COINTEGRATION BETWEEN WORLD TRADE AND GOLD AND SDR

This paper was presented  in International Multidisciplinary Research Conference organised by INAAR and CVU and sponsored by Indo-Global Chamber of Commerce at MCCIA, Pune on 30th June,2015.

It is published in International Research Journal of Commerce ,Business and Social Sciences, Vol- IV,Issue-3(I),June 2015, pp-17-23  

COINTEGRATION BETWEEN WORLD TRADE AND GOLD AND SDR

 Dr. Debesh Bhowmik (International Institute for Development Studies, Kolkata)

Key Words- Cointegration, World exports, World imports, SDR, Gold

JEL-C58,F33,P45

I.                    Introduction

Prior to the inception of the Bretton Woods, the economists had been searching for a single currency for the world economy where metallic standard to key currency to multiple currency standard have been examined, yet the imbalance and international liquidity problem could not be solved. Now, IMF, some academicians and politicians  assume that if SDR be the world money for international transactions then liquidity crisis ,global imbalance and financial crises may be solved.

In this respect, we try to verify the relation between the world exports and imports with the world gold reserves and world SDR reserves during 1968-2013.

II.Methodology and Data

We used Johansen (1988) model for cointegration and Johansen (1991, 1996) model for VAR Analysis. We have taken data on world exports , imports , gold and SDR reserves from the International Financial Statistics(IMF) for the period from 1968 to 2013.Assume , x₁= world export , x₂= world import , y₁= world gold reserve, y₂= world SDR reserve.

III.The Main Econometric Observations

It is found from the double log regression model that one percent increase in world gold reserves per annum led to 9.648% decrease in world exports per year significantly during 1968-2013.But Johansen cointegration test suggests that these two are not cointegrated during 1968-2013 which is verified by the Trace statistic and λ max statistic .

From the double log regression model ,the estimated regression showed that one percent increase in world SDR reserves per year  led to 1.658% increase in world exports per year during 1968-2013.It is statistically significant . The Johansen cointegration test showed that the Trace Statistic and λ Max Statistic have one cointegrating equation with 5% significant level. Now if we use the double log multiple regression model to relate world export, world gold reserves and world SDR reserves during 1968-2013, we find that one percent increase in world gold reserves per year leads to 1.2953% increase in world export per year which is insignificant  and one percent increase in world SDR reserves per year leads to 1.663% decrease in world exports per year which is significant statistically. Its R² is high and F statistic is significant.

Logx₁= -16.70309+1.2953logy₁-1.663logy₂

                (-0.6080)   (0.3269)     (8.728)*

 R²= 0.656  , F= 38.162   , DW= 0.471,*=significant at 5% level.

In applying the Johansen cointegration test ,we got the values of  trace statistic and λ Max statistic which showed one cointegrating equation. The values are given in Table-1,

                  

Table-1: Cointegration test of x₁,y₁ & y₂

Hypothesized no of CE(s)	Eigen value	Trace statistic	0.05 cv	prob
None*	0.4658	32.739*	29.797	0.0223
At most 1	0.1512	7.0322	15.494	0.5739
At most 2	0.00747	0.3077	3.84	0.5791
λ Max Statistic
None*	0.4658	25.7071*	21.1316	0.0106
At most 1	0.1512	6.7244	14.264	0.5222
At most 2	0.00747	0.30776	3.841	0.5791

Source-Computed by Author

The estimated VAR model of X₁ , Y₁, and Y₂ is given below,

X_1t=-72794.84+0.9916X_1t-1+78.119Y_1t-1+0.04809Y_2t-1

           (-1.008)    (12.447)*        (78.119)        (0.5322)

   R²=0.906  , F= 122.543*

Y_1t=216.4743 – 2.33E-06X_1t-1+0.7741Y_1t-1+9.92E-05Y_2t-1

           (0.6382)     (-0.022)            (7.929)*           (0.8359)

  R²= 0.6382   ,   F= 22.347*

Y_2t=52002.48+0.31648X_1t-1-49.1302Y_1t-1+0.7199Y_2t-1

          (0.527)        (2.91)*          (-0.484)               (5.838)*

       R²=0.793   , F=48.5848* , *= significant at 5% level.AIC= 55.299  , SC=55.796  , loglikelihood=-1149.295

The VAR model is a good fit with high R² and F. But its Impulse Response Function showed that the VAR model is quite unstable because of its divergence.

 Fig-1: The Impulse Response Functions of VAR model of x₁,y₁ &y₂

Source-Computed by author

The unit root circle test confirmed that one root lies outside the circle and others lie inside the circle, and thus why VAR is unstable which is shown in Table -2 and Fig-2

                                                     Table-2: Values of Roots

Roots	Modulus
1.058233	1.058233
0.713772 - 0.093269i	0.719840
0.713772 + 0.093269i	0.719840

 Source- Computed by Author

         Fig- 2: Unit root circle

Source- Computed by author

The residual test for normality assured that null hypothesis of normality is rejected because the Skewness,Kurtosis and Jarque-Berra which are distributed as Chi-square are significant.

               

Table-3: Normality test

component	Skewness	Chi-sq	df	prob
1	4.200634	42.54447	1	0.000
2	1.139789	8.678463	1	0.000
3	4.079677	41.41035	1	0.000
joint	92.63328		3	0.000
component	Kurtosis	Chi-sq	df	prob
1	24.82540	95.81405	1	0.0000
2	9.425477	22.91993	1	0.0032
3	25.78465	48.10460	1	0.0000
joint	166.8386		3	0.000
component	Jarque-Bera
1	138.3585		2	0.000
2	31.59839		2	0.000
3	89.51495		2	0.000
joint	259.4719		6	0.000

Source- Computed by author

The same econometric analysis can be applied in the world import with world gold reserves and world SDR reserves during 1968-2013.The double log linear model  between world import and world gold reserves represents that one percent increase in world reserves in gold per year induced to decrease world imports by 1.027007% significantly per year during 1968-2013.The Johansen Cointegration test suggests that Trace statistics confirmed two integrating equations but λ Max statistics confirmed one cointegrating equation.

The relation between world import and world reserves of SDR during 1968-2013 through double log regression model states that one percent increase in world SDR reserves per year leads to 1.11348% increase in world imports per year which showed statistically significant at 5% level. The Johansen cointegration test also confirmed that there are two cointegrating equations as observed by the Trace statistic and λ Max statistic.

Now the double log multiple regression among the world import, world SDR and gold reserves during 1968-2013 signifies that one percent increase in world SDR per annum leads to 1.10474 % increase in world imports per annum which was found statistically significant but one percent increase in world gold reserves per year leads to 2.30436% decrease in world imports per annum during 1968-2013 which is statistically insignificant. The estimated equation is given below.

logx₂=13.2120-2.30436logy₁+1.10474logy₂

              (0.7480)  (-0.9046)      (9.0174)*

 R²= 0.6772  . F= 41.972*   , DW= 0.646,*= significant at 5% level.

The Johansen cointegration test suggests that the Trace statistic and λ Max statistic assured 3 cointegrating equations and they are cointegrated in the order of I(1,1).The values are given below .

                    Table-4: Cointegration test of x₂,y₁ & y₂

Hypothesized no of CE(s)	Eigen value	Trace statistic	0.05 cv	prob
None*	0.909594	120.1075	29.797	0.000
At most 1*	0.338847	21.566	15.494	0.005
At most 2*	0.106163	4.60149	3.84	0.0319
λ Max Statistic
None*	0.909594	98.54142	21.1316	0.000
At most 1*	0.338847	16.96459	14.264	0.018
At most 2*	0.106163	4.601498	3.841	0.0319

Source- Computed by author

The estimated VAR model of X₂, Y₁, and Y₂ are given below,

X_2t=-53592.38+1.0917X_2t-1+50.4505Y_1t-1+0.2843Y_2t-1

            (-0.663)     (1.177)       (0.608)          (2.963)*

 R²= 0.441    , F= 9.994

Y_1t=217.2006-7.83E-05X_2t-2+0.7737Y_1t-1+0.000103Y_2t-1

          (2.296)*     (-0.072)     (7.964)*        (2.296)*

          R²= 0.638   , F= 22.35*

Y_2t=6689.35+2.4565X_2t-1-9.9133Y_1t-1+0.806149Y_2t-1

         (0.0649)   (2.076)*     (-0.093)    (6.586)*

 R²=0.772   ,  F= 43.095* , AIC=55.676  , SC= 56.172  , loglikelihood=-1157.197,*= significant at 5% level.

Again, the values of two roots lie inside the unit circle and one root which is greater than one ,lies outside the unit circle which showed that the VAR model is unstable.

        Table-5 : Values of Roots

Roots	Modulus
1.801502	1.801502
0.753849	0.753849
0.116222	0.116222

Source- Computed by author

Fig- 3: Unit root circle

      Source- Computed by author

The VAR model is found good fit but the Impulse Response Functions are diverging which means the VAR model is unstable. It is shown in Fig-4

            Fig- 4: Impulse response functions of VAR model of x₂,y₁ & y₂

         Source- Computed by author

The residual test for normality showed that the Chi Square distribution of Skewness,Kurtosis and Jarque-Berra are significant which confirmed that null hypothesis of no normality is rejected. It is given in the Table-6.

        Table-6: Normality Test

component	Skewness	Chi-sq	df	prob
1	2.630436	26.46427	1	0.000
2	1.166359	8.993752	1	0.0027
3	5.084170	50.37757	1	0.000
joint		85.8356	3	0.000
component	Kurtosis	Chi-sq	df	prob
1	20.72866	14.09559	1	0.0002
2	9.470174	22.10563	1	0.0000
3	31.35488	294.9126	1	0.0000
joint		331.1139	3	0.000
component	Jarque-Bera
1	40.55987		2	0.000
2	31.09938		2	0.000
3	345.2902		2	0.000
joint	416.9495		6	0.000

Source- Calculated by Author.

IV.Conclusion

Thus, it was verified that world exports and imports are positively related with world SDR reserves  but world exports and imports are not always positively/negatively related with world gold reserves during the period of 1968-2013.World export is cointegrated with SDR but not with gold, on the other hand, world import is cointegrated with  both gold and SDR. The multivariate Johansen model showed that both world export and import are significantly cointegrated with gold and SDR.  Their VAR models were found good fit but did not satisfy the stability conditions.  

References

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[13]I.M.F.-International Financial Statistics-Various Years.

UN CLIMATE CHANGE CONFERENCE IN WARSAW

UN CLIMATE CHANGE CONFERENCE IN WARSAW

At the UN Climate Change Conference in Warsaw, governments took further essential decisions to stay on track towards securing a universal climate change agreement in 2015. The objective of the 2015 agreement is twofold:

First, to bind nations together into an effective global effort to reduce emissions rapidly enough to chart humanity's longer-term path out of the danger zone of climate change, while building adaptation capacity. Second, to stimulate faster and broader action now.

To these ends, governments agreed to communicate their respective contributions towards the universal agreement well in advance of the meeting in Paris in 2015. Further, the required monitoring, reporting and verification arrangements for domestic action have been finalized for implementation, thereby providing a solid foundation for the 2015 agreement.

Importantly, further progress was also made in helping countries, especially the poorest, adapt to the impacts of climate change and build their own sustainable, clean energy futures.

In a breakthrough outcome, the rulebook for reducing emissions from deforestation and forest degradation was agreed, together with measures to bolster forest preservation and a results-based payment system to promote forest protection.

The Green Climate Fund, planned to be a major channel of financing for developing world action, will be ready for capitalization in the second half of 2014.

Additionally, governments agreed on a mechanism to address loss and damage caused by long-term climate change impacts.

The most recent climate science shows that human-generated climate change is beyond doubt, but we have a limited time to keep warming to a maximum of under two degrees. However, global greenhouse gas emissions need to peak this decade, and get to zero net emissions by the second half of this century. To achieve this, it is critical that action is taken and coordinated swiftly at all levels: international, domestic, business and finance.

For this reason, COP19 in Warsaw also provided a showcase for climate action by business, cities, regions and civil society. The solutions to climate change are already clear and the world has the money and technology, the knowledge and models to succeed. The results of effective climate action are also clear: immediate, shared benefits to all economies and citizens and a sustainable future for all.

Below is an overview of key outcomes that governments agreed in Warsaw:

Decisions towards a universal agreement in December 2015, which will enter into force in 2020

Governments advanced the timeline for the development of the 2015 agreement. They will elaborate the elements of the new climate agreement as of their first meeting in March 2014, table an initial draft text by December 2014, and submit the formal draft text by May 2015, all with a view to enabling the negotiations to successfully conclude in December 2015. Governments decided to either begin or to intensify domestic preparations for their nationally determined contributions towards the agreement so that they are ready well before December 2015 and ideally by the first quarter in 2015. This is an important part of the timeline of the negotiations. It was also decided that nationally determined contributions would be put forward in a clear and transparent manner. Developed country governments were urged to provide support to developing countries for this important domestic process. Governments agreed to identify the precise information that countries will provide when putting forward their nationally determined contributions by the beginning of the UN Climate Change Conference in Lima at the end of 2014.

Closing the pre-2020 ambition gap

Governments resolved to strengthen measures to close the "ambition gap" – the gap between what has been pledged to date and what is required to keep the world below a maximum average 2 degrees Celsius temperature rise - before the new agreement enters into force in 2020. They will intensify the technical examination of opportunities that hold a high potential to curb greenhouse gas emissions and will frequently engage Ministers on the issue. To this end, governments will also accelerate the implementation of policies and environmentally sound technologies. Additionally, they urge the voluntary cancellation of Certified Emission Reductions (CERs) under the Kyoto Protocol's Clean Development Mechanism.

The urgency to support peoples affected by climate change impacts

Governments established the Warsaw International Mechanism for Loss and Damage. The mechanism will address losses and damages associated with long-term climate change impacts in developing countries that are especially vulnerable to such impacts. The interim implementation of the mechanism will be guided by an executive committee, which will report to the COP, and be reviewed in 2016. The mechanism will facilitate the exchange of information and best practices for dealing with climate change-induced losses and damages, as well as strengthen action and support, including by facilitating the mobilization of finance. The first meeting of the executive committee will be held in March 2014.

Strengthening efforts to mobilize USD 100 billion by 2020

In view of developed countries' commitment to mobilize USD 100 billion annually by 2020 to support developing countries in their climate change actions, developed countries agreed to make their efforts in this regard publicly known on a biennial basis from 2014 to 2020. Technical workshops on best ways of scaling up finance will also be held. It was also decided to convene Ministerial meetings on long-term finance every two years for the period 2014-2020. These meetings should provide political impetus to the discussions. Additionally, the Green Climate Fund is open for business and will begin its initial resource mobilization process in the middle of 2014. These sets of decisions represent important progress towards successfully concluding a universal deal in 2015 that responds to science and protects the most vulnerable. In addition, governments concluded work which pushes forward ongoing efforts to address climate change.

Cutting emissions from deforestation – "the Warsaw Framework for REDD+"

Governments agreed on a set of decisions on ways to reduce emissions from deforestation and forest degradation. The decisions are the culmination of 7 years of work, and their agreement comes as a clear breakthrough for action on climate change. Global deforestation accounts for some 20 percent of the world's CO2 emissions. The set of decisions bolsters forest preservation and sustainable use of forests with direct benefits for people who live in and around forests. The package provides a foundation for the transparency and integrity of actions and clarifies the coordination of support. It establishes the means for results-based payments if developing countries can demonstrate the protection of forests. For this purpose, the package is backed by initial pledges of USD 280 million.

Progress on driving adaptation

All 48 Least Developed Countries under the UNFCCC umbrella finalized a comprehensive set of plans to deal with climate change impacts. These plans serve to better assess the immediate impacts of climate change and enable countries to determine the support and actions they require to become more resilient. Developed countries met the target capitalization of USD 100 million for the Adaptation Fund, which can now continue funding priority projects.

Progress towards accountability

The framework for measuring, reporting and verifying mitigation efforts, including by developing countries, is now fully operational. A big achievement after many years of hard work, this agreement by governments is important because it means that the mitigation, sustainability and support efforts of countries can now be better measured. This will also provide confidence to donors and investors who are potentially interested in financing nationally appropriate mitigation actions.

Technology to boost action on climate change

The Climate Technology Centre and Network (CTCN), tasked with stimulating technology cooperation and transfer to developing countries, is now open for business. The Advisory Board of the CTCN agreed on the rules for the CTCN. This means that the CTCN, established in Cancun in 2010, has now moved to the operational stage to support action by developing countries in response to their requests for support through their national designated entities. The CTCN is ready to respond to requests from developing countries on issues related to the development and transfer of technology.

THE COLLAGE OF THE WORLD ENVIRONMENT DAY-2015

THE COLLAGE OF THE WORLD ENVIRONMENT DAY-2015

The UN Environment Programme says -

“By 2050, if current consumption and production patterns remain the same and with a rising population expected to reach 9.6 billion, we will need three planets to sustain our way of life. Living well within planetary boundaries is the most promising strategy for ensuring a healthy future.”This is the key message for the World Environment Day-2015.

World Environment Day (also called as WED) has been started celebrating as an annual event on every 5^th of June since 1973 in order to raise the global awareness about the importance of the healthy and green environment in the human lives, to solve the environmental issues by implementing some positive environmental actions as well as to make aware common public worldwide that everyone is responsible for saving his environment and not only somebody, government or organizations working for it.
World environment day was first established to be celebrated every year by running some effective campaigns by the United Nations General Assembly and United Nations Environment Programme (UNEP) in the conference on Human Environment began from 5^th to 16^th of June at United Nations in 1972. It was first time celebrated in 1973 with the particular theme “Only one Earth”. Since 1974, the celebration campaign of the world environment day is hosted in different cities of the world.

Some of the objectives of the world environment day campaign are mentioned below:

• It is celebrated to make aware the common public about the environmental issues.
• Encourage common people from different society and communities to actively participate in the celebration as well as become an active agent in developing environmental safety measures.
• Let them know that community people are very essential to inhibit negative changes towards the environmental issues.
• Encourage people to make their nearby surroundings safe and clean to enjoy safer, cleaner and more prosperous future.

·         "Earth Anthem" by poet-diplomat Abhay K was launched in June 2013 on the occasion of the World Environment Day by Kapil Sibal and Shashi Tharoor, Union Ministers of India at a function organized by the Indian Council of Cultural Relations in New Delhi.

World Environment Day Anthem is as follows:

Our cosmic oasis, cosmic blue pearl

the most beautiful planet in the universe

all the continents and the oceans of the world

united we stand as flora and fauna

united we stand as species of one earth

black, brown, white, different colours

we are humans, the earth is our home.

Our cosmic oasis, cosmic blue pearl

the most beautiful planet in the universe

all the people and the nations of the world

all for one and one for all

united we unfurl the blue marble flag

black, brown, white, different colours

we are humans, the earth is our home.

The theme of the year 2015 would be “One World, One Environment”.It needs lots of environmental policies , climate change negotiations, institutional cooperation, and a good climate finance for the world as whole. 

Italy will serve as the host of WED 2015 and the global WED celebrations will be organized at the Milan Expo. Celebrations at the Milan Expo will complement the Expo's theme, ‘Feeding the Planet—Energy for Life,'The WED 2015 programme at the Milan Expo will also involve activities with partners such as the Food and Agriculture Organization of the UN (FAO), the International Fund for Agricultural Development (IFAD), the UN Educational, Scientific and Cultural Organization's (UNESCO) World Water Assessment Programme (WWAP), Slow Food, WWF Italy and the Green Film Network.In Milan, Theme : Sustainable Consumption and Production" and Slogan: Seven Billion dreams. One Planet. Consume with Care in 2015.

Top ten quotes to mark World Environment Day 2015.

• "Earth provides enough to satisfy every man's needs, but not every man's greed." – Mahatma Gandhi
• "The environment is everything that isn't me." – Albert Einstein
• "The earth is like a beautiful bride who needs no manmade jewels to heighten her loveliness." - Khalil Gibran
• "God has cared for these trees, saved them from drought, disease, avalanches, and a thousand tempests and floods. But he cannot save them from fools." – John Muir
• "Harmony with land is like harmony with a friend; you cannot cherish his right hand and chop off his left." – Aldo Leopold
• "I can find God in nature, in animals, in birds and the environment." – Pat Buckley
• "We must return to nature and nature's god." – Luther Burbank
• "If we do not permit the earth to produce beauty and joy, it will in the end not produce food, either." – Joseph Wood Krutch
• "Birds are indicators of the environment. If they are in trouble, we know we'll soon be in trouble." – Roger Tory Peterson
• "We won't have a society if we destroy the environment." – Margaret Mead

We should remember that the  Top 10 polluted city are given below following the measurement of WHO.

The WHO examined the concentration of fine particles suspended in the atmosphere. It advises that fine particles of less than 2.5 micrometres in diameter (PM2.5) should not exceed 10 micrograms per cubic metre.

Delhi, India (annual mean PM2.5, ug/m3: 153)

Patna, India (annual mean PM2.5, ug/m3: 149)

Gwalior, India (annual mean PM2.5, ug/m3: 144)

Raipur, India (annual mean PM2.5, ug/m3: 134)

Karachi, Pakistan (annual mean PM2.5, ug/m3: 117)

Peshawar, Pakistan (annual mean PM2.5, ug/m3: 111)

Rawalpindi, Pakistan (annual mean PM2.5, ug/m3: 107)

Khorramabad, Iran (annual mean PM2.5, ug/m3: 102)

Ahmedabad, India (annual mean PM2.5, ug/m3: 100)

Lucknow, India (annual mean PM2.5, ug/m3: 96)

Prime Minister Narendra Modi will inaugurate a tree plantation campaign by planting a sapling at his official residence 7, Race Course Road on World Environment Day on Friday, officials said. Union Minister for Environment, Forests and Climate Change Prakash Javadekar said cricketer Virat Kohli and wrestler Sushil Kumar will take part in a function to plant saplings at Paryavaran Bhavan.