Exploring the Nexus between Political Risk and Financial Risk in the Balkan Countries: A Wavelet-Based NARDL Coherency analysis
DOI:
https://doi.org/10.25034/ijcua.2022.v6n2-10Keywords:
Political risk, Financial risk, Wavelet analysis, NARDL coherency analysis, Balkan countries, Urban planning, Inclusive growthAbstract
The empirical investigation of which risk factor—political or financial—is the optimal driver of country risk in emerging economies in the twenty-first century has grown into a significant and volatile issue in recent decades. This paper investigates the linkages between political risk and financial risk in four Balkan economies (i.e., Greece, Albania, Bulgaria, and Romania) from 1984 Q3 to 2018 Q4, using non-linear autoregressive distributed lag co-integration (NARDL) and wavelet coherence approaches. As a result, findings from the links between political risk and financial risk are being used to provide significant insights into effective urban planning in Balkan cities. The outcomes of the NARDAL analysis indicate that there are short-term and long-term asymmetric links between political risk and financial risk in the Balkan countries except for Romania. The wavelet coherence study also revealed that there is significant vulnerability between political risk and financial risk at different frequencies in the region, also, political risk is a key for predicting financial risk over the selected study period at different frequencies in Albania and Bulgaria.
Downloads
References
Alesina, A., & Tabellini, G. (1989). External debt, capital flight and political risk. Journal of International Economics, 27(3–4), 199–220. https://doi.org/10.1016/0022-1996(89)90052-4
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2), 105–148. https://doi.org/10.1007/s10887-015-9115-2
Ashraf, H., & Prentice, R. (2019). Beyond factory safety: labor unions, militant protest, and the accelerated ambitions of Bangladesh’s export garment industry. Dialectical Anthropology, 43(1), 93–107. https://doi.org/10.1007/s10624-018-9539-0
Banerjee, A., Dolado, J., & Mestre, R. (1998). Error-correction Mechanism Tests for Cointegration in a Single-equation Framework. Journal of Time Series Analysis, 19(3), 267–283. https://doi.org/10.1111/1467-9892.00091
Barro, R. J. (1991) . A cross-country study of growth, saving, and government. In National saving and economic performance. University of Chicago Press, 271–304.
Benedek, J. (2006). Urban policy and urbanization in the transition Romania. Romanian Review of Regional Studies, 2(1), 51–64. https://doi.org/10.1016/j.cities.2010.02.002
Berdiev, A. N., Kim, Y., & Chang, C. P. (2012). The political economy of exchange rate regimes in developed and developing countries. European Journal of Political Economy, 28(1), 38–53. https://doi.org/10.1016/j.ejpoleco.2011.06.007
Białkowski, J., Gottschalk, K., & Wisniewski, T. P. (2008). Stock market volatility around national elections. Journal of Banking & Finance, 32(9), 1941–1953. https://doi.org/10.1016/j.jbankfin.2007.12.021
Bredin, D., Conlon, T., & Potì, V. (2015). Does gold glitter in the long run? Gold as a hedge and haven across time and investment horizons. International Review of Financial Analysis, 41, 320–328. https://doi.org/10.1016/j.irfa.2015.01.010
Butkiewicz, J. L., & Yanikkaya, H. (2006). Institutional quality and economic growth: Maintenance of the rule of law or democratic institutions, or both? Economic Modelling, 23(4), 648–661. https://doi.org/10.1016/j.econmod.2006.03.004
Cai, X. J., Tian, S., Yuan, N., & Hamori, S. (2017). Interdependence between oil and East Asian stock markets: Evidence from wavelet coherence analysis. Journal of International Financial Markets, Institutions and Money, 48, 206–223. https://doi.org/10.1016/j.intfin.2017.02.001
Cassette, A., & Farvaque, E. (2014). Are elections debt breaks? Evidence from French municipalities. Economics Letters, 122(2), 314–316. https://doi.org/10.1016/j.econlet.2013.12.022
Chan, Y., & John Wei, K. C. (1996). Political risk and stock price volatility: The case of Hong Kong. Pacific-Basin Finance Journal, 4(2–3), 259–275. https://doi.org/10.1016/0927-538X(96)00014-5
Charfeddine, L., & al Refai, H. (2019). Political tensions, stock market dependence and volatility spillover: Evidence from the recent intra-GCC crises. The North American Journal of Economics and Finance, 50, 101032. https://doi.org/10.1016/j.najef.2019.101032
Cutler, D., Poterba, J., & Summers, L. (1988). What Moves Stock Prices? https://doi.org/10.3386/w2538
Delavallade, C. (2006). Corruption and distribution of public spending in developing countries. Journal of Economics and Finance, 30(2), 222–239. https://doi.org/10.1007/BF02761488
Funke, M., Schularick, M., & Trebesch, C. (2016). Going to extremes: Politics after financial crises, 1870–2014. European Economic Review, 88, 227–260. https://doi.org/10.1016/j.euroecorev.2016.03.006
González-Fernández, M. , & González-Velasco, C. (2014). Shadow economy, corruption and public debt in Spain. Journal of Policy Modeling, 36(6), 1101–1117.
Goupillaud, P., Grossmann, A., & Morlet, J. (1984). Cycle-octave and related transforms in seismic signal analysis. Geoexploration, 23(1), 85–102. https://doi.org/10.1016/0016-7142(84)90025-5
GYÖNGYÖSI, G., & VERNER, E. (2022). Financial Crisis, Creditor‐Debtor Conflict, and Populism. The Journal of Finance, 77(4), 2471–2523. https://doi.org/10.1111/jofi.13138
Hacker, J. S. (2019). The great risk shift: The new economic insecurity and the decline of the American dream. Oxford University Press.
Hillier, D., & Loncan, T. (2019). Political uncertainty and Stock returns: Evidence from the Brazilian Political Crisis. Pacific-Basin Finance Journal, 54, 1–12. https://doi.org/10.1016/j.pacfin.2019.01.004
Howell, L. D. (2011). International Country Risk Guide Methodology. The PRS Group.
Humphrey, C., & Michaelowa, K. (2019). China in Africa: Competition for traditional development finance institutions? World Development, pp. 120, 15–28. https://doi.org/10.1016/j.worlddev.2019.03.014
Kirikkaleli, D. (2016). Interlinkage Between Economic, Financial, and Political Risks in the Balkan Countries: Evidence from a Panel Cointegration. Eastern European Economics, 54(3), 208–227. https://doi.org/10.1080/00128775.2016.1168704
Kirikkaleli, D. (2020). Does political risk matter for economic and financial risks in Venezuela? Journal of Economic Structures, 9(1), 3. https://doi.org/10.1186/s40008-020-0188-5
Kirikkaleli, D., & Gokmenoglu, K. K. (2020). Sovereign credit and economic risk in Turkey: Empirical evidence from a wavelet coherence approach. Borsa Istanbul Review, 20(2), 144–152. https://doi.org/10.1016/j.bir.2019.06.003
Lerch, M. (2014). The Role of Migration in the Urban Transition: A Demonstration From Albania. Demography, 51(4), 1527–1550. https://doi.org/10.1007/s13524-014-0315-8
Li, J., & Born, J. A. (2006). PRESIDENTIAL ELECTION UNCERTAINTY AND COMMON STOCK RETURNS IN THE UNITED STATES. Journal of Financial Research, 29(4), 609–622. https://doi.org/10.1111/j.1475-6803.2006.00197.x
Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), 263–279. https://doi.org/10.1016/S0047-2727(98)00025-5
Pantzalis, C., Stangeland, D. A., & Turtle, H. J. (2000). Political elections and the resolution of uncertainty: The international evidence. Journal of Banking & Finance, 24(10), 1575–1604. https://doi.org/10.1016/S0378-4266(99)00093-X
Pástor, Ľ., & Veronesi, P. (2013). Political uncertainty and risk premia. Journal of Financial Economics, 110(3), 520–545. https://doi.org/10.1016/j.jfineco.2013.08.007
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Pojani, D. (2009). Urbanization of Post-communist Albania: Economic, Social, and Environmental Challenges. Debatte: Journal of Contemporary Central and Eastern Europe, 17(1), 85–97. https://doi.org/10.1080/09651560902778394
Porta, R. la, Lopez-de-Silanes, F., & Shleifer, A. (2008). The Economic Consequences of Legal Origins. Journal of Economic Literature, 46(2), 285–332. https://doi.org/10.1257/jel.46.2.285
Roberts, M., & Townshend, T. G. (2017). Urban design in an age of recession. Journal of Urban Design, 22(2), 133–136. https://doi.org/10.1080/13574809.2017.1295787
Scrivens, K., & Smith, C. (2013). Four Interpretations of Social Capital: An Agenda for Measurement. OECD Statistics Working Papers No. 2013/06, OECD Publishing, Paris.
Shahbaz, M., Nasir, M. A., Hille, E., & Mahalik, M. K. (2020). UK’s net-zero carbon emissions target: Investigating the potential role of economic growth, financial development, and R&D expenditures based on historical data (1870–2017). Technological Forecasting and Social Change, 161, 120255. https://doi.org/10.1016/j.techfore.2020.120255
Shahbaz, M., Tiwari, A. K., & Tahir, M. I. (2015). Analyzing the time-frequency relationship between oil price and exchange rate in Pakistan through wavelets. Journal of Applied Statistics, 42(4), 690–704. https://doi.org/10.1080/02664763.2014.980784
Siokis, F., & Kapopoulos, P. (2003). Electoral management, political risk and exchange rate dynamics: the Greek experience. Applied Financial Economics, 13(4), 279–285. https://doi.org/10.1080/13504850210128839
Smales, L. A. (2015). Better the devil you know: The influence of political incumbency on Australian financial market uncertainty. Research in International Business and Finance, 33, 59–74. https://doi.org/10.1016/j.ribaf.2014.06.002
Suraj, D. (2015). Global Financial Crisis of 2007: The Case of Albania. Mediterranean Journal of Social Sciences. https://doi.org/10.5901/mjss.2015.v6n4p130
Torrence, C., & Compo, G. P. (1998). A Practical Guide to Wavelet Analysis. Bulletin of the American Meteorological Society, 79(1), 61–78. https://doi.org/10.1175/1520-0477(1998)079<0061:APGTWA>2.0.CO;2
Wilson, P.A.(1997) Building Social Capital: A Learning Agenda for the Twenty-First Century. Urban Studies, 34(5-6), 745–760. https://doi.org/10.1080/0042098975808
Zivot, E., & Andrews, D. W. K. (2002). Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis. Journal of Business & Economic Statistics, 20(1), 25–44. https://doi.org/10.1198/073500102753410372
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Dr. Sadat Momoh Shuaibu, Assoc. Prof. Dr. Dervis Kirikkaleli
This work is licensed under a Creative Commons Attribution 4.0 International License.
