granger causality test, Microeconomics

(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.

 

Posted Date: 2/26/2013 1:02:52 AM | Location : United States







Related Discussions:- granger causality test, Assignment Help, Ask Question on granger causality test, Get Answer, Expert's Help, granger causality test Discussions

Write discussion on granger causality test
Your posts are moderated
Related Questions
Discuss how the opportunity cost principle influence a supplier''s decision to supply labour

BUREAUCRACY: M de Gournay, an economist of France, first coined the word Bureaucracy in the eighteenth century to refer to "a fourth or fifth form of Government" in which "off


Laspeyres index The Laspeyres index tells us that: - The amount of money at present year prices which an individual requires to purchase bundle of goods and services which w

Lack of Integration in Policy Formulation and Policy Implementation: A common thread uniting these diverse diagnoses and prescriptions can be seen among most of the critical e

Select the production possibilities curve for an economy with 42 units of labor

Frictional and Cyclical Unemployment: Frictional Unemployment: It refers to unemployment caused by changes in individual labour markets. This is the type of unemploymen

remedies of unemployment

Evaluate the equilibrium price and quantity (a) Find the equilibrium price and quantity (b) If government in trying to control the price of the good fixes the price at c550