Asymmetric modeling of the fiscal policy–economic growth nexus in Somalia

Ali, Abdullahi Osman; Mohamed, Jama; Mohamed, Mohamed Osman Article Asymmetric modeling of the fiscal policy–economic growth nexus in Somalia Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Ali, Abdullahi Osman; Mohamed, Jama; Mohamed, Mohamed Osman (2024) : Asymmetric modeling of the fiscal policy–economic growth nexus in Somalia, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 12, Iss. 1, pp. 1-13, https://doi.org/10.1080/23322039.2024.2312372 This Version is available at: https://hdl.handle.net/10419/321426 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/4.0/ Cogent Economics & Finance ISSN: 2332-2039 (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Asymmetric modeling of the fiscal policy– economic growth nexus in Somalia Abdullahi Osman Ali, Jama Mohamed & Mohamed Osman Mohamed To cite this article: Abdullahi Osman Ali, Jama Mohamed & Mohamed Osman Mohamed (2024) Asymmetric modeling of the fiscal policy–economic growth nexus in Somalia, Cogent Economics & Finance, 12:1, 2312372, DOI: 10.1080/23322039.2024.2312372 To link to this article: https://doi.org/10.1080/23322039.2024.2312372 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 08 Feb 2024. Submit your article to this journal Article views: 1759 View related articles View Crossmark data Citing articles: 1 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 DEVELOPMENT ECONOMICS|RESEARCH ARTICLE Asymmetric modeling of the fiscal policy–economic growth nexus in Somalia Abdullahi Osman Ali a , Jama Mohamed b and Mohamed Osman Mohamed a a Ministry of Finance, Puntland State, Garowe, Somalia; b Faculty of Statistics and Data Science, College of Applied and Natural Science, University of Hargeisa, Hargeisa, Somaliland ABSTRACT Somalia has faced a prolonged challenge of high dollarization, which has limited the effectiveness of conventional monetary policy tools. In response, fiscal policy has taken center stage as the primary means of economic management by the government. This study aims to investigate the asymmetric impact of fiscal policy on Somalia’s economic growth, utilizing annual time series data spanning from 1970 to 2019 and employing the Nonlinear Autoregressive Distributed Lag (NARDL) model. The results indicated the existence of cointegration among the variables. In the long run, both increases and decreases in government expenditure exhibited a significant positive effect on economic growth, with a more pronounced impact observed for decreases in public expenditure compared to increases in government spending. Furthermore, in the short run, both increases and decreases in government expenditure had a significant positive effect on economic growth, although an increase in government spending showed a stronger impact on economic growth compared to a decrease in government expenditure. Notably, the study surpassed various diagnostic tests, ensuring the robustness of the findings. Based on these results, we recommend that policymakers prioritize fiscal policy, particularly public spending, as a crucial channel for fostering economic growth. Additionally, directing public spending towards productive sectors of the economy and promoting fiscal transparency are suggested as means to achieve fiscal policy objectives effectively. PUBLIC INTEREST STATEMENT Somalia faces a persistent challenge of high dollarization, rendering conventional monetary policy tools ineffective. In response, fiscal policy has become the primary tool for economic management. The asymmetric impact of fiscal policy on economic growth in Somalia remains an underexplored area in the literature, particularly in the context of a least developed country. The research takes the initiative to investigate and understand the asymmetric impact of fiscal policy on Somalia’s economic growth. By utilizing the NARDL model, it aims to provide policymakers with nuanced insights into the specific dynamics of fiscal policy in Somalia. The study evaluates both expansionary and contractionary fiscal policies to offer comprehensive recommendations for effective economic development in this unique and complex environment. Policymakers in Somalia benefit from tailored strategies derived from the study, enabling them to navigate the economic challenges effectively. Researchers and economists gain valuable insights into the asymmetric effects of fiscal policy in a least developed country, contributing to the broader understanding of economic dynamics. The government of Somalia can use the research findings to enhance the design and implementation of fiscal policies, particularly in the allocation of public spending, fostering more effective economic growth. The general population in Somalia stands to benefit from improved economic conditions resulting from more targeted and efficient fiscal policies. This may lead to increased employment opportunities and better living standards. The research contributes to the broader scientific understanding of fiscal policy dynamics in least developed countries. This understanding is crucial for the global community in shaping policies that address the unique challenges faced by such nations. Scholars and researchers focused on economic development, especially in least developed countries, gain from the study's methodology and findings. It adds a nuanced perspective to the existing literature on fiscal policy impacts. ARTICLE HISTORY Received 5 December 2023 Revised 14 January 2024 Accepted 25 January 2024 KEYWORDS Fiscal policy; NARDL; economic growth; asymmetric effect REVIEWING EDITOR Aye Goodness, University of Agriculture, Benue, Nigeria SUBJECTS Economics and Development; Development Economics; Macroeconomics CONTACT Jama Mohamed [email protected] Faculty of Statistics and Data Science, College of Applied and Natural Science, University of Hargeisa, Hargeisa, Somaliland ß2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. COGENT ECONOMICS & FINANCE 2024, VOL. 12, NO. 1, 2312372 https://doi.org/10.1080/23322039.2024.2312372 1. Introduction Fiscal policy plays a significant role in the government’s efforts to enhance economic performance and prosperity by adjusting the expenditure and revenue profiles of a country’s economy. It encompasses various aspects such as tax policies, government spending, and debt management, all of which have significant impacts on the overall macroeconomy. This economic policy involves techniques for generating government revenue, usually through taxation, and plans for allocating the earned funds to achieve specific economic objectives (Yusuf & Mohd, 2021). Government expenditure is a key fiscal policy tool used by governments to achieve macroeconomic goals (Akaakohol et al., 2019). There are two main types of fiscal policies: expansionary fiscal policy and contractionary fiscal policy. An expansionary fiscal policy aims to boost economic growth by increasing government spending, lowering taxes, or both, as per the basic Keynesian model. However, if this policy fails to achieve the expected growth rate, it may lead to insufficient funds to cover its expenditure through tax collections in the future (Al-Bataineh, 2012). On the other hand, a contractionary fiscal policy involves raising taxes, reducing government spending, or both to combat rising inflation. Changes in government expenditure (increase or decrease) directly influence economic performance in either direction, ceteris paribus. However, due to indirect effects on spending and other components of Gross Domestic Product (GDP), such changes can exacerbate economic decline (Obaidullah, 2019). In recent years, the relationship between fiscal policy variables and economic growth has garnered significant attention as economists and policymakers seek to understand how government expenditure impacts economic growth. While existing studies in most developed and developing nations tend to reinforce the idea of asymmetry, there is a lack of scientific research on the topic of asymmetric impact of fiscal policy on economic growth in least developed countries like Somalia. The limited ability of governments in these nations to substantially influence inflation and interest rates amidst uncertainties can significantly influence the scope of asymmetries in fiscal policy (Hussain et al., 2020). Previous research in emerging nations anticipated a symmetric fiscal policy effect, likely due to the mismatch between macroeconomic theory and empirical methodology at the beginning of the 21st century (Hussain et al., 2020). Several studies have examined the nonlinear effects of fiscal policy on economic development in different countries. For instance, Abdel-Latif and Mishra (2016) analyzed data from Egypt using the nonlinear autoregressive distributed lag (NARDL) model and found that public spending has a non-linear effect on economic development at both aggregated and disaggregated levels. Afonso et al. (2018) utilized threshold Vector Autoregression (TVAR) to estimate the non-linear impulsive responses of production to fiscal policy in the United States, the United Kingdom, Germany, and Italy. During the economic crises of 2008–2009, the fiscal multiplier remained higher than normal, according to their results. In the case of Pakistan, Hussain et al. (2020) applied NARDL to yearly time series data from 1976 to 2017 and found a nonlinear effect of overall fiscal deficit in the short run, while no such effect was observed in the long run. Similarly, Yusuf and Mohd (2021) used the NARDL model and found evidence of nonlinear cointegration between fiscal policy variables and economic growth in Nigeria. Somalia’s fiscal policy has gained momentum recently, becoming the primary regulatory option for the government due to high dollarization in the economy and instability of the local currency (Somali shilling), rendering monetary policy ineffective. Consequently, fiscal policy has become the most relevant tool to enhance the performance of Somalia’s economy. Despite its significance, there has been a lack of prior studies examining this subject matter in the Somali context. While there is empirical literature supporting the association between fiscal policy and economic growth, this study aims to bridge the gap by exploring the asymmetric impact of fiscal policy (expansionary and contractionary) on economic growth in Somalia. Specifically, we hypothesize that the effects of fiscal policy on economic growth in Somalia are nonlinear and asymmetric. To achieve these objectives, this study adopts the NARDL model as the econometric tool. The choice of this model in our study is justified due to Somalia’s economic complexity, which necessitates capturing nonlinear relationships, accommodating short- and long-run dynamics, and considering asymmetric responses to fiscal policy changes. This approach enhances our ability to provide policymakers with nuanced insights for more effective and tailored economic development strategies in Somalia. 2 A. O. ALI ET AL. The following sections of the article are structured as follows: Section 2 reviews the literature related to the nexus between fiscal policy and economic growth. Section 3 provides information about the data sources, descriptions, and econometric methodology. Section 4 presents the empirical analyses and discussions, while the final section concludes the study and offers policy implications for the concerned policymakers. 2. Literature review 2.1. Theoretical consideration One way to approach the literature on the effects of fiscal policy on economic growth is to examine the predictions of the Theory of Fiscal Policy and the Pure Theory of Public Expenditure on this subject. The Theory of Fiscal Policy posits that the primary goals of fiscal policy involve income redistribution, resource reallocation, and economic stabilization. This theory was developed based on academic work by Musgrave (1959) and Johansen (1965). It is generally expected that policymakers aim to enhance the social well-being of the general public, contingent on various indicators depending on the governing administration (Tanzi, 2006). Thus, this theory asserts that fiscal policy can influence an increase or decrease in public spending, depending on the prevailing priorities, supporting hypothesis one. However, it does not explicitly state whether it favors pro-cyclical or countercyclical measures. Nevertheless, the theory underpins hypothesis two and three through its stabilization goal, which seeks to influence economic stability by altering public expenditure and revenue. Musgrave (1959) and Johansen (1965) present several assumptions pertinent to this theory. Firstly, the public budgeting process involves public finance decisions formulated solely within the public budget. Secondly, the government’s budgeting decisions are based on analysis supported by reliable data and objective forecasts. Thirdly, policymakers consider the best interests of the public when making decisions. Lastly, the government should exercise control over economic policies to make feasible decisions. The Theory of Fiscal Policy has a few shortcomings, including skepticism regarding policymakers’ detachment from their individual goals and the achievement of public welfare. To bolster its validity, stronger organizational systems need to be in place (Tanzi, 2006). In summary, this theory adopts a normative economic perspective, explaining the measures that should be implemented rather than focusing on the resulting effects when fiscal policy is put into action. Essentially, the theory has not explicitly explained the interaction of public revenue and public expenditure in an economy, unlike other theories. In conclusion, this theory supports hypothesis one and aligns with objective one, as fiscal policy aims to redistribute and reallocate resources in a country. Furthermore, the theory supports hypothesis two, as fiscal policy, through its goal of stabilization, seeks to influence economic stability and growth in an economy. Fiscal policy is typically categorized as pro-cyclical or counter-cyclical, depending on the prevailing economic conditions in a country or region. Pro-cyclical fiscal policies have been more common in developing countries, while developed countries have been adopting counter-cyclical policies (Strawczynski & Zeira, 2007). These divergent results could be attributed to developing nations’experiences of limited borrowing potential, political factors, policy conditions imposed by international financial institutions, and the nature of implemented fiscal rules (Alesina & Tabellini, 2005). Counter-cyclical policies have been endorsed for enhancing macroeconomic stability. Strawczynski and Zeira (2007) emphasize that counter-cyclical fiscal policy would be optimal if certain conditions hold, such as perfect credit markets for all agents (individuals, firms, and government) and absence of credit constraints on firms and individuals. The increased focus on this theory arose from the adoption of the laissez-faire philosophy and the free market mechanism. Samuelson (1954) argued that there is a significant distinction between private goods and public goods. While private goods can be consumed by different individuals, public goods are not depleted when one person consumes them. However, other researchers have contributed to the understanding of the various differences between private goods and public goods, especially regarding the extent to which they provide collective benefits. COGENT ECONOMICS & FINANCE 3 Building on Samuelson’s work, Musgrave (1959) laid the foundation for present-day descriptions of pure or impure public goods and private goods. According to Musgrave (1959), a pure public good is entirely non-rivalrous and non-excludable, meaning that once the good is provided to one individual, additional people can use it at no extra cost, while also being challenging to prevent others from using it. Samuelson’s(1954) main argument is that the value of public goods and private goods depends on the economic conditions in a nation and can vary across continents globally. Notably, Samuelson’s contribution does not appear to support the Keynesian economic assertion that public expenditure is countercyclical to economic growth. This indicates that the theory seems to support pro-cyclical policy measures, where it is expected that public expenditure would increase during economic booms and decrease during recessions. However, the theory does not clearly indicate the effect of economic policy on spending levels. In conclusion, this theory supports hypothesis two in the context of economic growth and public expenditure. The theory contends that the value of public goods is dependent on the economic conditions prevailing in an economy. 2.2. Empirical evidence from the literature Fournier (2016) examined the positive effect of public investment on potential growth. The study used an estimated baseline convergence model that included public investment and its components to capture the long-term impact of human capital and physical investment on the potential output of a panel of OECD nations. The estimates indicated that public investment has a beneficial impact on long-term growth and labor productivity. It was also observed that investing public funds can accelerate convergence in nations that are currently catching up. However, the impact of public investment varies across different areas of the country. For instance, public investment in health and research and development was found to be particularly advantageous. Nevertheless, the study also suggested that growth advantages from increasing public investment may diminish at large levels of public capital stock due to diminishing returns. Fournier and Johansson (2016) conducted a study on the effect of the size and mix of public spending on growth and inequality in OECD nations. The estimated baseline convergence model incorporated the long-term impact of human capital and total investment on potential output. The results indicated that certain public expenditure items, such as education and investment, have a positive effect on growth, while others like pension and subsidies have a negative effect. The study warned that having large governments, unless exceptionally effective, could reduce economic development potential. Additionally, the research examined the impact of public expenditure on income disparity, suggesting that increasing the size of government, family benefits, and other forms of public assistance could help reduce inequality. The study also found that government reforms and initiatives to promote secondary education completion could contribute to reducing economic disparity. Overall, the simulated growth and distributional consequences showed that most changes could generate substantial economic benefits while also benefiting the poor. Adegboyo et al. (2021) analyzed the impact of government policies, including fiscal, monetary, and trade policies, on Nigeria’s economic growth using the endogenous growth (AK) model as the theoretical foundation. The findings from unit root tests indicated that the variables had different degrees of stationarity, while the bound test results suggested cointegration among the variables. The long-term results of the ARDL study revealed that fiscal policies were encouraging economic development, while trade policies were impeding it in Nigeria. Regarding short-term economic development, fiscal measures had a mixed influence, with government expenditure continuing to fuel growth, while tax collection had limited effects on the country’s economy. The study also found that interest rates had a positive effect on Nigeria’s economy, while the money supply hindered growth. The research recommended an overhaul of the country’s export policy to reduce imports and promote the refining of raw materials before export. Oo (2019) examined the effect of fiscal policy on economic growth in Myanmar using the ordinary least squares (OLS) approach with data from 1979 to 2016. The findings showed that the country’s budget imbalance had a statistically significant impact on economic growth, with deficit spending having a multiplier effect on growth in line with Keynesian theory. The study suggested that greater governmental expenditure was needed due to a lack of private involvement in infrastructure projects. It emphasized the importance of keeping fiscal policy at a reasonable level in the medium term. 4 A. O. ALI ET AL. Furthermore, the study recommended prioritizing public funds allocation to infrastructure, health and education, and poverty reduction initiatives. The researchers also highlighted the risk of unsustainable macroeconomic instability resulting from high and persistent deficits. Onifade et al. (2020) conducted a study on the impact of government expenditures on economic growth in Nigeria. The empirical evidence indicated a level connection between Nigeria’s economic growth and public expenditure metrics. The analysis found that government recurrent spending had a large negative influence on economic growth, whereas public capital expenditures had a marginally beneficial effect during the period under consideration. The Granger Causality Test results revealed that government fiscal expansion based on debt financing significantly increased public spending and domestic investment, with the latter also boosting economic growth significantly. Yan and Gong (2009) explored the relationship between government expenditure, taxation, and longrun growth. Their research suggested that the structure of taxes and government spending could impact the long-term growth rate by influencing labor-leisure choices, saving-consumption preferences, and the percentage of government expenditure to GDP. The study found that productive spending did not necessarily boost growth and that its impact varied across different areas. It pointed out that China’s government productive spending was either too high or too low, resulting in sluggish GDP growth. Johansson (2016) conducted a survey of the evidence on public finance, economic growth, and inequality. The research indicated that a big government could have a negative impact on long-term growth due to increased funding costs of public expenditures. While spending on public infrastructure and education could enhance income over the long term, certain types of public expenditure, such as social assistance, could help decrease inequality by improving redistribution and risk sharing. The study also found that income taxes had a greater negative impact on economic growth compared to consumption or property taxes, although income taxes tended to be more progressive. A shift from income taxes to consumption taxes could have fairness consequences depending on the country’s specific features. Kim et al. (2021) investigated the relationship between fiscal policy and economic growth in China. The evidence suggested that an increase in local spending had a greater influence on output growth compared to central expenditure growth. The study also revealed that expected tax reform faced challenges due to tight liquidity. Public investment in manufacturing accounted for the most significant rise in production during the implementation of market-oriented reforms, while R&D funding played a significant role in more recent times. Long-term debt was shown to have a considerable impact on China’s fiscal system, particularly in terms of government income. Olaoye et al. (2020) examined the asymmetric effect of government spending on economic growth in Nigeria from 1980 to 2017. The study found evidence of an asymmetric relationship between government expenditure and economic development in Nigeria over the analyzed period. Economic growth’s response to government expenditure shocks varied depending on the nature of the shocks. The research concluded that fiscal measures’ability to stabilize the economy depended on the current economic cycle. Abdon et al. (2015) revealed that sound fiscal policy could aid economic development. Fiscal expansion that is counter-cyclical can provide short-term support to aggregate demand and growth during cyclical downturns. However, fiscal contraction could help stabilize an economy that is growing at an unsustainable rate. Public investment in physical infrastructure and education can have a significant impact on long-term economic growth, especially in developing countries with weak private sectors. Taxes, such as corporate income taxes, may distort incentives and behavior, negatively affecting investment. The effect of various taxes on the economy varies, and the impact of reallocated expenditure and taxation depends on a country’s unique features in relation to growth and inequality. This study contributes to the existing literature by focusing on the asymmetric impact of fiscal policy on Somalia’s economic growth, filling a crucial gap in empirical research on fiscal policy dynamics in least developed countries. While prior studies have primarily explored fiscal effects in developed and emerging nations, the scarcity of research on asymmetric fiscal impacts in least developed contexts, such as Somalia, has limited the understanding of unique economic challenges. By employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, this study provides nuanced insights into the specific dynamics of fiscal policy in Somalia, offering policymakers tailored strategies for effective economic development in a distinctive and complex environment. COGENT ECONOMICS & FINANCE 5 3. Data and methodology 3.1. Data This section describes the data used to investigate the impact of fiscal policy on economic growth in Somalia. The main variables of the study (Table 1) were the annual time series of general government final consumption expenditure (GGFCE) (as a proxy for fiscal policy) and gross domestic product (RGDP) as a measure of economic growth. Additionally, household consumption (HC) and domestic investment (DI), measured by gross fixed capital formation, along with exports (EX), were included as control variables to improve internal validity. The data covered the period from 1970 to 2019, providing a total of 50 observations. All the data were sourced from the Organization of Islamic Cooperation Statistical, Economic, and Social Research and Training Centre for Islamic Countries (SESRIC). 3.2. Econometric modelling The study employs the NARDL model, as introduced by Shin et al. (2014), to examine the asymmetric impact of government expenditure on economic growth in Somalia. This modeling choice extends the conventional Autoregressive Distributed Lag (ARDL) model developed by Pesaran et al. (1999) and Pesaran et al. (2001) by incorporating asymmetry, cointegration, and error correction terms within a single equation. Moreover, it effectively addresses multicollinearity concerns through appropriate lag selection. The NARDL model offers greater flexibility in simultaneously testing cointegration and asymmetric effects while accommodating variables that may possess mixed order of integration (I(0) and I(1)). The core long-run equation capturing the relationship between fiscal policy and economic growth is defined as follows: lnGDPt¼a0þa1lnGGFCEþ tþa2lnGGFCE− tþa3lnDItþa4lnHCtþa5lnEXtþut(1) where a0represents the intercept and a1,a2,a3,a4and a5denote the long run coefficients of the explanatory variables, with utas the error term. a1reflects the impact of an increase in government expenditure on GDP, while a2signifies the influence of a decrease in government expenditure. GGFCEþ t and GGFCE− tare partial sum of positive and negative shocks in GGFCEt: GGFCEþ t¼X t i¼1 DGGFCEþ i¼X t i−1 MAXðDGGFCEi,0Þ(2) GGFCE− t¼X t i¼1 DGGFCE− i¼X t i−1 MINðDGGFCEi,0Þ(3) This formulation is then translated into the ARDL framework akin to Pesaran et al. (1999) and Pesaran et al. (2001): DlnGDPt¼b0þb1lnGGFCEþ t−1þb2lnGGFCE− t−1þb3lnDIt−1þb4lnHCt−1þb5lnEXt−1þX p i¼1 c1DInGDPt−1 þX q i¼1 c2DInGGFCEþ t−iþX q i¼1 c3DInGGFCE− t−iþX q i¼1 c4DInDIt−iþX q i¼1 c5DInHCt−iþXq i¼1c6DInEXt−i þut (4) Table 1. Description of variables and sources. Variable Code Description Source Gross domestic product GDP USD (current prices) OIC statistics General government final consumption expenditure GGFCE USD (current prices) OIC statistics Domestic investment DI Gross fixed capital formation, constant 2015 prices (USD) OIC statistics Household consumption HC USD (current prices) OIC statistics Export EX USD (millions) OIC statistics 6 A. O. ALI ET AL. where, pand qdenote lag orders. a1is determined by b1=b0, while a2correspondsto b2=b0capturing the impact of government expenditure increase and decrease on economic growth, respectively. Moreover, Pq i¼1c2DInGGFCEþ t−iand Pq i¼1c3DInGGFCE− t−imeasure the short-run impact of government expenditure increase and reduction on economic growth. To assess the presence of long-run asymmetric effects, the study employs a Wald-F test, comparing the null hypothesis, b0¼b1¼b2¼b3¼b3¼b4¼b5¼0, and the alternative hypothesis, b06¼ b16¼ b26¼ b36¼ b36¼ b46¼ b56¼ 0:Additionally, the BDS test of Broock et al. (1996) is adopted to check the presence of nonlinearity in the time series. This is done by comparing the null hypothesis of bþ¼ b−(no asymmetric effect) and the alternative hypothesis of bþ6¼ b−(there is asymmetric effect). Finally, the study calculates asymmetric cumulative dynamic multiplier effects of one percent changes in GGFCEþ t−iand GGFCE− t−i, respectively as specified below: mþ h¼X h j¼0 @GDPtþj @GGFCEþ t−1 m− h¼X h j¼0 @GDPtþj @GGFCE− t−1 where h¼1, 2, 3::::,mþ h!a1and m− h!a2: 4. Empirical results and discussion Table 2 provides descriptive statistics for the variables used in this study in natural logarithm form, offering valuable insights into the dataset and potential relationships among the variables. Among the variables, RGDP stands out with the highest mean value of 20.7556, followed by HC (20.4916), DI (19.3264), GGFCE (18.5007), and EX, which has the lowest mean of 2.4293. Interestingly, the mean of GGFCE, DI, and EX exceeds their respective medians, indicating right-skewness in their data distributions. Conversely, RGDP and HC have medians greater than their means, suggesting left-skewness in their distributions. Notably, all variables exhibit a high degree of consistency, with their means and medians falling between the minimum and maximum values. The data also reveals that EX has the highest deviation from its mean, while DI exhibits the lowest deviation from its mean value. Furthermore, the data distribution analysis shows that EX and DI are positively skewed towards normality, while RGDP, GGFCE, and HC are negatively skewed. Overall, the variables demonstrate fairly symmetrical or normally skewed distributions. All variables are characterized as platykurtic since their kurtosis values are less than the normal distribution benchmark of 3, except for GGFCE, which is leptokurtic with a kurtosis of 3.6, indicating a more peaked distribution relative to the normal distribution. The Jarque-Bera statistics confirm that all variables follow a normal distribution at a significance level of 5%. Table 2. Descriptive statistics and correlation matrix. LRGDP LGGFCE LHC LEX LDI Mean 20.7556 18.5007 20.4916 2.4293 19.3264 Median 20.8253 18.4984 20.5123 1.9400 19.2948 Maximum 21.6788 19.2374 21.3580 4.7962 19.8532 Minimum 19.6475 17.3672 19.4331 1.1522 18.9965 Std. Dev. 0.5370 0.4148 0.4895 1.1465 0.1976 Skewness −0.2164 −0.6599 −0.2703 0.6175 0.4535 Kurtosis 2.1401 3.6257 2.4103 1.8962 2.6933 Jarque-Bera 1.9309 4.4451 1.3335 5.7151 1.9095 Probability 0.3808 0.1083 0.5134 0.0574 0.3849 Sum 1037.780 925.0333 1024.580 121.4662 966.3192 Sum Sq. Dev. 14.1300 8.43202 11.7394 64.4034 1.9125 Observations 50 50 50 50 50 LRGDP 1 LGGFCE 0.8243 1 LHC 0.9864 0.81605 1 LEX −0.6607 −0.2364 −0.6101 1 LDI 0.1275 −0.0165 0.1543 −0.1313 1 COGENT ECONOMICS & FINANCE 7