granger causality test, Microeconomics

Assignment Help:

(Granger, 1969, 1988), where it can be addressed in terms of a VAR (vector auto regression) system. If an export platform is important for the country, FDI inflows should result in an increase in export flows from the host country. Therefore, Granger causality could be used to examine whether FDI Granger inflows cause export flows.

The direction of the Granger causality is sensitive to the number of lags; therefore, it is important to use the Akaike Information Criterion (AIC) (Akaike, 1974) to suggest the use of the lag with the lowest computed AIC value. The AIC is defined as: ln AIC = [ 2k/n] + ln [ RSS/n] where k is the number of regressors, n is the number of observations, and RSS is the residual sum of squares.

For FDI and exports and FDI and imports, the Granger causality test is applied based on a stationary dataset. Hence, it is necessary to establish the stationarity properties of the data, and unit root analysis is conducted for this purpose.  If an export platform is important for the country, the result will indicate an increase in export flows from the technology sector. Therefore, Granger causality could be used to examine whether FDI Granger inflows cause export flows or import substitution from the technology sector. The direction of the Granger causality is sensitive to the number of lags; therefore, it is important to use the Akaike Information Criterion (AIC) (Akaike, 1974) to suggest the use of the lag with the lowest computed AIC value. Given a data set, several competing models may be ranked according to their AIC, with the one having the lowest AIC being the best.

 


Related Discussions:- granger causality test

Rational expectations and economic theory , RATIONAL EXPECTATIONS AND ECONO...

RATIONAL EXPECTATIONS AND ECONOMIC THEORY : We assumed above that the role of economic theory is not to provide quantitative predictions about the future. Suppose we assume ins

Please Help, 7.Consider the following production possibilities table: Op...

7.Consider the following production possibilities table: Option Y X A 0 100 B 80 80 C 120 50 D 140 10 a)Provide a measure of the approximate marginal opportunity cost of

Price mechanism, discuss how the price mechanism allocate resources in a fr...

discuss how the price mechanism allocate resources in a free market system

Law of demand, The price of petrol fell during the past year. a. Explain...

The price of petrol fell during the past year. a. Explain why the law of demand applies to petrol just as it does to all other goods and services. b. Explain how the substitu

Market supply of labour, #queUse a graphical illustration to describe brief...

#queUse a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more wome

External stability, Really briefly, what are 2 methods of measuring externa...

Really briefly, what are 2 methods of measuring external stability? In Australia generally.

User cost of capital, User Cost of Capital = Economic Depreciation + ...

User Cost of Capital = Economic Depreciation + (Interest Rate)(Value of Capital) - Example An Airline buys Boeing 737 for $150 million with the expected life of 30

Elastics and inelastics, You just opened a flower shop and are trying to un...

You just opened a flower shop and are trying to understand pricing issues. You were told that elasticities are very important in determining prices and what products to supply, so

Second best theory, what is the Theory of second best? Prove the theorem wi...

what is the Theory of second best? Prove the theorem with the help of digram

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd