Towards determining Nigeria's economic growth path: A balance-of-payments constrained growth approach

Panshank, Yohanna; Civcir, Ifran; Ozdeser, ,Hüseyin Article Towards determining Nigeria's economic growth path: A balance-of-payments constrained growth approach EconomiA Provided in Cooperation with: The Brazilian Association of Postgraduate Programs in Economics (ANPEC), Rio de Janeiro Suggested Citation: Panshank, Yohanna; Civcir, Ifran; Ozdeser, ,Hüseyin (2020) : Towards determining Nigeria's economic growth path: A balance-of-payments constrained growth approach, EconomiA, ISSN 1517-7580, Elsevier, Amsterdam, Vol. 21, Iss. 1, pp. 104-119, https://doi.org/10.1016/j.econ.2019.11.004 This Version is available at: https://hdl.handle.net/10419/266952 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ Available online at www.sciencedirect.com ScienceDirect HOSTED BY EconomiA 21 (2020) 104–119 Towards determining Nigeria’s economic growth path: A balance-of-payments constrained growth approach Yohanna Panshaka, Irfan Civcirb,∗, Hüseyin Ozdesera aDepartment of Economics, FEAS, Near East University, Cyprus bDepartment of Economics, Faculty of Political Science, Ankara University, Turkey Received 14 March 2018; received in revised form 14 August 2018; accepted 22 November 2019 Available online 24 December 2019 Abstract This paper examines Nigeria’s long run growth path using the externally and internally constrained version of Thirlwall’s growth model from 1982 to 2015. The present study modifies the SCA-BOPCG to take into account the effects the foreign contents in exports growth and the domestic investment. Three Stage Least Squares method is used to obtain the required elasticities for the estimation of the domestic income growth. The study affirms the robustness and validity of the modified model in determining the growth path for Nigeria. The outcome of the empirical study reveals that Nigeria’s economic growth process is balance-of-payment constrained. Even though monetary policies improve growth performance, Nigeria sustainably grows faster with policies aiming at improving external balance or reducing the import components of demands, increasing export share to products with high elasticity of demand as well as keeping budget deficits within the universally acceptable limits. Keywords: Internal and external imbalances; Relative prices and income elasticities; Balance-of-payment equilibrium growth rates; Export and investment requirement of import JEL classification: F43; E12; O24 © 2019 The Authors. Production and hosting by Elsevier B.V. on behalf of National Association of Postgraduate Centers in Economics, ANPEC. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). 1. Introduction Following Kaldorian tradition and as a Keynesian, Thirlwall (1979) forwarded a parsimonious framework which can be used to determine the long-run growth course of any country compatible with the balance of payment equilibrium. The model contends that the degree to which an economy grows depends on the ratio of export growth to the income sensitivity of demand for import. The implication of this rule shows that in an open economy, the principal restriction that can adequately explain the growth process is the balance of payments. What this really means is that the annual rate of growth of a country’s exports is a function of how fast the outside world which purchases those exported products ∗Corresponding author: Ankara University, Faculty of Political Sciences, Cebeci, Ankara, Turkey. E-mail address: [email protected] (I. Civcir). https://doi.org/10.1016/j.econ.2019.11.004 1517-7580 © 2019 The Authors. Production and hosting by Elsevier B.V. on behalf of National Association of Postgraduate Centers in Economics, ANPEC. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Y. Panshak et al. / EconomiA 21 (2020) 104–119 105 is growing. Economic prosperity and output could thus be achieved by substantially increasing the country’s export shares and efficiently controlling imports. Before the development of the model, Dixon and Thirlwall (1975) had earlier explored the dynamic features of Kaldor’s circular cumulative causative model and tested it on the UK economy. The result over predicted the growth rate for the UK. A very clear justification for the outcome was the failure of the model to take into account the balance of payments constraint as imports were completely excluded in the analysis. However, in a scenario where imports growth exceeds the growth of exports, which cannot be permanently sustained; something has to play the adjustment role to restore equilibrium. This adjustment responsibility could be immaterial in a regional framework because of the usage of a universal means of payment; hence, the necessity to implement policies toward safeguarding real exchange rate is pointless. In the context of national economies, on the contrary, two underlying types of modifications are required: relative price changes or fine-tuning in output (income). Dixon and Thirlwall (1975) concluded that income is the main variable that will perform this function and not the real exchange rate.1An incremental growth in GDP, by rising imports, has the potential to generate a distortion in the payment position. This scenario could require some reduction in demand or real exchange rate decline (a deterioration of relative prices) for the purposes of ensuring the sustainability of the current account deficit. For this reason, an unsustainable current account deficit necessitates a correction, which acts as a hold on further output expansion (Bajo-rubio, 2014). Essentially, the law maintains that it is impracticable for any nation to experience faster and rapid growth than that guaranteed by its balance of payment equilibrium. However, a country can grow more than that permitted by the balance of payment condition if it has the capability to embark on incessant deficit financing from external sources. Unfortunately, this is a rare, unrealistic and unsustainable means of stimulating growth, particularly when viewed in the long-run. Given a scenario where foreign exchange earnings fail to address balance of payment distortions on the external account unremittingly, a faster and higher rate of growth is inevitably truncated. It is well known that Thirlwall’s BOPCG model has been adjusted to incorporate the effects of capital flows, sustainable debt, interest payment, multi-sectoral among other factors; the simultaneous distortions on internal and external accounts alongside the effects of real exchange rate in a BOPCG framework are rarely studied. The everincreasing contemporary experiences of most countries around the globe regarding debt problems prompt a renewed interest to address this dilemma. It has also been observed that increasing government borrowing, expenditure or reducing taxes in order to achieve higher GDP and overall prosperity does not often automatically lead to the realisation of the intended objectives. This is primarily because of the fact that government borrowing could trigger the cost of investment (interest rate) to rise beyond the reach of domestic investor, and by implication, discourages domestic investment, productivity and overall prosperity of the economy (Pelagidis and Desli, 2004;Soukiazis et al., 2014). In order to contribute to the above, this research seeks to explain Nigeria’s growth path using a simultaneous model developed by Soukiazis et al. (2014). This version of Thirlwall’s model incorporates both external and internal deficits and includes relative prices as additional determinants of long run growth. The adoption of the model is informed by the recent fiscal developments in the Nigeria where Deficit-to-GDP ratio had risen to 4.46% in 2015 while public revenue is plummeting due instability in commodity prices. To further compound the issue, interest repayment on loans at the moment already takes about 30% of federal government revenue which is higher than that of Italy, Greece and even the entire European Union.2This raises concern about the sustainability of the fiscal position of the economy over the medium and long terms. The major novelty of present study is in the modifiction of SCA-BOPCG model to take into account the role of foreign contents used in export growth and domestic investments within the BOPCG framework. The reason behind this extension is to take into account the structural needs of an economy from the South which significntly relies on the imports of raw material/intermediate and industrial machinery and equipment in accelerating growth. Therefore, for a correct and comprehensive determination of long run growth path of small open economy, the role of these additional variables as important restrictions ought to be included. Similarly, while substantial empirical evidence abound regarding Thirlwall (1979), only few studies have examined a situation where an economy is constrained simultaneously on the external and internal accounts. Most importantly, no study has been conducted on this particular issue regarding any developing country to the best of the authors’ understanding. 1Note that we use real exchange rate interchangeably with relative prices or terms of trade. 2This is particularly so, when only debt service as % government revenue not debt-GDP ratio or debt stock-GDP is considered. 106 Y. Panshak et al. / EconomiA 21 (2020) 104–119 The structure of the paper is as follows: section two is literature and theoretical background to the formation of Thirlwall’s (1979) BOPC growth model. Section three presents the SCA-BOPCG model. Section four covers empirical examination: descriptive statistics, estimation of the model, policy simulation analysis and recommendations. Finally, Section five concludes. 2. Thirlwall’s (1979) BOPC growth model The BOPCG model presents an attractive proposition concerning economic growth. The main implication is that global demands place the overriding constraints to which an individual country’s growth adjusts. The emergence of BOPCG as an explanation to discrepancies in economic advancement of countries has triggered substantial interest among followers of Keynes as well adherents of classical economics from the period of Adam Smith to Ricardo as well as in the contemporary era. The prevailing paradigm of the classical perspective has been that the balance of payments and demand are irrelevant for long-run economic growth performance. They assume that BOP is self-regulating and economic growth is essentially determined by supply. Instinctively, the accessibility and availability of factor inputs can cause severe restrictions on economic growth. This circumstance could make economies that are constrained in “supply-side” factor inputs to stagnate and lag behind in their growth potential and performance. Unfortunately, the classical position may not be fully exploited as a result of the slow growth caused by effective aggregate demand. This remains the general idea of Thirlwall on how demand drives the real growth rate of an economy. The balance of payments effects of trade may possibly counterbalance the real income benefits obtained from trade advocated by supply-side economists. Therefore, balance of payments is critical. Thirlwall (1979) started the model by specifying two equations and an identity as follows: X=aP P∗Eεxp Y∗εxy∗ εxp <0,ε xy∗>0 (1) M=bP∗E Pεmp Yεmy εmp <0,ε mp >0 (2) PX =P∗ME (3) where εxp represents price sensitivity of demand for exported commodities3,εmp represents price sensitivity of import demand; εxy∗represents the income sensitivity of export demand; εmy represents the income sensitivity of imports; Y represents domestic output and Y*represents world real income. Specifying Eqs. (1) and (2) as well as trade balance identity in dynamic terms, yields the following: ˙x=εxp (˙p∗+˙e−˙p)+εxy∗˙y∗Export equation (4) ˙m=εmp (˙p∗+˙e−˙p)+εmy ˙y Import equation (5) ˙p+˙x=˙p∗+˙e+˙m Trade balance identity (6) Substituting Eqs. (4) and (5) into (6) produces an all-encompassing specification as: ˙yA=(1 +εxp +εmp )(˙p∗+˙e−˙p)+εxy∗(˙y∗) εmy (7) Suppose that real effective exchange rate plays no or an insignificant role in the growth process. The model would thus be reduced such that Thirlwall’s original law is parsimoniously obtained as: ˙yA=˙x εmy (8) 3Note for coefficients: εij here iindicates the equation while jindicates the variable on the right hand side. Y. Panshak et al. / EconomiA 21 (2020) 104–119 107 Or, ˙yA=εxy∗˙y∗ εmy (9) Note that variables in lowercase letters with dots refer to those expressed in growth rates. Here, the growth of real GDP and world income are captured by ˙xand ˙y∗accordingly, ˙x represents real exports, and the aggregate income responsiveness of demand for import is represented by εmy . Accordingly, the level of economic growth in any economy positively depends on the amount of export growth and negatively depends on the aggregate income responsiveness of demand for imports over a long period. Thirlwall (2011) regarded Eqs. (8 or 9) as condensed volumes of celebrated research exertion in economic development (including, Engel’s law; Marshall-Lerner condition; Prebisch-Singer hypothesis; the Verdoorn-Kaldorian idea; Kaldor’s paradox; and the literature on export-led growth etc.) summarizing all of these canons or doctrines in a succinct and small-sized anti-underdevelopment tablet. Moreover, the expression was preserved by the new and authoritative element of BOPCG that it is impossible for any economy to accelerate growth rapidly above the rate or limit set by the equilibrium condition, except to borrow indefinitely. 2.1. Empirical review The original formulation of Thirlwall’s law above did not incorporate the role of financial capital flows. Recognising this inadequacy, Thirlwall and Hussain (1982) modified and extended the BOPCG model by adding capital flows into the specification and tested it on a set of developing countries from 1951 to 1969. The study revealed that on average, variations in the relative prices appear to have constrained most countries, whereas the inflow of capital on the average appears to have enabled the countries to grow to some extent more rapidly than the Harrod trade multiplier result. By incorporating this restriction, the movement of capital or financial resources across countries could give a better explanation to the growth of rate of domestic income. Nevertheless, in studies such as (Elliott and Rhodd, 1999;McCombie and Thirlwall, 1997;Moreno-Brid, 2003; Barbosa-Filho, 2005) all showed that the above extension is limited by allowing a perpetually rising ratio of net borrowing. In reality, external financing always attached with considerable costs and that must not be ignored in growth modelling. Specifically, Moreno-Brid (2003) simply solved the limitation of the long-run sustainability condition of indebtedness in the BOPCG model by explicitly incorporating interest repayment obligations on debts as an additional constraint to long run growth especially for developing countries whose net interest payments overseas are a huge withdrawal item in the current account of their balance of payments. Using a different approach, Araujo and Lima (2007) developed a BOPCG analogous to Thirlwall’s Law that integrates several sectors in a bilateral relationship following Pasinetti’s structural economic dynamics (SED) model without including changes in relative prices. This extension represents the foundation of multi-sectoral version of the Thirlwall’s model which has proven that diverse theoretical, empirical and policy implications could be derived from it. This is based on the inherent specification of the model that even if the various sectors of an economy are not responsive and world income growth remains unchanged, it is possible for an economy to still experience rapid growth by transferring factors of productions to produce goods with high income elasticity of demand in the international market. Gouvea and Lima (2010),Rovira et al. (2010) and Cimoli et al. (2016) followed the multi-sectoral model used by Araujo and Lima (2007) to empirically show that the model can produce similar implications in agreement with the original Thirlwall’s model. Given the understanding of the surging debt crises around the globe, Soukiazis et al. (2014) recently extended Thirlwall’s original model by adjusting for both internal and external imbalances where relative prices are non-neutral. The model has been tested for four European countries with satisfactory implications in tandem with Thirlwall’s Law: Portugal (Antunes and Soukiazis, 2008;Soukiazis et al., 2012,2013); Italy (Soukiazis et al., 2014, 2015); Romania (Soukiazis et al., 2015a,2015b) and; Greece (Soukiazis et al., 2018) A modified version of Soukiazis et al. (2014) model is tested for Turkey (Civcir and Yucel, 2020) and for Nigeria where oil sector is taken as exogeously (Pashak et al., 2019). Nearly four decades from the appearance of Thirlwall’s seminal paper; there have been tremendous developments and modifications trailing his perspective. There has been a vast amount of research on the examination of the legitimacy and soundness of the Thirlwall’s law as well as fundamental criticisms regarding the validity of its indispensable propositions (constancy of relative prices in particular). Observed substantiations demonstrate that the effect of relative 108 Y. Panshak et al. / EconomiA 21 (2020) 104–119 prices on domestic income growth is varied. However, the overall conclusion of the studies on BOPCG affirms that income plays the most important role in restoring the economy to equilibrium rather than prices (See, McCombie and Thirlwall, 1994;Thirlwall, 2011 for history and survey of literature). 3. The SCA-BOPCG model The model specification begins as follows: 3.1. Import demand equation Here, the study makes use of the determinants of domestic income to elucidate and tender an explanation for import flows, contrasting the traditional model that relies on real aggregate GDP. The calibrated function in dynamic terms overtly includes: ˙m=εmc ˙c+εmg ˙g+εmk ˙ k+εmx ˙x+εmp (˙p∗+˙e−˙p) (10) A cursory look at the above function shows that the growth rate in demand for imported products, ˙m, is a function of the growth rates of consumption ˙c, government sector, ˙g, export sector ˙x, domestic investment sector, ˙ kand the real exchange rate (˙p∗,˙pand ˙e represent foreign inflation, domestic inflation and the changes in exchange rate respectively). εmp < 0 is relative price sensitivity of the demand for imports; hence, devaluation has the capacity of curtailing import demand by making it costlier in the home market. 3.2. The export demand equation Specifying export equation in dynamic form is as follows: ˙x=εx˙y∗˙y∗+εxp (˙p∗+˙e−˙p) (11) In this paper, the model is extended by adding the import growth. This inclusion is necessary given the structural need and nature of the Nigerian economy, which relies significantly on the importation of critical raw and intermediate goods, and equipment and machinery for export growth, ˙x=εxy∗˙y∗+εxm ˙m+εxp (˙p∗+˙e−˙p) (12) The growth rate of exports is represented by ˙x, foreign income is represented by ˙y∗,˙mis imports and εxm >0 is import elasticity of exports, relative prices is captured by (˙p∗+˙e−˙p). εxy∗> 0 captures the income elasticity of export. This component is the aggregation of non-price features of the export goods linked with diversification, quality, packaging and trustworthiness among others. Similarly, εxp > 0 represents the relative price sensitivity of the demand for exports. Given the positive sign of the product, a reduction in the value of the local currency has the potential for stimulating the demand for exports, hence making exports more competitive in the foreign market. 3.3. Private consumption and investment function Conventionally, aggregate consumption depends principally on total income after tax (disposable), which may include any interest gained from investment in bonds and other assets: ˙c=εcy ˙yd(13) The study denotes ˙cto represent the annual consumption growth rate; ˙ydis the domestic income growth and εcy captures the income sensitivity of aggregate consumption. Similarly, the investment model firmly follows Keynes’s accelerator theory, postulating that actual domestic income (˙y) and interest rate (˙r)are the main drivers of total investment (˙ k) over a time period and the model is further extended to take into account the imports used in the investment sector, specified as follows: ˙ k=εky ˙y+εkr ˙r+εkm ˙m(14) Y. Panshak et al. / EconomiA 21 (2020) 104–119 109 here, εky captures the effect of the accelerator, while εkr the investment sensitivity with respect to changes in interest rate. ˙mis import growth and εkm is the import elasticity of domestic investment. 3.4. The government sector The study assumes that the government budget is given in nominal values by the below equilibrium condition: Gn+iBH+i∗BFe=tYP +D(15) here, nominal government spending is represented by Gn, domestically borrowed funds by home bondholders is accounted for by BH, while BFrepresents the share of government debt with overseas investors, real domestic income is given by Y, domestic price level is denoted by Pand Drepresents the difference between government revenue and expenditure (deficit). Interest rates valued at market prices given to domestic as well as overseas holders of debt instrument are captured by iand i*,respectively. The nominal exchange rate is captured by e, while tax rate is t. Following the above identity, a deficit occurs when tax revenues fall short of total current spending, i.e., when: tYP<G n+iBH+i∗BFe In the long-term, real government expenditure growth (˙g) is consistent with the restriction (15), and can be obtained as: ˙g=t˙x WG +˙ d−˙pWD WG −Δi +i˙ bH−˙pWBH WG −eΔi∗+i∗Δe+i∗e˙ bF−˙pWBF WG (16) From the above expression, the budget deficit ratio is represented by WD=D YP , the government expenditure ratio is represented by WG=G YP , while, WBH =BH PY , and WBF =BF PY represents the government obligation in the hands of domestic and overseas investors (as a fraction of GDP), in that order. We denote ˙ dto capture the annual increase in budget deficit, while ˙ bHand ˙ bFare annual increases in government borrowed funds owned by home and foreign bond holders, respectively. 3.5. The balance of payments condition Concluding part of BOPCG specification with the below identity can be seen as: XP +DFe−i∗BFe=MP ∗e(17) Starting from the export component of the equilibrium condition indicates the amount of foreign exchange that will be used for importation (export earnings + government deficit financed by foreigners –compensation to overseas bondholders in the form of interest payment). The final identity can be represented as: ˙x+˙p+(1−ζ)WD WX˙p+˙y−i∗−(1 −ζ)WB WX Δi∗=WM WXP∗e P(˙m+˙p∗+˙e) (18) Accordingly, ˙x, ˙m, ˙y, ˙p, ˙p∗, and ˙e, measure the growth rates of exports, imports, domestic income, domestic prices, foreign prices, and nominal exchange rate, respectively. Furthermore, WD,W B,W Mand WXare correspondingly the ratios of budget deficit, public or government debt, imports and exports on income. In conclusion, (1−␨)measures the degree of public deficit (or debt) financed by foreign markets. 110 Y. Panshak et al. / EconomiA 21 (2020) 104–119 3.6. The growth rate of domestic income The growth rate of domestic income with non-neutral relative prices is given by: ˙yC=A⁄B A=εxy∗−εmxεxy∗WM WX P∗e P−εxm 1 (1 −εmxεxm −εmkεkm)˙y∗ ⎧ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎩ +εxp −WM WX P∗e P−εxm 1 (1 −εmxεxm −εmkεkm)εxp εmx −εmp WM WX P∗e P−εmx 1 (1 −εmxεxm −εmkεkm) ⎫ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎭ (˙p∗+˙e−˙p) +˙p−WM WX P∗e P(˙p∗+˙e)+(1 −ζ)WD WX (˙p−i∗)−(1 −ζ)WB WX Δi∗ −WM WX P∗e P−εxm 1 (1 −εmxεxm −εmkεkm)⎧ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎨ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎩ εmcεcy (Δi −Δ˙p)ζwB (1 −t)+ζrWB +εmg −ΔiζWB WG −eΔi ∗(1 −ζ)WB WG +εmkεkr(Δi −Δ˙p) ⎫ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎬ ⎪ ⎪ ⎪ ⎪ ⎪ ⎪ ⎭ B=WM WX P∗e P−εxm 1 (1 −εmxεxm −εmkεkm)εmcεcy +εmkεky +εmg t WG +WD WG −iζWB WG −i∗e(1 −ζ)WB WG −(1 −ζ)WD WX (19) The domestic income growth model comprehensively specified above shows inter alia that the growth of real GDP is a function of public debt caused by budget deficit (internal) and external imbalances, real exchange rate and foreign contents. Precisely, the numerator, (i.e. Apart) is disintegrated into diverse components: the initial expression captures the shock of external demand on real GDP (˙y∗); the next expression reveals the impact of substitution via the adjustments or changes in the real exchange rate; the third expression identifies how trade volume affects domestic income growth; and the last component of the numerator captures the influence of public debt and deficit on the growth rate of real GDP. The study basically measures the role and effect of the individual import demand contents’ sensitivity to the annual growth rate of real GDP in the lower part of the model (denominator, B). Eq. (19) will be employed to determine the real growth for the Nigerian economy. 4. Empirical examination 4.1. Descriptive statistics and overview of the Nigerian Economy Nigeria is the 26th largest economy in the global ranking; in addition, it is the leading economy in Africa where it is the principal exporter of oil products, and with the biggest natural gas reserves. Due to its rebasing exercise, Nigeria’s GDP approximately doubled from US$270 billion in 2013 to US$510 billion in 2014. This GDP increase by about 90% resulted from, inter alia, re-estimation of the contributions of certain sectors of the economy such as telecommunications, entertainment, and retail, which were previously not captured or underreported; the informal sector was re-estimated to account for about 44% of GDP (WTO, 2017). In order to fully understand the dynamics of the overall economy, a descriptive statistics is conducted and presented in Table 1. By observing the historical tendency of the growth performance of the economy, average growth of the economy is about 4.26% with maximum and minimum values at 21.18% and -10.75% respectively. The minimum Y. Panshak et al. / EconomiA 21 (2020) 104–119 111 Table 1 Descriptive statistic. Real GDP growth Export growth Import growth Inflation growth rate Interest rate growth Nominal exchange rate Real exchange rate (PPI based) Import of goods and services (% of GDP Exports of goods and services (% of GDP) Public Debt % of GDP Budget Deficit% of GDP Govt. Expenditure% of GDP Mean 4.26235 6.19507 4.06399 22.56284 2.01414 73.6235 127.7683 20.7383 30.4706 62.629 −2.000000 9.2756 Median 5.15500 2.63605 6.16130 12.44872 2.34210 57.3722 124.4717 19.7824 31.5478 62.819 −1.745000 8.2053 Maximum 21.1800 60.2177 85.5144 113.0764 33.7619 193.279 219.2717 36.4817 51.7303 181.87 8.140000 17.943 Minimum −10.7500 −30.7018 −37.1430 −5.665685 −43.5289 0.67290 33.43970 7.90345 10.6567 1.3430 −15.75000 4.8332 Std. Dev. 6.02376 22.0915 31.2892 28.13321 14.8865 66.1192 56.54826 8.13627 10.3634 53.962 5.090718 3.4976 Skewness −0.10466 0.62510 0.59396 1.878248 −0.49188 0.17612 −0.098682 0.42626 −0.16618 0.4117 −0.469644 0.7335 Kurtosis 4.34978 3.00724 2.74486 6.086473 4.31367 1.33787 1.923654 2.33994 2.23085 2.1287 3.525211 2.4746 JarqueBera 2.64311 2.21432 2.09141 33.48658 3.81586 4.08953 1.696419 1.64685 0.99458 2.0363 1.640655 3.4406 Probability 0.26672 0.33049 0.35144 0.000000 0.14838 0.12941 0.428181 0.43892 0.60817 0.3612 0.440287 0.1790 Sum 144.920 210.632 138.175 767.1365 68.4808 2503.20 4344.121 705.103 1036.00 2129.4 −67.83000 315.37 Sum Sq. Dev. 1197.42 16105.1 32307.6 26118.76 7313.07 144267. 105524.3 2184.56 3544.22 96092. 855.2087 403.71 Observations 34 34 34 34 34 34 34 34 34 34 34 34 Source: Authors’ computation 118 Y. Panshak et al. / EconomiA 21 (2020) 104–119 Export growth Constant 1.315435 4.738940 0.277580 0.7819 World income, ˙x*, (εxy∗) 2.083112 1.221992 1.704686 0.0911* 0.12 Relative price, ( ˙p∗ +˙e−˙p),(εxp ) 0.108692 0.059372 1.830703 0.0699* Export req. of imports, ˙m,(εxm) 0.171009 0.064536 2.649807 0.0093*** Notes: Endogenous variables: ˙mt,˙ct,˙ k, ˙xt,˙gt,˙yt,˙ ydt,˙rtand ˙ p∗ t+˙et−˙pt. Exogenous variables: WB, WB(−1) WG WG(−1), WD, WD(−2), rt(−1), it(−2), i*(−1) i*(−2), ˙ pt, ˙ pt,(−1), ˙ pt*, ˙ pt*(−1), ˙ ct(−1), invtt,(−2), invtt,(−3), ˙ x(−1), ˙ gt(−1), ˙ gt(−2),˙xt*(−2), ˙ mt(−3), ˙xt(−3),(˙ p*+˙ e−˙ p)(-2), ˙ p*+˙ e−˙ p)(−3). ***Estimate significant at 0.01. **Estimate significant at 0.0.5. *Estimate significant at 0.1. Appendix C. Two-stage least squares Coefficient Std. error t-Statistic Prob Sargan Norm (J-stat) Norm Hetero LM Import growth Constant −7.651497 5.326917 −1.436384 0.1538 Consumption,˙c, (εmc) 2.623898 0.659378 3.979351 0.0001*** 24.77 (0.30) 2.49(0.28) 0.33(0.30) 0.21 Investment, ˙ k,(εmk) 0.206770 0.212374 0.973612 0.3324 Gov. expenditure, ˙g,(εmg)−0.205440 0.056488 −3.636871 0.0004*** Relative price,˙p*+˙e-˙p, (εmp )−0.013716 0.133183 −0.102986 0.9182 Exports, ˙xm,(εmx) 0.771547 0.280020 2.755327 0.0069*** Consumption growth Constant 2.419389 1.546907 1.564017 0.1206 Disposable income, ˙xd, (εcy ) 1.209453 0.234741 5.152278 0.0000*** 24.92(0.49) 1.80(0.40) 0.65(0.63) 0.07 Investment growth Constant −1.587096 4.069427 −0.390005 0.6973 22.7(0.53) 2.08(0.35) 0.30(0.27) 0.37 Domestic income, ˙x,(εky ) 1.464620 0.586512 2.497170 0.0140** Real interest rate. ˙ r, (εkr)−0.383904 0.208247 −1.843500 0.0680* Inv. req.of imports, ˙m,(εkm) 0.177194 0.121415 1.459407 0.1474 Export growth Constant −2.319620 7.403690 −0.313306 0.718 0.718 World income, ˙x*, (εxy∗) 4.195817 2.698778 1.554710 0.1229 25.43(0.38) 1.19(0.35) 0.30(0.28) 0.15 Relative price, ˙ p*−˙ e−˙ p, (εxp ) 0.215817 0.123633 1.745624 0.0837* Export req. of imports, ˙m,(εxm) 0.049610 0.141481 0.350650 0.7265 Endogenous variables: ˙mt,˙ct,˙ k, ˙xt,˙gt,˙yt,˙ ydt,˙rtand ˙ p∗ t+˙et−˙pt. 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