cointegration

Shem Otoi Sam, Pokhariyal GP, Manene MM, Kipchumba IC. "Reparameterization of vector error correction model from auto-regressive distributed lag to analyze the effects of macroeconomic shocks on youth employment in Kenya." International Journal of Statistics and Applied Mathematics. 2019;4(1):: 05-17. AbstractWebsite

This study analyzes the effects of reparameterization of autoregressive distributed lag (ARDL) to vector error correction model (VECM) through cointegration of time series. It further verifies the effects of macroeconomic shocks on youth unemployment in Kenya using VECM. First, the unit root test has been done on youth unemployment (YUN), gross domestic product (GDP), external debt (ED), foreign direct investment (FDI), private investment (PI), youth literacy level (LR), and youth population (POP) to verify stationarity. The Johansen Cointegration Test has been employed and revealed three long run relationships which can be interpreted as a GDP effect, External Debt effect and Foreign Direct Investment effect relations. A structural VECM has been described through restrictions derived from the Cointegration Analysis. Based on the results of the Impulse-Response Function analysis and variance decomposition analysis of the Structural VECM, it is concluded that GDP, literacy level, population, Private Investment, External and FDI shocks have significant effects on Kenyan youth unemployment in the long run. Based on the results of the Impulse-Response Function and variance decomposition analyses of the Structural VECM, it is concluded that GDP, literacy level, population, and FDI shocks have significant effects on Kenyan youth unemployment in the long run. Whereas population, external debt, private investment, and GDP have positive effects, foreign direct investment and literacy rate have negative effects on youth unemployment in the long run. The results provide a statistical basis for assessing and prioritising investment policies and …

Shem Otoi Sam, Pokhariyal GP, Manene MM, Isaac C Kipchirchir. "Autoregressive distributed lag cointegration analysis of youth unemployment in Kenya." International Journal of Statistics and Applied Mathematics. 2019;4(1): 29-41. AbstractWebsite

In this paper we consider cointegration analysis in an autoregressive distributed lag (ARDL) structure. First, logarithmic transformation is performed on the series to reduce outlier effects and have elasticity interpreted in terms of percentage. Second, the variables are tested for stationarity using Augmented Dickey-Fuller test. Third, the Johansen Cointegration test is carried out to examine cointegration of the series. Fourth, cointegrated dynamic ARDL model is estimated using ordinary least squares (OLS) and effects of variables and their lags interpreted. The results indicate that Gross Domestic Product (GDP) and its two-year lag are the only ones having negative effect on youth unemployment, that is, one unit increase in GDP and GDP two-year lag reduce youth unemployment by 0.207922% and 0.2052705% respectively. Also, one unit increase in External Debt (ED) and ED two-year lag reduce youth unemployment by 0.07303% and 0.009116% respectively. Furthermore, unit increase in one-year lag of youth literacy rate is the only one which reduces youth unemployment by 0.0892691%; one-year and three-year lag of population (POP) reduce youth unemployment by 0.2590455% and 4.3093119% respectively. The Foreign Direct Investment (FDI) and Private Investment (PI) do not have significant effects on youth unemployment. In the long run, increase in GDP causes increase in youth unemployment by 0.09148447%. The long run result explains that GDP growth in the country is “jobless growth” mainly in less labour intensive sectors.

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