The Economics and Finance Letters

Published by: Conscientia Beam
Online ISSN: 2312-430X
Print ISSN: 2312-6310
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Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria

Pages: 1-8
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Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria

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DOI: 10.18488/journal.29.2019.61.1.8

Ebere Ume Kalu , Ogochukwu E. Ugwu , Victor Chijioke Ndubuaku , Ozioma Patricia Ifeanyi

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Ebere Ume Kalu , Ogochukwu E. Ugwu , Victor Chijioke Ndubuaku , Ozioma Patricia Ifeanyi (2019). Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria. The Economics and Finance Letters, 6(1): 1-8. DOI: 10.18488/journal.29.2019.61.1.8
This work was set out to measure the responsiveness of foreign reserves to exchange rate variables with a focus on the Nigerian economy. Foreign reserve was used as a dependent variable and all the exchange rate related variables used as independent variables. Time series data spanning 1996 to 2016 was used. A combined use of the Auto Regressive Distributed Lag Model (ARDL) and correlation matrix were employed. It was found that a positively significant relationship exists between real exchange rate and reserves with nominal exchange rate sharing a positive but non-significant relationship with foreign reserves. This makes a case for proper policy direction in the management of exchange rate in a manner that produces the best economic results for the Nigerian economy. The results are considered useful for economies in the shape of Nigeria for generalization and policy direction in the management of foreign reserve and its interface with exchange rate and its related factors.
Contribution/ Originality
This study contributes to the existing literature by uncoupling exchange rate into nominal and real in measuring the nexus with foreign reserves. This study uses new estimation methodology which is the ARDL approach unlike prior studies that used OLS predominantly. The paper contributes the first logical analysis by carrying out pre-test, estimation proper and diagnostic analyses. The paper's primary contribution is that it exposes the fact that a nexus exists between foreign reserves and changes in exchange rate.

Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size

Pages: 9-24
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Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size

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DOI: 10.18488/journal.29.2019.61.9.24

J. Muzurura

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J. Muzurura (2019). Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size. The Economics and Finance Letters, 6(1): 9-24. DOI: 10.18488/journal.29.2019.61.9.24
Most of developing countries such as Zimbabwe see foreign direct investment as a panacea for augmenting domestic savings, generating employment, eradicating poverty and stimulating economic growth. Foreign direct investment also is associated with significant positive spillover benefits such as; facilitating technological progress, enhancing production efficiencies, promoting skills and knowledge diffusion and increasing international competitiveness. The paper investigated the role of cost of capital, uncertainty, exports, market size and other macro factors in attracting FDI in Zimbabwe. This paper relied on a time series analysis using Ordinary Least Regression equation for the period 1998-2017. Uncertainty and cost of capital were found to be negative and statistically significant whilst market size and lagged exports were found to be positive and statistically significant. The paper recommends adoption of policies that improve domestic absorptive capacity such as the elimination of uncertainties in the economy, promoting more trade openness, improving market size and liberalisation of credit and financial markets to reduce firm borrowing costs.
Contribution/ Originality
This study contributes to the existing literature on foreign direct investment by demonstrating the role of macro-uncertainty and cost of capital in attracting FDI. In addition, this study utilizes a new estimation methodology of FDI that is based on the modification of the flexible accelerator model of investment behaviour.

Factors that Influence Profitability of General Insurance Issuers in Indonesia

Pages: 25-39
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Factors that Influence Profitability of General Insurance Issuers in Indonesia

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DOI: 10.18488/journal.29.2019.61.25.39

Ermy Elisabeth , Bambang Mulyana

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Ermy Elisabeth , Bambang Mulyana (2019). Factors that Influence Profitability of General Insurance Issuers in Indonesia. The Economics and Finance Letters, 6(1): 25-39. DOI: 10.18488/journal.29.2019.61.25.39
This research aims to examine and to analyze factors that influence profitability of general insurance issuers in Indonesia. Factors that are examined consist of activity (working capital turnover), liquidity (current ratio), solvency (risk based capital) and profitability (net profit margin, return on investment and return on equity). Research data is quarterly data for five year period (March 2012 to December 2016). The purposive sampling method was used from a population comprising 14 general insurance issuers with outcome of 5 issuers that met the criteria. Using the multiple linear regression method of analysis for panel data, the results revealed that the variables of the working capital turnover, current ratio and risk based capital simultaneously influenced profitability (net profit margin, return on investment, return on equity) while working capital turn over influenced profitability (net profit margin, return on investment and return on equity) only partially. Current ratio also influenced profitability ratio (net profit margin and return on equity) however, Risk Based Capital did not influence all profitability ratios. The results of the study indicate that Insurance companies should increase their sales in order to get a higher working capital, maintain a liquidity ratio and achieve solvency ratio according to the regulations.
Contribution/ Originality
This study is one of the first empirical studies to analyze factors that influence profitability of general insurance issuers in Indonesia. The findings of the study reveal such factors and their significance for the insurance companies to earn profitability.

Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP

Pages: 40-56
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Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP

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DOI: 10.18488/journal.29.2019.61.40.56

Sitara Bibi , Fatima Mazhar

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Sitara Bibi , Fatima Mazhar (2019). Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP. The Economics and Finance Letters, 6(1): 40-56. DOI: 10.18488/journal.29.2019.61.40.56
This study aimed to examine and compare the performance of Islamic and Conventional banking sector of Pakistan in terms of the impact of BASEL III reforms on the profitability and liquidity of Islamic and conventional banks of Pakistan. For this purpose, National bank of Pakistan has been taken as a unit of analysis and eight year’s financial data has been collected from the official website of NBP. BASEL III standard’s ratios including CAR, CER and LCR have been used as an independent variable while the bank’s profitability and liquidity have been taken as a dependent variable. Descriptive statistics have been performed first to examine and compare the performance of both Islamic and conventional banking sector before and after the induction of BASEL III. After that T-Test has been performed to investigate the differences between the impact of BASEL III on the profitability and liquidity of Islamic and conventional banking sector. The regression analysis has been performed to examine whether BASEL III has a strong relationship with Islamic or conventional banking sector. The results found that BASEL III has a significant positive relationship with the profitability and liquidity of the Islamic sector. Islamic banks are higher in terms of the impact of BASEL III on profitability and liquidity. They are more profitable, more liquid and highly capitalized with BASEL III standards. While Conventional banking sector needs to redesign their policies and make them more compliant with BASEL III to generate more profit and be more liquid as Islamic banks are.
Contribution/ Originality
This study is one of the very few studies which have investigated the impact of BASEL III on the profitability and liquidity of Islamic and Conventional banking sector through comparative analysis. The results reveal that Islamic banks are more profitable, more liquid, more compliant and highly capitalized with BASEL III standards.

Impact of Asymmetric Government Spending on Real Balances Demand

Pages: 57-66
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Impact of Asymmetric Government Spending on Real Balances Demand

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DOI: 10.18488/journal.29.2019.61.57.66

Tersoo Shimonkabir SHITILE , Gylych JELILOV

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Tersoo Shimonkabir SHITILE , Gylych JELILOV (2019). Impact of Asymmetric Government Spending on Real Balances Demand. The Economics and Finance Letters, 6(1): 57-66. DOI: 10.18488/journal.29.2019.61.57.66
This paper uses time series technique on Nigeria’s data spanning over 20 years, 1995Q1 to 2018Q1 in order to examine the impact of asymmetric government spending on money demand. Taking into account the recent empirics and methodological approach in money demand function such as income decomposition in public and private sectors, an augmented empirical model of real balances demand was applied which underscores the positive and negative changes in government. The empirical results show a positive value of real government spending accounting for 30 per cent changes in long-term demand for real balances. However, the negative value of real government spending influence accounts for 20 per cent real balances demand in the long-term. This inquiry, thus contributes to the literature on the demand for real balances by focusing on the cyclical behavior of fiscal policy in Nigeria that has not so far been systematically tested. The findings on real government spending effect also suggest that bureau de change exchange rate and financial innovation have a negative and significant impact on money demand, which is consistent with findings of existing literature. The degree and direction of asymmetry provide a novel dimension to fiscal policy shock toward improving the outcome of stabilization policies.
Contribution/ Originality
This study is one of very few investigations to consider the influence of the cyclical behaviour of government expenditure on demand for real balances using the ARDL model in Nigeria from 1995 to 2018.