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

Inflation, inflation and policies that are used to combat it

inflation and policies that are used to combat it

Utility functions, can you help me answer an economics question

can you help me answer an economics question

Assignment, Individual Assignment ECO101 - PRINCIPLES OF ECONOMICS elect...

Individual Assignment ECO101 - PRINCIPLES OF ECONOMICS electronic submission via Moodle 6 Questions 100 marks (15% of total course) All questions should be attempted. 30-50 w

Consumption of services and goods, Services and goods that are used for the...

Services and goods that are used for their ultimate end purpose, meeting some human desire orneed. Consumption may include private consumption (by individuals, financed from their

Define credit, Q. Define Credit? Credit:Ability to purchase something w...

Q. Define Credit? Credit:Ability to purchase something without immediately paying for it - through a credit card or bank loan, a mortgage or any other forms of credit. Creation

When is tax to society cause a deadweight loss, When is tax to society caus...

When is tax to society cause a deadweight loss? Applying Consumer and Producer Surplus: The Efficiency Costs of a Tax A tax causes a deadweight loss to society, since les

Neutron diffraction, chemistry assignments ,  Neutron diffraction supplemen...

chemistry assignments ,  Neutron diffraction supplements x-ray diffraction and is particularly helpful in locating hydrogen atoms. An x-ray beam is scattered primarily as a result

Price elasticity of demand, Elasticity of Demand Price elasticity of de...

Elasticity of Demand Price elasticity of demand measures percentage change in quantity demanded which results from a 1 % change in price.                 Price Elasticity

Explain the factors which would affect the price of a good, Explain the fac...

Explain the factors which would affect the price of a good. As there is a very long list of determinants, the basic issue is for the student to describe and illustrate how shif

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