I am exploring non-linear impact of energy consumption on trade openness, employing ARDL . The findings of the study shows that linear term is negative and insignificant whereas non-linear term is positive and significant. What does it mean? Does there is non-linear relationship between the two? How should I explain this?
Can anyone help me with this
I know nothing about trade openness (TO). But if the relationship you look at is EC = a + b TO +c TO² where EC is energy consumption, your results show that b is close to zero (i.e. not significant) and that the relationship is purely parabolic. This means that the energy use of a country grows faster than its trade openness.
At the contrary, if you look at TO = a + b EC + c EC², this means that the trade openness of a coutry grows faster than its energy consumption.
If the linear term is insignificant but the non-linear term is significant in a model, it suggests that the relationship between the variables is not well-captured by a simple linear model. This implies that incorporating non-linear terms, such as quadratic or interaction terms, provides a better fit for the data and more accurately represents the underlying relationship.
When the linear term is insignificant and the non-linear term is significant, it implies that a non-linear model more accurately represents the relationship between the variables. This means the impact of the predictor on the outcome does not remain constant and could change in a more intricate way.
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