Open AccessA Vector Error Correction Model (VECM) Approach in explaining the relationship between Fixed Investment and Economic Growth in Rural China
Author(s) -
Nsabimana Leonard,
Khan Humayun,
Haiyue Zhong,
Tang Yunjie
Publication year - 2020
Publication title -
pacific international journal
Language(s) - English
Resource type - Journals
eISSN - 2663-8991
pISSN - 2616-4825
DOI - 10.55014/pij.v3i4.106
Subject(s) - economics , gross fixed capital formation , error correction model , cointegration , fixed investment , granger causality , investment (military) , china , fixed asset , econometrics , fixed effects model , monetary economics , macroeconomics , panel data , capital formation , gross domestic product , human capital , market economy , geography , production (economics) , archaeology , financial capital , politics , political science , law
A rural economy can be affected by fixed investment in a rural area positively or negatively. Investment in fixed assets is one of the core measures of capital spending in rural China and the rural economy is a prominent part of china’s national economy. It is important to study the dynamic relationship between fixed investment and economic growth in rural China. Based on time-series data from 1990 to 2016, this paper employed a Vector Error Correction Model (VECM) approach to lead the stationarity test, Cointegration test, stability test, and granger causality test. The result indicated that, in the long term, Fixed Investment fluctuation promotes GDP growth in rural China while GDP fluctuation is not the source of fixed investment increase in rural China.