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Drivers of Horticultural Exports in Kenya
Get PDFThis study examines major drivers behind horticultural exports in Kenya for the period 2005-2017. Using co-integration model, the study finds out horticultural exports, interest rate, exchange rate, and inflation rate are co-integrated in long-run. These co-integrated series converge to their long-run equilibrium at a speed of 8.53% on each period at 1% statistically significance level. More specifically, the study explores that the interest rate has negative influence on horticultural exports of Kenya, while inflation and exchange rates have positive impact. Thus, the study recommends that the government in Kenya should reduce interest rates using their monetary policies and stabilize macroeconomic environment in order to increase horticultural exports such as targeted exchange rate through application of foreign reserves adjustments
Relationship between Unemployment and Macroeconomics Aggregates: Evidence from Bangladesh
Get PDFThis paper examines relationship of unemployment rates with other macroeconomic aggregates in Bangladesh over 1991-2019 using robust econometric analyses. It sheds a light on the fact that GDP growth rate, inflation, and foreign direct investment flows have statistically significant impacts on unemployment rate both in short-run and long-run. More specifically, the paper documents that unemployment rate, GDP growth rate, inflation rate and foreign direct investment flows are co-integrated in long-run at 5% significance level.
Using Vector Error Correction analysis, the paper finds that co-integrated series converge it their long-run equilbruim at a speed of 17.24% per annum at 1% significance level. In case short-run, the study finds that a unit increase in GDP growth rate decreases unemployment by approximately 0.0159 units in short-run at 1% statistically significance level. Likewise, a unit increase in inflation rate will lead approximately 0.004 units drop in unemployment rate at 10% significance level. Plus, it also observes that a unit in Foreign Direct Investment flows causes 0.005 units decrease in unemployment rate in short-run at 5% significance level
Does Corporate Governance Mechanisms Matter in Explaining Risk Management? Evidence from Non-Financial Kenyan Listed Firms
Get PDFThe study aims to examine the relationship between corporate governance and risk management in Kenyan non-financial companies. It samples 41 listed non-financial firms in Kenya for the period of 2010-2017. Utilising binary logistic regression analysis technique, the study finds out that board independence and CEO tenure have negative and significant effects on risk management at 1% statistical significance level; while board financial expertise has a positive and significant effect on risk management 5% statistical significance level.
The study concludes that the independence of board members is detrimental to hedging activities. Long-tenured CEOs are less likely to use financial derivatives tools to hedge risks while financially knowledgeable boards have a better understanding of the sophisticated financial tools involved in risk management mechanisms. The study recommends the reduction of board members' independence and CEO tenure in order to increase hedging activities. The board members must have financial expertise, so that they can ascertain risks which are valuable to shareholders
Finance-Growth Nexus and Globalization in Brazil, India, Philippines, Thailand, and Turkey: Evidence from VECM Cointegration Analysis
Get PDFWe investigate the causal relationship between financial development and economic growth―the finance-growth nexus―in Brazil, India, Philippines, Thailand, and Turkey by controlling for the globalization indicators of trade openness, foreign direct investment (FDI), and portfolio investment, together with the structural break dummy. Our sample countries of different regions have various experiences of developing and liberalizing their financial systems and external sectors as well as financial crises. Time series data span over the period 1974-2017, and two financial indicators of size and efficiency are used in estimation. Implementing the cointegration and Granger causality tests in the framework of the vector error correction model (VECM), we find that: 1) financial size and economic growth are in a positive, bilateral relationship in all the sample countries, although that of Turkey is more inclining toward economic growth causing financial size; 2) when financial development is proxied by financial efficiency, the results are different among the five countries; and 3) although theoretically expected to be contributive, the globalization indicators of trade openness, FDI, and portfolio investment exhibit either a positive or negative impact on financial development and economic growth. Based on empirical findings, we argue that policy-makers should design and develop financial sector polices and growth strategies fully considering the nature of their countries’ own institutional and structural characteristics
Trade Liberalization and International Trade: A Case Study of China
Get PDFThis study investigates the effect of trade liberalization on international trade in China over the period 1980-2018. Trade openness is used as an indicator of trade liberalization. Unit root test, cointegration test, Granger causality tests, and IRFs were used in this study. The cointegration test shows that trade openness has a positive effect on exports and imports. Trade openness has a greater effect on exports than imports. Besides, export and import are positively related to gross fixed capital formation and inflation, but negatively related to oil price. Furthermore, the Granger causality test indicates that there are bidirectional short- and long-run causality relationships between trade openness and exports, and also between trade openness and imports
Income Diversification, Market Power and Performance
Get PDFThis paper aims at examining the mediating role of market power on income diversification and performance nexus. Using 310 yearly observations drawn from a sample of 31 Kenyan commercial banks and panel data for the 2008–2017 periods, the study finds that market power significantly mediate the relationship between income diversification and performance. Thus, income diversification will have a larger impact on performance for banks with significantly high market power compared to those with low market power. Given the novelty of these findings, the study has implications for bank regulators, scholars and practitioners
Convexity Adjustments Made Easy: An Overview of Convexity Adjustment Methodologies in Interest Rate Markets
Get PDFInterest rate instruments are typically priced by creating a non-arbitrage replicating portfolio in a risk-neutral framework. Bespoke instruments with timing, quanto1 and other adjustments often present arbitrage opportunities, particularly in complete markets where the difference can be monetized. To eliminate arbitrage opportunities we are required to adjust bespoke instrument prices appropriately, such adjustments are typically non-linear and described as convexity adjustments.
We review convexity adjustments firstly using a linear rate model and then consider a more advanced static replication approach. We outline and derive the analytical formulae for Libor and Swap Rate adjustments in a single and multicurve environment, providing examples and case studies for Libor In-Arrears, CMS Caplet, Floorlet and Swaplet adjustments in particular. In this paper we aim to review convexity adjustments with extensive reference to popular market literature to make what is traditionally an opaque subject more transparent and heuristic
Foreign Remittances, Private Sector Investment and Banking Sector Development
Get PDFIn the last three decades, foreign remittances flowing to Sub-Saharan Africa have grown more rapidly than the average for developing countries forming a significant component of external capital flows. Simultaneously, there has been an increase in the number of studies investigating the impact of these transfers on consumption and the general welfare of the receiving household. However, very few studies have examined the impact of foreign remittances on private sector investment in Sub-Saharan Africa, which is considered as having an inefficient banking sector. From this background, this study aims to investigate the impact foreign remittances on private sector investment and the moderating role of banking sector development. The study uses a sample of 15 Sub-Saharan African countries with data for the years 1986-2017. The findings of this study indicate that foreign remittances and banking sector development has a positive and statistically significant impact on private investment Sub-Saharan Africa. Moreover, the banking sector development has a moderating effect. These results suggest that foreign remittances are important sources of capital for private investment and it can efficiently fill the financing gaps of inefficient financial markets
Does Portfolio Quality Influence Financial Sustainability? A Case of Microfinance Institutions in Kenya
Get PDFThis article studies the relationship between portfolio quality and the financial sustainability of microfinance institutions in Kenya. The analysis is based on a panel dataset of 30 microfinance institutions in the period 2010 to 2018. The study is guided by institutional theory which is built on conformance and continuity. The study adopts an explanatory research design where a panel approach is used under positivist paradigm. The study finds that portfolio quality has a positive significant effect on the financial sustainability at 1% statistical significance level. Based on this finding, the study concludes that portfolio quality is an essential element of MFIs financial sustainability. The study recommends that MFIs managers should devise good collection policies to improve portfolio quality while lessening loan default rate. The portfolio quality may improve the overall profitability and enhance investor confidence in their strategic decision-making on refinancing. It is important to note in order to ensure financial inclusion; the stakeholders must be involved
Determinants of Inflationary Experience in Ethiopia
Get PDFThe main aim of this study is to investigate the determinants of inflationary experience in Ethiopia. The study focused on economic and econometric criterion to examine the long run and short run impacts of macroeconomic variables on inflation in Ethiopia. In order to accomplish this paper, the study has employed time series data for the period from 1974/75 to 2014/15. To check for the stationarity of the variables, the researcher has used augmented dickey fuller and Phillips-Perron unit root test and all variables become stationary at first difference. Then, long run and short run estimates had been examined by using Johansen Co-integration methodology and Vector Error Correction approach with lag length of two. The data on macroeconomic variables were taken from National Bank of Ethiopia, Ethiopian Economic Association and World Bank database. The findings of the study indicated that in the long run consumer price index has found to be positively influenced by money supply, real gross domestic product and overall budget deficit in which these all variables are positive and statistically significant determinants of inflation. The growth of money supply should be continually kept in control, given its long run potential impact in accelerating inflationary pressure to ensure stable price level in an economy and keep on the growth of real gross domestic product with single digit inflation rate and displaying a high sense of transparency in fiscal operations bring about a realistic budget deficit that would serve as incentives to productivity and stable general price level