Should donors keep scaling up foreign aid or should they be more cautious because of the recipient country's limited absorptive capacity? This paper investigates the non-linearity hypothesis between foreign aid and economic growth for 25 developing countries during the period from 1984 to 2008. By using state space system equations, we provide a new insight to estimating the Panel Smooth Transition Regression Model (PSTR). This method identifies the estimated coefficients at each point of time and determines endogenously an appropriate threshold level. For upper middle countries, we recognise the positive impact of aid flows on economic growth but with diminishing returns while lower middle and least developed countries support the big push concept.
This paper aims to introduce an evidence of new generations of smooth transition regression model (STAR). It proposes two different forms of STAR model. First: a time varying STAR model (TVSTAR), which identify the estimated coefficients at each point of time. Second: a full specification STAR model (FSSTAR) which provides a consistent estimate even in the existence of some measurement errors, omitted variables and even if the true functional form is unknown. This study will consider the two proposed models and the traditional STAR model to examine the nonlinear relation between oil price and stock market index for two countries (Egypt and Turkey). Our results confirm the existing of a non‐linear relation between oil prices and stock return for both countries. The suggested models gives more accurate information about the time varying effect of oil price changes on stock markets and robust forecasts.
This study aims to examine whether Central Bank Independence (CBI) and Macroprudential Policy (MAPP) are capable of assisting the improvement of stability in the financial system, regarding the credit gap for 20 developing markets from 2000 to 2021. To examine this financial association, a panel threshold nonlinear model was implemented, based on the potentially time-varying influence of the CBI and MAPP index on the credit gap. The effects of this relationship also emphasized the CBI degree, whose greater level often stabilized the financial sector better. In this case, a stronger effect is commonly prioritized when CBI is below its trend. Based on the analysis, the selected experimental countries were categorized into two groups. The results showed that the nations with a higher CBI degree had greater stability in the financial system. Tighter MAPP also improved financial stability when CBI was below its trend. However, it did not enhance stability when CBI was more than the threshold level.
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