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The Causal Impact of Stock Market Development on Economic Development in the UAE: An Asymmetric Approach

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  • Hatemi-J, Abdulnasser

    (Department of Economics and Finance, College of Business and Economics, United Arab Emirates University)

Abstract

This paper investigates the causal impact of the financial sector on the real or economic sector of the UAE. The underlying data is transformed into partial cumulative sums for positive and negative changes in order to conduct asymmetric causality tests. Allowing for asymmetry is consistent with reality since individuals in financial markets have the tendency to respond more powerfully to a negative news than to a positive one. We also capture the propagation mechanism of a shock in each variable by estimating the generalized impulse response functions, which are not sensitive to the way the variables are ordered in the model. The results reveal that the financial sector has indeed a causal impact on the real sector of the economy. However, the reverse causal impact is not found. These underlying causality results are also confirmed by the generalized impulse response functions. L’impatto del mercato azionario sullo sviluppo economico degli Emirati Arabi Uniti:un approccio asimmetrico Lo scopo di questo lavoro è quello di analizzare l’impatto causale del settore finanziario sul settore dell’economia reale degli Emirati Arabi Uniti. I dati presi in considerazione sono trasformati in somme parziali cumulative per mutamenti positivi e negativi al fine di effettuare test causali asimmetrici. Consentire l’asimmetricità è coerente con la realtà in quanto le persone che operano nel settore finanziario hanno la tendenza a reagire maggiormente alle notizie negative anziché a quelle positive. Viene anche studiato il meccanismo con il quale si propaga lo shock in ogni variabile tramite la stima di funzioni generalizzate degli impulsi di reazione, i quali non sono sensibili al modo in cui le variabili sono ordinate nel modello. I risultati evidenziano che il settore finanziario ha sì un impatto causale sul settore reale dell’economia, ma l’impatto contrario non viene riscontrato. Questi risultati di causalità sono confermati dalle funzioni generalizzate degli impulsi di reazione.

Suggested Citation

  • Hatemi-J, Abdulnasser, 2019. "The Causal Impact of Stock Market Development on Economic Development in the UAE: An Asymmetric Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(2), pages 171-184.
    • Handle: RePEc:ris:ecoint:0844
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    References listed on IDEAS

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    1. Al-Mohana, Safa & Hatemi-J, Abdulnasser, 2016. "The Impact of Recent Crisis on the Real Estate Market on the UAE: Evidence from Asymmetric Methods," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 69(4), pages 389-428.
    2. Pan, Lei & Mishra, Vinod, 2018. "Stock market development and economic growth: Empirical evidence from China," Economic Modelling, Elsevier, vol. 68(C), pages 661-673.
    3. Helmut Lütkepohl, 2005. "New Introduction to Multiple Time Series Analysis," Springer Books, Springer, number 978-3-540-27752-1, June.
    4. Alif Darrat, 1999. "Are Financial Deepening and Economic Growth Causally Related? Another Look at the Evidence," International Economic Journal, Taylor & Francis Journals, vol. 13(3), pages 19-35.
    5. Hatemi-J, Abdulnasser, 2020. "Asymmetric Panel Causality Tests with an Application to the Impact of Fiscal Policy on Economic Performance in Scandinavia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(3), pages 389-404.
    6. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    7. Abdulnasser Hatemi-J, 2012. "Asymmetric causality tests with an application," Empirical Economics, Springer, vol. 43(1), pages 447-456, August.
    8. Ben Naceur, Samy & Ghazouani, Samir & Omran, Mohammed, 2008. "Does stock market liberalization spur financial and economic development in the MENA region?," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 673-693, December.
    9. Abdulnasser Hatemi-J & Youssef El-Khatib, 2016. "An extension of the asymmetric causality tests for dealing with deterministic trend components," Applied Economics, Taylor & Francis Journals, vol. 48(42), pages 4033-4041, September.
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    Cited by:

    1. Clement Olalekan Olaniyi & Olaolu Richard Olayeni, 2020. "A new perspective into the relationship between CEO pay and firm performance: evidence from Nigeria’s listed firms," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 250-277, December.
    2. M. Ajide, Folorunsho, 2020. "Asymmetric Influence Of Financial Development On Unemployment In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 7(2), pages 39-52, June.
    3. Hatemi-J, Abdulnasser & El-Khatib, Youssef, 2023. "The Dividend Discount Model with Multiple Growth Rates of any Order for Stock Evaluation," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(1), pages 135-146.
    4. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.
    5. Polyzos, Efstathios, 2022. "Examining the asymmetric impact of macroeconomic policy in the UAE: Evidence from quartile impulse responses and machine learning," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    6. Ayad Hicham, 2021. "Oil Prices and the Algerian Exchange Rate: Is there any Difference with Hidden Co-Integration?," Folia Oeconomica Stetinensia, Sciendo, vol. 21(1), pages 1-17, June.
    7. Veli Yilanci & Onder Ozgur & Muhammed Sehid Gorus, 2021. "Stock prices and economic activity nexus in OECD countries: new evidence from an asymmetric panel Granger causality test in the frequency domain," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-22, December.

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    More about this item

    Keywords

    Stock Market; Economic Development; Asymmetry; the UAE; Causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G19 - Financial Economics - - General Financial Markets - - - Other

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