Asian Journal of Economics and Empirical Research

Not all investors are the same: Evidence from investor holdings of local-currency debt in Indonesia

Amr Hosny — 2024-08-16

This paper examines the global and domestic factors driving different investor holdings of local currency (LC) sovereign debt in Indonesia. Using an autoregressive distributed lag co-integration approach, using monthly data for Indonesia over 2002M12-2022M12, we find that non-resident holdings of LC debt in Indonesia are mostly driven by global factors such as commodity prices and volatility in global bond markets, while domestic investors (such as domestic banks and institutional investors) are mostly driven by higher debt security issuances and Bank of Indonesia (BI) acts as a residual financier under adverse conditions. We also find evidence that foreign investors follow the "benchmark effect" and are attracted by higher domestic yields. Results are mostly robust to different specifications. These results call for a further deepening of the investor base, especially domestic nonbanks, to support market depth and reduce volatility.

Analyzing the dynamics of import demand function in Pakistan: Long-term and short-term relationships with key economic factors

Shakil Ahmad — 2024-09-19

This study investigates the short-term and long-term correlations between total imports in Pakistan and a set of explanatory variables. We utilized the Autoregressive Distributed Lag (ARDL) model, and we estimated the import demand function for the period from 1980 to 2021. The Augmented Dickey-Fuller (ADF) test confirmed that none of the variables exhibited second-order integration, ensuring their suitability for the ARDL approach. Bounds testing indicated the existence of a long-term equilibrium relationship among the included variables. Furthermore, diagnostic tests validated our model's statistical robustness, ensuring our findings' reliability. The long-term analysis shows significant relationships between imports and key economic indicators such as gross domestic product (GDP), the inflation rate, and the import demand function. Furthermore, we found a slight positive impact on import demand from the import price index and foreign direct investment (FDI). These results emphasize the included relationships between various macroeconomic factors and import demand in Pakistan. Based on these findings, we recommend that the government implement policies aimed at boosting investment, stimulating economic growth, and controlling inflation. Specifically, policies that target enhancing foreign direct investment (FDI), maintaining stable inflation rates, and promoting economic growth will be crucial in strengthening the import demand function. These measures will not only support sustainable economic development but also optimize the import dynamics in Pakistan’s economy.

The impact of capital flight on economic development: An empirical analysis from Palestine

Nemer Badwan — 2024-10-15

This study focused on the function of capital flight to ascertain the true impact of the phenomenon of capital flight on economic development in Palestine and aimed to analyze the short- and long-term dynamic relationship between capital flight and economic development, including other affected variables. This research employed a quantitative research design and the descriptive analysis method. The analysis uses quarterly data from 2004 to 2022. This study employed the autoregressive distribution lag (ARDL) bound testing approach. Actual data from Palestine spanning the years 2004-2022 yielded significant findings. Based on heteroskedastic dynamic regression as an ARDL panel model, important findings were reached. First, both local country fundamentals and global variables have an impact on economic development and its rates over the long term, but in the near term, global forces may be predominantly recognized as drivers. Second, the variable of interest, capital flight, has a favorable impact on tax advantages. The empirical findings revealed that the short- and long-run analyses are consistent with each other. This necessitates putting into practice a variety of tactics, from creating efficient judicial and political institutions to encouraging economic development through managing macroeconomic issues. This study provides a fresh insight for policymakers to evaluate the impact of capital flight on economic development factors when coordinating fiscal and monetary policy in Palestine. The monetary and fiscal authorities should create an efficient policy framework. Palestine must reduce and stop the outflow of cash from inside its borders to improve its capacity to pay back its loans and debts to foreign creditors.

External debt and economic growth: A study from the perspective of developing and emerging economies

Shehzada Ghulam Abbas — 2024-11-07

This study explores the relationship between economic growth and external debt for 24 highly indebted developing and 21 highly indebted emerging economies. This study uses data from 2010 to 2019 and a dynamic panel data model-Generalize Methods of Moments (GMM) to investigate the relationship. The study found that external debt significantly and adversely impacts economic growth for the sample of 24 developing countries indicating external debt being one of the major determinants of economic growth for developing countries whereas it is negative but insignificant in the case of 21 emerging economies showing no impact of external debt on economic growth in the case of emerging economies. This study also found a significant and positive relationship between gross capital formation (GCF) and lag of GDP growth (GDPgr) and economic growth for both developing and emerging economies. Inflation has no significant impact on economic growth in the case of developing countries whereas it has a significant and negative impact on economic growth for the sample of emerging economies. Trade openness has no significant impact on economic growth for data samples. In addition, the long-run estimates show a negative relationship between external debt and GDP growth for both groups of countries. The results imply that targeted and efficient debt management and using traditional alternatives (i.e., tax revenue mobilization and domestic borrowing) should be prioritized for both countries.

Exchange rate innovation, global pandemic and stock market returns: Empirical evidence from ECOWAS countries

Ambrose Nnaemeka Omeje — 2024-11-07

This study used the panel VAR impulse response function model and high-frequency monthly data from 2020M1 to 2021M12 to examine the response of innovations in the exchange rate and stock market returns to the COVID-19 pandemic in Economic Communities of West African States (ECOWAS). The study found that the effect of shocks of COVID-19 today on future exchange rate innovation worsens the real conditions of exchange rate innovation in ECOWAS countries. Again, the impact of the shocks of COVID-19 today on future stock market returns encourages the real conditions of stock market returns in ECOWAS countries. It was recommended that instead of lockdown, ECOWAS governments should explore other policy options peculiar to the region in COVID-19 containment and also strive harder to deepen the stock market and encourage increased utilization of information and communication technology in stock market trading to cut costs, raise returns and connect trade with the rest of the world’s stock markets.