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Showing 4 results for Panel Smooth Transition Regression
Mr Firas Sabah Alivi, Dr Sara Ghobadi, Dr Saad Makassees, Dr Hossein Sharifi Renani,
Volume 0, Issue 0 (12-2024)
Volume 0, Issue 0 (12-2024)
Abstract
Aim and Introduction:
Vulnerable employment, a segment of the informal economy, includes home-based businesses that emerge due to a lack of opportunities for formal employment. These businesses often operate without essential benefits such as medical insurance, social security, bonuses, and pensions, which exposes workers to economic instability. Consequently, many individuals engaged in vulnerable employment seek loans and financial assistance to expand their business activities and transition to the formal sector. Banks, as the primary providers of such loans, request collateral from borrowers – typically in the form of property documents – to ensure repayment and mitigate financial risk. Strengthening legal rights related to loan collateral enhances banks’ confidence in issuing loans, thereby increasing access to credit for vulnerable workers.
Due to the oil-dependent nature of OPEC economies and their reliance on oil revenues, many of these countries often lack robust production infrastructures capable of generating sufficient formal employment opportunities. This study aims to analyze the effect of strengthening loan-related legal rights on vulnerable employment in OPEC member countries, including Iran, Iraq, Algeria, Angola, Congo, Gabon, Kuwait, Saudi Arabia, the United Arab Emirates, Venezuela, Guinea, Libya, and Nigeria, during the period from 2013 to 2021.
Methodology:
Following the approach of Herkenhoff et al. (2021), this study employs a model in which the independent variables include the strength of legal rights related to loans, oil revenues, secondary school enrollment rates, and the urbanization ratio. Given the study’s objective of analyzing the threshold effects of legal loan rights on vulnerable employment, the Panel Smooth Transition Regression (PSTRmouseout="msoCommentHide('_com_1')" onmouseover="msoCommentShow('_anchor_1','_com_1')">[A1] ) method is used to estimate the model.
Results and Discussion:
The analysis identifies a 6.22% threshold in the legal rights index, distinguishing two distinct regimes. In the first regime, the strength of legal loan rights does not significantly impact vulnerable employment. However, in the second regime, a higher index value reduces vulnerable employment, suggesting that more substantial legal loan rights facilitate the transition of workers from the vulnerable to the formal sector. Additionally, oil revenues and secondary school enrollment rates exhibit a negative effect on vulnerable employment, while the urbanization ratio has a positive effect.
Conclusion:
The findings of this study indicate that strengthening legal loan rights has contributed to a reduction in vulnerable employment, which is a subset of informal employment. This shift has contributed to growth in formal sector employment. Banking regulations and enhanced requirements for obtaining collateral have increased banks’ confidence in lending, as they are better able to mitigate the risk of non-repayment. However, this system primarily benefits individuals who can pledge valid collateral, such as real estate and housing documents. Given the high value of such collateralized assets, borrowers are more likely to invest their loans in business development, transitioning their employment from the informal to the formal sector. In addition to securing stable employment, they also gain access to social benefits such as insurance and social security. This financial stability enables them to make timely loan repayments, preventing defaults and preserving their financial credibility.
Based on these findings, it is recommended that governments and banking authorities in the investigated countries implement strict laws and regulations to guarantee loan security and identify factors contributing to bank insolvency. Such measures would help prevent financial resource mismanagement in the banking sector and reduce the probability of bank failures. Strengthening financial regulations and risk management strategies would facilitate lending, ultimately promoting employment growth in the formal sector and reducing the prevalence of vulnerable employment.
Furthermore, the study reveals that oil revenues negatively impact vulnerable employment, which may be attributed to increased government spending on productive investments and formal job creation. This suggests that redirecting oil revenues toward investment, production, and employment generation—rather than short-term expenditures—can facilitate the transition of workers from the informal to the formal sector. Thus, policymakers are encouraged to prioritize long-term economic strategies that allocate oil revenues to sectors that foster sustainable employment opportunities.
The findings also highlight the positive effect of education on labor force transition. Higher levels of education and training result in a more skilled workforce, increasing their acceptance and employability in formal job markets. Therefore, governments should allocate additional resources to public education, provide free schooling, and expand access to higher education for economically disadvantaged groups. Promoting scientific education and fostering a culture that values learning can further enhance workforce skills and economic mobility.
Finally, the study finds that urbanization has had a positive effect on vulnerable employment, indicating that increasing urbanization has not been accompanied by industrial advancements or skill development, thereby failing to support the expansion of the formal sector. Instead, urbanization in the studied countries has often been driven by unfavorable business environments, weak regulatory frameworks, and a lack of political transparency, contributing to the growth of the informal economy. To address these challenges, policymakers should focus on improving governance, strengthening legal and economic structures, and fostering a business-friendly environment that supports formal employment
Vulnerable employment, a segment of the informal economy, includes home-based businesses that emerge due to a lack of opportunities for formal employment. These businesses often operate without essential benefits such as medical insurance, social security, bonuses, and pensions, which exposes workers to economic instability. Consequently, many individuals engaged in vulnerable employment seek loans and financial assistance to expand their business activities and transition to the formal sector. Banks, as the primary providers of such loans, request collateral from borrowers – typically in the form of property documents – to ensure repayment and mitigate financial risk. Strengthening legal rights related to loan collateral enhances banks’ confidence in issuing loans, thereby increasing access to credit for vulnerable workers.
Due to the oil-dependent nature of OPEC economies and their reliance on oil revenues, many of these countries often lack robust production infrastructures capable of generating sufficient formal employment opportunities. This study aims to analyze the effect of strengthening loan-related legal rights on vulnerable employment in OPEC member countries, including Iran, Iraq, Algeria, Angola, Congo, Gabon, Kuwait, Saudi Arabia, the United Arab Emirates, Venezuela, Guinea, Libya, and Nigeria, during the period from 2013 to 2021.
Methodology:
Following the approach of Herkenhoff et al. (2021), this study employs a model in which the independent variables include the strength of legal rights related to loans, oil revenues, secondary school enrollment rates, and the urbanization ratio. Given the study’s objective of analyzing the threshold effects of legal loan rights on vulnerable employment, the Panel Smooth Transition Regression (PSTRmouseout="msoCommentHide('_com_1')" on
Results and Discussion:
The analysis identifies a 6.22% threshold in the legal rights index, distinguishing two distinct regimes. In the first regime, the strength of legal loan rights does not significantly impact vulnerable employment. However, in the second regime, a higher index value reduces vulnerable employment, suggesting that more substantial legal loan rights facilitate the transition of workers from the vulnerable to the formal sector. Additionally, oil revenues and secondary school enrollment rates exhibit a negative effect on vulnerable employment, while the urbanization ratio has a positive effect.
Conclusion:
The findings of this study indicate that strengthening legal loan rights has contributed to a reduction in vulnerable employment, which is a subset of informal employment. This shift has contributed to growth in formal sector employment. Banking regulations and enhanced requirements for obtaining collateral have increased banks’ confidence in lending, as they are better able to mitigate the risk of non-repayment. However, this system primarily benefits individuals who can pledge valid collateral, such as real estate and housing documents. Given the high value of such collateralized assets, borrowers are more likely to invest their loans in business development, transitioning their employment from the informal to the formal sector. In addition to securing stable employment, they also gain access to social benefits such as insurance and social security. This financial stability enables them to make timely loan repayments, preventing defaults and preserving their financial credibility.
Based on these findings, it is recommended that governments and banking authorities in the investigated countries implement strict laws and regulations to guarantee loan security and identify factors contributing to bank insolvency. Such measures would help prevent financial resource mismanagement in the banking sector and reduce the probability of bank failures. Strengthening financial regulations and risk management strategies would facilitate lending, ultimately promoting employment growth in the formal sector and reducing the prevalence of vulnerable employment.
Furthermore, the study reveals that oil revenues negatively impact vulnerable employment, which may be attributed to increased government spending on productive investments and formal job creation. This suggests that redirecting oil revenues toward investment, production, and employment generation—rather than short-term expenditures—can facilitate the transition of workers from the informal to the formal sector. Thus, policymakers are encouraged to prioritize long-term economic strategies that allocate oil revenues to sectors that foster sustainable employment opportunities.
The findings also highlight the positive effect of education on labor force transition. Higher levels of education and training result in a more skilled workforce, increasing their acceptance and employability in formal job markets. Therefore, governments should allocate additional resources to public education, provide free schooling, and expand access to higher education for economically disadvantaged groups. Promoting scientific education and fostering a culture that values learning can further enhance workforce skills and economic mobility.
Finally, the study finds that urbanization has had a positive effect on vulnerable employment, indicating that increasing urbanization has not been accompanied by industrial advancements or skill development, thereby failing to support the expansion of the formal sector. Instead, urbanization in the studied countries has often been driven by unfavorable business environments, weak regulatory frameworks, and a lack of political transparency, contributing to the growth of the informal economy. To address these challenges, policymakers should focus on improving governance, strengthening legal and economic structures, and fostering a business-friendly environment that supports formal employment
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mouseout="msoCommentHide('_com_1')" onmouseover="msoCommentShow('_anchor_1','_com_1')" style="text-align: justify;"> [A1]The written abbreviation is for “the Panel Smooth Transition Regression”
Nariman Mohammadi, Gholamali Haji, Dr Mohammad Hassan Fotros,
Volume 21, Issue 3 (9-2021)
Volume 21, Issue 3 (9-2021)
Abstract
The relationship between financial decentralization and economic growth has been one of the crucial issues in economics in recent decades. Financial decentralization could affect economic growth and consequently development programs and the expansion of regional balance policies. This study investigates the nonlinear behavior of economic growth and financial decentralization in the Iranian provinces during the period 2004-2016 using a panel smooth transition regression model as one of the prominent models of regime change. A hybrid financial decentralization index is extracted using the principal component analysis technique and it is used as a transfer variable to study the changes in economic growth in the nonlinear model. Results of estimation confirm a nonlinear relationship between the variables under study and propose a dual-regime model with a threshold of 3.1941 and a slope parameter of 4.2869. So, the effect of combined financial decentralization on growth of the provinces is asymmetric. Thus, with increasing decentralization in the first regime, economic growth becomes positive and after crossing the threshold and entering the second regime, it becomes negative due to the costs associated with increasing financial decentralization. Therefore, the relationship between hybrid financial decentralization and the economic growth of the provinces can be shown as an inverse parabola.
Mrs. Susan Etemadinia, Dr Seyed Jamaledin Mohseni Zonouzi,
Volume 22, Issue 4 (12-2022)
Volume 22, Issue 4 (12-2022)
Abstract
Introduction:
Technological innovation is one of the key indicators for economic growth and productivity. Recent studies show that R&D investment causes technological change. However, this relationship is not always obvious and seems to vary according to the level of economic development. A large number of studies on developed countries confirm the positive relationship between research and development, innovation and productivity. However, in developing countries, this relationship is not always clear. In this regard, in order to allocate an important share of national income to research and development, developing economies need to achieve a high and sustainable economic growth rate or create an economic development policy based on new innovation. This paper investigates the threshold effect of medium-high technology exports on total factor productivity in 50 developing and developed countries over the period 2007-2020.
Methodology:
For analyzing data, panel smooth transition regression (PSTR) model is used, which was presented and expanded by Gonzalez et al. (2005) and Colletaz & Hurlin (2006) and is very suitable for heterogeneous panel data. Thus, Medium-High Technology Exports index is chosen as the transition variable. Following the study of Hammar and Bellarebi (2021), the general model shows the relationship between the logarithm of total factor productivity, the logarithm of advanced and medium exports (transition variable), the logarithm of trade openness, and the logarithm of research and development expenditures.
Results and Discussion:
The results show a nonlinear relationship between the variables under study. Based on the necessary test results, considering only one transition function with a threshold value and two regimes is sufficient for nonlinear estimation of the model. Also, the logarithm of the value of the transition variable threshold is estimated about 3.0816 and the slope parameter is estimated about 6.4226. Research and development (R&D) expenditures and trade have negative significant effects on total factor productivity in the first regime on total factor productivity that this effect by crossing the threshold (Medium-High Technology Exports) effect for the variable of R&D expenditures becomes positive and insignificant. This result is consistent with the study of Sepherdoost and Afshari (2016). In addition, the results show that the influence of trade on total factor productivity is negative and significant, but its influence is lower than before, in the second regime. This result is consistent with the study of Lotfalipour et al. (2015)
Conclusion:
Considering the role of high and medium technology exports in the relationship between research and development expenditures and total factor productivity, it can be said that developing countries in the initial stages of growth can increase their productivity by increasing the export of high technology industries, to a level of specific development, despite the very high importance of research and development in the development of high-tech industries. Only a very small part of the country's resources is spent on research and development, and the weakness of the workforce has reduced the utilization of this small amount of domestic research and development investment. So, the low contribution of research and development expenses indicates that companies do not have much desire for innovative efforts and the creation of new technology transfer capacity as a stimulus for the quantitative and qualitative growth of industrial products. This action has caused them to not provide new products and services and reduce their competitiveness in domestic and foreign markets.
The most important policy recommendation is that the governments of developing countries should develop high and medium technology exports witch through their positive effects such as productivity growth, reduction of production costs, improvement of financial development and growth of innovation and technology, it is possible to achieve favorable economic growth and to improve the productivity of all factors. Also, the development of exports with advanced and medium technology and knowledge-based production will initially attract educated and specialized unemployed people, and with the improvement of management practices, the productivity of production factors and the level of technology will increase and lead to product innovation. Therefore, considering the importance of exporting with advanced and medium technology and knowledge-based production, it is suggested that the universities move towards the third generation university, in which case the chain of knowledge to technology will be completed in the university and the university will support the industries by developing the latest technologies. It is also suggested that in order to improve their competitiveness in the international arena and to advance their development goals, developing countries allocate a greater share of their income resources to research and development and create incentives for researchers in various economic sectors, especially in industries with technological capabilities, and move more towards the knowledge-based economy and the implementation of research policies based on innovation.
Mrs Sedigheh Hossaini, Dr Saman Ghaderi, Dr Zana Mozaffari, Mr Ramin Amani,
Volume 24, Issue 2 (5-2024)
Volume 24, Issue 2 (5-2024)
Abstract
Introduction
The Covid-19 pandemic, as one of the recent world crises, has brought costs to the economies, which has drawn the attention of researchers and politicians to the concept of economic vulnerability in the form of a warning index to evaluate this external shock. The main aim of this study is to investigate the impact of the COVID-19 pandemic on economic vulnerability in high, medium, and low-income levels countries. This study was conducted for 150 countries using the Panel Smooth Transition Regression (PSTR) approach over 2020-2021. In this regard, the Briguglio method was used to calculate the Economic Vulnerability Index. The results of this research indicate that the COVID-19 pandemic has had a positive and significant effect on the economic vulnerability of countries. The linear test results confirm the non-linear relationship between the variables. Moreover, by considering a transfer function with a threshold parameter (the level of COVID-19 morbidity and mortality), a two-regime model is presented to specify the non-linear relationship between the pattern variables for three groups of high, medium, and low-income countries. The slope parameter (transfer rate) for these three groups of countries is 5.9876, 6.1569, and 3.9987, respectively. The model estimation results show that in both linear and non-linear regimes, COVID-19 has a positive impact on the economic vulnerability of countries with high, medium, and low incomes, meaning that an increase in the COVID-19 pandemic has led to a decrease in the economic vulnerability of these groups of countries.
Methodology
Through extensive research and data collection, a sample of 150 countries for the period 2020-2021 has been selected. The primary criterion for selecting countries and the period is the availability of data. The research database includes sources such as the World Bank, the International Monetary Fund, and the United Nations Development Organization. The dependent variables in this study are the Vulnerability Index. The Vulnerability Index is constructed based on the Briguglio method using four components: 1) Trade openness 2) Export concentration 3) Dependency on strategic imports, and 4) Exposure to natural disasters. Other variables included in the model are the number of COVID-19 deaths, per capita gross domestic product (GDP), foreign direct investment, and remittances as a percentage of GDP, which have been collected from the World Bank and other reliable sources. This study used Panel Smooth Transition Regression (PSTR) approach. PSTR is a statistical model that is commonly used to analyze the non-linear relationships between economic variables. This model is particularly useful for investigating the behavior of variables that exhibit non-linear patterns or changes in their behavior over time. PSTR is a flexible model that can be used to capture the complex relationships between different variables, making it a popular choice in various fields, such as economics, finance, and social sciences. The PSTR model is an extension of the Smooth Transition Regression (STR) model, which is a non-linear regression model that allows for the specification of the transition function between two different regimes. In the PSTR model, the transition function is extended to include panel data, which allows for the analysis of the non-linear relationships between variables across multiple units, such as countries or firms, over time. PSTR is a powerful tool for analyzing the impact of various economic factors on different regions or countries. For example, it can be used to investigate whether the impact of a particular economic policy or event is uniform across different countries or regions, or whether it varies depending on the level of economic development or other relevant factors. Additionally, PSTR can be applied to different types of data, including cross-sectional, time series, and panel data, making it a versatile tool for analyzing a wide range of economic phenomena.
Results and Discussion
the vulnerability model indicates that the slope parameter, which represents the speed of transition from one regime to another, is equal to 1191.414, and the regime change location is 435.6, with the logarithm of its anti-value being 2213094. Therefore, as long as the COVID-19 pandemic (mortality) value is less than the anti-logarithm values, the variables will behave according to the first regime. If the value of the COVID-19 pandemic exceeds the anti-logarithm values, the variables will follow the second regime. Based on the results of the two regimes, it is evident that the COVID-19 pandemic variable has had a positive and significant impact, both linear and nonlinear on countries. This means that the increase in the COVID-19 pandemic has led to an increase in the economic vulnerability of countries. In other studies, such as Brzyska & Szamrej (2021), Marti (2021), and Puertas, it has been demonstrated that the COVID-19 pandemic has had a positive and significant effect on the vulnerability of countries in the European Union, which mostly includes high-income countries.
Conclusion
This paper examines the impact of the COVID-19 pandemic on economic vulnerability in 150 countries during 2020-2021. The results obtained from the Panel Smooth Transition Regression (PSTR) model confirm a nonlinear relationship between the variables and the presence of two threshold regimes with a threshold for economic vulnerability and model. It also indicates that the COVID-19 pandemic has a positive effect on vulnerability. This means that an increase in the COVID-19 pandemic has led to an increase in vulnerability and a decrease in economic resilience in these countries.
The Covid-19 pandemic, as one of the recent world crises, has brought costs to the economies, which has drawn the attention of researchers and politicians to the concept of economic vulnerability in the form of a warning index to evaluate this external shock. The main aim of this study is to investigate the impact of the COVID-19 pandemic on economic vulnerability in high, medium, and low-income levels countries. This study was conducted for 150 countries using the Panel Smooth Transition Regression (PSTR) approach over 2020-2021. In this regard, the Briguglio method was used to calculate the Economic Vulnerability Index. The results of this research indicate that the COVID-19 pandemic has had a positive and significant effect on the economic vulnerability of countries. The linear test results confirm the non-linear relationship between the variables. Moreover, by considering a transfer function with a threshold parameter (the level of COVID-19 morbidity and mortality), a two-regime model is presented to specify the non-linear relationship between the pattern variables for three groups of high, medium, and low-income countries. The slope parameter (transfer rate) for these three groups of countries is 5.9876, 6.1569, and 3.9987, respectively. The model estimation results show that in both linear and non-linear regimes, COVID-19 has a positive impact on the economic vulnerability of countries with high, medium, and low incomes, meaning that an increase in the COVID-19 pandemic has led to a decrease in the economic vulnerability of these groups of countries.
Methodology
Through extensive research and data collection, a sample of 150 countries for the period 2020-2021 has been selected. The primary criterion for selecting countries and the period is the availability of data. The research database includes sources such as the World Bank, the International Monetary Fund, and the United Nations Development Organization. The dependent variables in this study are the Vulnerability Index. The Vulnerability Index is constructed based on the Briguglio method using four components: 1) Trade openness 2) Export concentration 3) Dependency on strategic imports, and 4) Exposure to natural disasters. Other variables included in the model are the number of COVID-19 deaths, per capita gross domestic product (GDP), foreign direct investment, and remittances as a percentage of GDP, which have been collected from the World Bank and other reliable sources. This study used Panel Smooth Transition Regression (PSTR) approach. PSTR is a statistical model that is commonly used to analyze the non-linear relationships between economic variables. This model is particularly useful for investigating the behavior of variables that exhibit non-linear patterns or changes in their behavior over time. PSTR is a flexible model that can be used to capture the complex relationships between different variables, making it a popular choice in various fields, such as economics, finance, and social sciences. The PSTR model is an extension of the Smooth Transition Regression (STR) model, which is a non-linear regression model that allows for the specification of the transition function between two different regimes. In the PSTR model, the transition function is extended to include panel data, which allows for the analysis of the non-linear relationships between variables across multiple units, such as countries or firms, over time. PSTR is a powerful tool for analyzing the impact of various economic factors on different regions or countries. For example, it can be used to investigate whether the impact of a particular economic policy or event is uniform across different countries or regions, or whether it varies depending on the level of economic development or other relevant factors. Additionally, PSTR can be applied to different types of data, including cross-sectional, time series, and panel data, making it a versatile tool for analyzing a wide range of economic phenomena.
Results and Discussion
the vulnerability model indicates that the slope parameter, which represents the speed of transition from one regime to another, is equal to 1191.414, and the regime change location is 435.6, with the logarithm of its anti-value being 2213094. Therefore, as long as the COVID-19 pandemic (mortality) value is less than the anti-logarithm values, the variables will behave according to the first regime. If the value of the COVID-19 pandemic exceeds the anti-logarithm values, the variables will follow the second regime. Based on the results of the two regimes, it is evident that the COVID-19 pandemic variable has had a positive and significant impact, both linear and nonlinear on countries. This means that the increase in the COVID-19 pandemic has led to an increase in the economic vulnerability of countries. In other studies, such as Brzyska & Szamrej (2021), Marti (2021), and Puertas, it has been demonstrated that the COVID-19 pandemic has had a positive and significant effect on the vulnerability of countries in the European Union, which mostly includes high-income countries.
Conclusion
This paper examines the impact of the COVID-19 pandemic on economic vulnerability in 150 countries during 2020-2021. The results obtained from the Panel Smooth Transition Regression (PSTR) model confirm a nonlinear relationship between the variables and the presence of two threshold regimes with a threshold for economic vulnerability and model. It also indicates that the COVID-19 pandemic has a positive effect on vulnerability. This means that an increase in the COVID-19 pandemic has led to an increase in vulnerability and a decrease in economic resilience in these countries.
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