run and short-run relationships between capital flows and growth using a Nonlinear ARDL (NARDL), and the results are compared to the linear case using an Autoregressive Distributed Lag (ARDL) model. The NARDL models reveal significant asymmetries for all four capital flows, suggesting that positive and negative shocks influence growth disproportionately. In the long run, for all models, an increase in each capital flow increases growth, while reductions in inflows decrease growth, in some cases by a much larger proportion than the increase. In the short run, however, an increase in debt was detrimental to growth, yet debt and remittance inflow reduction improved growth. Conversely, an increase in FDI and remittances improved growth, while a decrease in FDI reduced growth. In contrast, the long-run ARDL results indicate that Remittances and ODA positively affect economic growth. Yet, external debt and FDI have no significant impact. In addition, short-run results show that lagged FDI and external debt positively impact growth, while ODA and remittance have no significant short-run effect. The study contributes to the literature by showing the disproportionate impact of positive and negative capital shocks on growth, which suggests that models that fail to account for asymmetry may be misspecified. These novel results show that accounting for asymmetric effects reveals dynamics that are overlooked in studies that assume that the capital growth nexus is symmetric.