Journal of Basic and Applied Scientific Research … Vol. 8...Journal of Basic and Applied...

Volume 8, Issue 4, April 2018

Journal of Basic and Applied Scientific

Research (JBASR)

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ISSN: 2090-4304 (Print)

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J. Basic Appl. Sci. Res., Vol.8 No. 4: pp. 1-22, Year 2018

Journal of Basic and Applied Scientific Research (JBASR)

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Number of issues per year: 12 ISSN: 2090-4304 (Print) ISSN: 2090-424x (Online) Journal of Basic and Applied Scientific Research (JBASR) is a peer reviewed, open access international scientific journal dedicated for rapid publication of high quality original research articles as well as review articles in the all areas of basic and applied sciences.

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Table of Contents, April 2018

Ehsan ul Hassan, Dr. Zaemah bt. Zainuddin, Dr. Sabariah bt. Nordin

The Development of Financial Soundness Index for Non-Financial Sector in Pakistan

J. Basic Appl. Sci. Res. 2018 8(4): 1-10. [Abstract] [Full-Text PDF] [Full-Text XML]

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M. Fazal-ur-Rehman

Novel Applications of Nanomaterials and Nanotechnology in Medical Sciences-A Review

J. Basic Appl. Sci. Res. 2018 8(4): 11-22. [Abstract] [Full-Text PDF] [Full-Text XML]

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J. Basic. Appl. Sci. Res., 8(4)1-10, 2018

© 2018, TextRoad Publication

ISSN 2090-4304

Journal of Basic and Applied

Scientific Research www.textroad.com

Corresponding Author: Ehsan ul Hassan, School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia, 06010 UUM Sintok, Kedah, Malaysia; Email: [email protected]; Tel: +60 11 14282346

The Development of Financial Soundness Index for

Non-Financial Sector in Pakistan

Ehsan ul Hassan*, Dr. Zaemah bt. Zainuddin, Dr. Sabariah bt. Nordin

School of Economics, Finance and Banking, Universiti Utara Malaysia, Malaysia

Received: December 22, 2017

Accepted: February 25, 2018

ABSTRACT

Pakistan is facing business failures for both large and small companies. A large number of bankruptcies have occurred in the last decade. Generally, financial soundness of the companies is determined with the comparison of

latest and historical figures of individual financial ratios, especially with the ratios of high distress periods. Present

study intends to develop a composite financial soundness index (FSI) for non-financial sector of Pakistan. The index will be developed for the non-financial sector as a whole and for individual sector too. The proposed methodology

for the study is Variance-equal weighting method. The study also provides significant financial indicators with their ratios for the prediction of bankruptcy. The study is a beginning to develop financial soundness index for Pakistan.

The index is a continuous measure that is capable of generating more information in the assessment of financial soundness of company.

KEYWORDS: Financial Soundness Index, Financial Distress, KSE, Variance-Equal Weighting Method, Financial

Stability, Corporate Financial Failure

1. INTRODUCTION

Bankruptcy has been seen as one of the increasing threats to an organization in today’s fast pace business environment. It happens when an organization fails to meet its liability and as a result, it may have to liquidate its

assets to meet its debt obligation which is considered to be an adverse effect on the organization.

Financial distress is described as when a company does not have an ability to fulfil its financial obligations and often leads to bankruptcy in the long term. The existence of financial distress can be observed from many

indicators such as consistent financial losses in consecutive years, drying cash flows, and other declines in revenues of the firm [53; 38].

Past researches have shown that many researchers focus more on the objective measures to understand bankruptcy risk (27; ;17; 31; 4]. In this regard, the Altman-Z score has been the center of attention as the measuring

tool for bankruptcy. The Altman-Z score is a combination of several measures of performance and the risk to predict

the score that signals bankruptcy risk. It has been witnessed that performances are the key ingredients that must be

taken into account as a tool that measures bankruptcy. However, the performance can only be examined in accounting terms with respect to bankruptcy that has pure accounting related measures. The persistence and

systematic nature of financial distress leads to negative effects on the economy. [24] stated that corporate sector is

always sensitive towards economic condition of any country. This sensitivity can easily spread and increase financial shocks in the economy. In addition, these financial shocks increase stress level and weakens the country’s

macroeconomic resilience. Therefore, continuous occurrence of financial distress can increase the level of

macroeconomic risks in a country.

Stages of Financial Distress

In financial distress, there are various stages in which an organization would fall into before leading to

corporate failure. Each stage has different identical attributes and properties which consequently lead to the

corporate failure. The transition within the stages depends on the volatile nature of financial conditions of the firm which affects the intensity of distress. On the other hand, good company’s performance has been seen as a strong

remedial factor which promotes financial stability that can help a company to survive from bankruptcy. However,

the varying time frame of distress requires instantaneous recovery solution which would otherwise results in liquidation.

1

Ehsan ul Hassan et al., 2018

In this regard, it is very important to study the changes and behaviors of company finances over the time

with certain measures. Furthermore, the complicated process of financial distress, can be understand through three main process which are; financial behavior over the time window, the overall impacts of various financial states and

the features performance of the firm at different distress stages or states. Below is the diagram that illustrates the

process of corporate failure.

Figure 1: Process of corporate financial failure Source: Authors

Figure 1 shows a multidimensional process of corporate failure consisting of, financial states and three

stages of process as explained earlier. In the beginning of the time frame of this process, there is a mild decline in

the company’s performance and it will go down to the deepest point and then subsequent recovery from this crucial time period, which is also known as a financial distress cycle. Furthermore, it is difficult to analyze the average time

frame of the failure process and the onset of the distress behavior due to difficulty to identify their sign and

symptoms at their initial level.

The process of corporate failure contains different stages. The first stage is early impairment when the

company may suffer with distress due to liquidation of its resources. However, the liquidation of resources does not

seem to have adverse effects on organization’s solvency situation. Commonly, in early stages of financial distress, it is very complicated to identify the existence of negative process due to solvency. However, the decline in liquidity leads to the next stage of financial distress.

The second stage occurs when severity in financial distress leads the company to liquidate its assets which adversely reduces the company’s value at an alarming level [52]. Hence, this situation may cause financial

instability in the company. Nevertheless, the financial distress does not always lead to default.

During the third stage, it will reveal continuous decline in the company’s performance which push the

company into financial distress. At this stage, company is facing operational dangers of profitability and liquidity.

Now the company may become bankrupt and starts struggling for its survival. The company may regain its healthy

position after restructuring its capital structure and other related activities, which is not an easy task. Furthermore, it is very difficult to estimate the length of financial distressed period due to unidentified starting point of distress.

Per

form

ance

at

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nt

stag

es

Early

Impairment Deterioration

of Performance

Failure

Insolvency

Default

“Struggle for Revival”

Bankruptcy

Recovery

Tro

ub

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ebt R

estructu

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2


Scherrer [56] highlights the snapshot behavior of financial distress as “There are distinct phases of decline,

and the danger signals vary with the stages. Sometimes not all of the symptoms appear; there is sufficient cause to worry if some occur”. It is matter of fact the bankruptcy occurs in both developed and developing nations across the

world. However, the occurrence rate is high in developing nations [22].

Indicators of Financial Distress Previous researches point out various factors which caused higher bankruptcy rate such as different

accounting practices, difference in capital structure, social and political situation in nations and adverse economic

situation [9; 28; 46]. The absence of economic theory about the companies’ solvency indicates major problem in the

financial failure models [43]. Hence, there is no consensus in the current empirical evidence on the exclusive variables that reflect the true image of understanding bankruptcy. Usually, ratios are used in empirical studies to forecast

bankruptcy within the application of any econometric model. Often, the ratio groups share the same numeric value of

numerator or denominator. These cause multicollinearity issues in the estimations. The multicollinearity generates biasness in estimated coefficients of the econometric models. The adverse effects continue as there is no systemic

procedure which has the capability to identify ratios that can solve the duplication problem.

Usually, statistical considerations are taken into account for the selection of different financial ratios. Consequently, number of sub models will be generated from these ratios. For instance the initial number of

financial ratios is K; and probable sub models are 2k. For K=40, the number of possible sub-models is

1099511627776. The computation of each model is excessively costly. For resolving this tricky issue, many heuristics methods have been used to smaller number of subsets of regress by corporate persons. For example, they

use stepwise procedure such as backward elimination and forward selection which includes and excludes variables

based on the t-statistic consideration [20]. The problem with the stepwise model is it may over identify the models.

According to Lovell (1983), the model produces significant variables falsely at high rate. Researchers like [55; 29; 50; 2] propose other procedures for improving the criterion for selection of regressors.

[24] states that a crumbled corporate sector can weaken the flexibility of any country’s overall

macroeconomics by transmitting or magnifying real or financial shocks which ultimately increases the macroeconomic risk of the country in the shape of high distress level for non-financial sector. The development of

early warning indicators which measure vulnerabilities of balance sheet and therefore risk is critical. The latter is

aimed at fulfilling the provision of answers which are related to the consequences of external shocks on the performance of the company and also to find out the response of economic authorities to these shocks.

According to [39] in previous studies mostly the analysis and interpretation of financial ratios is done to

provide judgments about whether country’s non-financial companies are financially sound or not. Mostly studies focus on the aspects related to profitability, leverage, liquidity, operating performance, and others in relation to

aggregate indicators. These financial attributes of companies were considered as main antecedents of default and

fragility for non- financial companies.

Other than highlighting the positive aspects of evaluation of the overall financial soundness of non financial sector (for example, to have a look on financial attributes of the company), this study also have few limitations.

Firstly, there is an absence of an overall measure to find out credit worthiness or one that helps to identify the risks of balance sheet. Central Bank determines the aspects of non-financial companies by separately investigating a

specific group of financial ratios. At present the ratios used are return on assets, non-operating expense to the

earnings before interests and taxes (EBIT), debt-asset ratio and current ratio as proxies of profitability, financial

burden, indebtedness and liquidity respectively. This indicate that for a specific time frame, the general conclusion about the financial soundness of the companies is determined by comparing the current individual accounting ratios

with the past ratios, particularly with the ratios of high distress periods.

As a developing country, Pakistan is facing business failures for both large and small companies. A large

number of bankruptcies has occurred in the last decade. [57] reports that the stock exchanges are experiencing more delisting than listing of companies. From 2012 to 2016, 103 companies from the total of 578 companies has been

delisted from the KSE under Liquidation / Winding up under court [37]. The Pakistan’s economy was affected badly. Therefore, it is necessary to investigate the ratios which are beneficial for the prediction of instability of

companies.

3


This study indicates that a single financial indicator does not provide a complete measure of a company’s

financial health. An aggregate financial aspect should be analysed as a whole to evaluate the company’s financial soundness. The composite analysis has been seen as polished approach to assess the company’s financial position of

a company.

In addition, this study is also aimed to provide an overview about the corporate sector’s financial health,

given the fact that the nature of financial ratios is not standardized according to the literature of accounting and

finance. It is also showed that ratios do not have any predefined threshold to be obtained. On the other hand, there is

no visible rule of thumb for the selection of financial ratios which are meant to truly measure the financial aspect of

the company. Hence, there is a clear gap in the creation of formal criterion regarding the methodology which companies’ management should follow while explaining the indicators of financial distress.

In this connection, this study intends to develop a composite financial soundness index (FSI) for non-financial sector of Pakistan. The index will be composed as a whole for the non-financial sector and also by sector.

The measurement of creditworthiness of companies and forthcoming uncertain events and periods of high financial

stress could be identified in early times. The indicator will be capable to offer a measurement of financial soundness

and creditworthiness throughout the time and advise for the expected period of distress.

Rather relying on a few main indicators, as it is estimated in recent research, the idea is to develop a

comprehensive index that captures the level of firm’s financial health. Furthermore, a compound indicator should deliver an overall image of the industry’s financial distress level and resolve the issue of examining individual and

distinct indicators. The latter is for the purpose of attaining various inferences about firms' balance sheet

performance and implications to the country's financial stability.

2. LITERATURE REVIEW

As the prediction of company’s bankruptcy is important for a company’s stakeholders and the company

itself, numerous research studies have suggested different model to predict the financial failure [38; 40; 19; 6; 8; 1]. The financial bankruptcy is influenced by internal and external factors of the company and its probability is

increasing day by day because of market competitiveness. The market follows the business process and eliminates

firms which are unfit for that process [33].

[21] suggest that if there is more than one indicator presents to measure one variable, then the most suitable

way is to form a composite metric which considers the effect of an individual metric. [14] and some other

researchers have formed aggregate financial indices based on market data, but [44] have formed indices for financial stability of a company based on information available on financial statements of companies. [44] have studied the

Columbian banking sector from January 1995 to November 2008 on monthly frequency. They have developed an

index based on firms’ profitability, liquidity and probability of financial failure to evaluate the continuous distress of banks. They used equally weighted variance method and principle component method with count data by employing

regression method.

Instead, [14] form a qualitative and quantitative index based on business failure rate, ex post real interest rate, banks’ loan charges and interest rate for time series to measure financial condition from 1934 to 1997.

Similarly, [15] follow the same methodology to build an index measurement of stress for seventeen developed

economies and Swiss banks for thirty years. One hundred and thirteen episodes were identified by this scale for

measurement of financial distress among banks.

Additionally, [32] form a financial stress index for financial system of Canada using the data for the years

1997 to 2006. The purpose of this index is to categorize the firms on the basis of episodes of financial stress of 1997 to 2006, then aggregate them according to financial stress variable. Besides, it is acknowledged that the ‘credit

aggregate weighting technique’ has the lowest errors (Type I & Type II) among all other methodologies of forming an index, and it offers expressive and cost effective weight for financial stress composition. Additionally, the index

was formed by assigning weights to the variables on the basis of their market and size and then taking the weighted average of those variables. The firm having a larger share in the market was assigned more weight. Additionally, by

using geometric and arithmetic means, the factor analysis and variance equal weight method were also tested in their

study.

4


[10] study UK firms and advise the measure of financial fragility by using economic welfare (GDP) of

general equilibrium model. The fragility is the amalgamation of low profitability and high default risk of banks, addressing the influence of policies (monetary and regulatory policies) and capital shocks in financial and real

sectors. By using the Vector Autoregressive Model, they examined whether the welfare loss is caused by banks’

distress. They concluded that the revenue of banks is significantly affected by its equity and the probability of banks’ default.

[51] highlights a number of indices by using different methods in USA. Estimation from count data and

signalling approach are two famous methods for composition of indices. Their results of indices developed by using

principal factor analysis and variance equal method are different. Even though their results on evaluating the level of financial stress are different, the shape and cycle of financial stress indices are the same for the two methods.

Normally, the credit risk and profitability ratios are used to form the indices, but [51] has also incorporated

macroeconomic variables in the regression method.

[18] analyze the factors of financial crisis of emerging systematic banking from 1980 to 1994 in developed

and developing economies. They show that crisis can arise in a weak macroeconomic environment especially when

inflation is high and growth is low. Furthermore, the relationship between system vulnerability and financial liberalization is further analyzed and they conclude that the probability of financial failure increases with financial

liberalization, and decreases with the improved macroeconomic environment. Hence, it is important to have a strong

macroeconomic environment.

[45] analyzed the microeconomic and macroeconomic factors of banks’ failures. They propose a model of

bank failures based on liquidity risk, market risk and credit risk, and a logit model is used to estimate the bank

failure by using a panel data. The researcher found that banks which are more prone to distress are those who have less equity and riskier loans. Similarly, [18] use the same methodology to develop a qualitative measure of banks’

weaknesses during the banking crisis. Results show that in the context of multivariate logit model, early warning

system will give a signal if the probability crosses certain threshold level of being in crisis.

[13] review recent research studies to assess leading indicators models. This study came up with two

approaches to analyze the financial distress and crisis. The first approach includes models that estimate the impact of

microeconomic factors (firm specific characteristics) on financial distress. The second approach uses macroeconomic factors as important explanatory variables of banking crisis. The study recognized two methods to

develop financial stress indices; one is quantitative response models and the other is signaling method. The former

used regression method to estimate the relationship of potential factors and gave an outcome that is financial crisis

of a banking failure. The latter did comparison between the information of calm and crisis time periods keeping in view the Type I and Type II errors.

In some countries, the indices of financial stress have been used recently to assess the excellence or quality of financial system. [32], [26], [36] and [51] have formed indices for Switzerland, Canada and US. For the Swiss

case, [26] form an index to evaluate the existing scenario of Swiss banks. They use macroeconomic information to increase estimate exercises for index, and results show that imbalances of macroeconomics impacts on the

performance of banking sector in medium-run. This ultimately increases the probability of default.

In Canada, the ordinal measure was developed to measure the level of financial stress [32]. Several

methods are used to develop an index such as a GARCH model, an econometric benchmarking, and a factor

analysis. A survey of Canadian bank is used to choose the variables. Generally, the profitability ratios and credit risk ratios are being used to forecast the indices but [51] have also incorporated the macroeconomic variables in the

study. [51] conducted a study in US and formed a number of indices through different methods. The study showed

different results based on principal factor method and variance equal method. The point of contrast is the level of financial stress but shape and cycle of financial stress is same with these methods.

Even though there are various methods that were used to assess the financial distress, the logit model was

one of the mostly used methods as compared to the others [47]. The other models of estimation of financial failure are given by different axioms and their computational complexities due to their different assumptions. Among them

include Parametric: Expert systems [42], Artificial Neural Networks [58], Hybrid Classifiers for combining previous

procedures [48] and mixed LOGIT models [35].

5


Several other classification methods have been applied in order to predict bankruptcy. These methods

include Support Vector Machines (SVMs), Decision Trees (DTs), k-Nearest Neighbor (kNN), Neural Networks (NNs), Genetic Algorithms (GAs) etcetera. Research studies compare and contrast the accuracies of these methods

in predicting bankruptcy and frequently focus to develop more elaborated methods which can help in bankruptcy

prediction. A current trend is to build composite classifiers i.e. classifier ensembles and hybrid classifiers. The main idea of ensemble methods is to unite different classifiers, each of which solves the same task, in order to obtain a more accurate model [54].

3. RESEARCH METHODOLOGY

The data used for the analysis is gathered from the financial statements of non-financial companies which

are listed on the Karachi Stock Exchange (KSE) of Pakistan. Extensive ratio analysis, which is categorized into five

indicators, will be applied. Those indicators will be profitability, liquidity, leverage, assets efficiency and size-and-growth. These indicators are important because they are effective tools in the measurement of financial soundness of

a company. Each indicator will be further categorizes into its own group of ratios which will directly evaluate the

significance of the respective indicator. Table 1 shows the ratios used in the literature with their sources for five financial indicators of assets efficiency, leverage, profitability, liquidity and size-and-growth respectively.

Table 1: Ratios for each category of financial indicator Label Ratio Indicator Source

X1 � NetProfitFixedAssets�

Assets efficiency Geng, Bose and Chen (2015)

X2 � NetProfitTotalAssets�

Assets efficiency Chava and Purnananandan (2010)

X3 � SalesTotalAssets�

Assets efficiency Bandyopadhyay (2006)

X4 �LongtermDebtTotalAssets � Leverage Agarwal and Bauer (2014)

X5 � TotalDebtShareholder�sEquity�

Leverage Altman (2014)

X6 �Shareholder�sEquity

LongtermDebt � Leverage Altman (2014)

X7 �EarningBeforeInterest&%&'()CurrentLiabilities � Profitability Rashid and Abbas (2011)

X8 �EarningBeforeInterest&%&'()Sales � Profitability Turetsky and McEwen (2001)

X9 �NetProfitSales � Profitability Rashid and Abbas (2011)

X10 �EarningBeforeInterest&%&'()TotalAssets � Profitability Altman (2014)

X11 �RetainedEarningsTotalAssets � Profitability Hu and Sathye (2015)

X12 �EarningBeforeInterest&%&'()TotalLiabilities � Profitability Trujillo-Ponce, Samaniego-Medina

and Cardone-Riportella (2013)

X13 �CurrentAssets , InventoryCurrentLiabilities � Liquidity Allayannis, Brown and Klapper

(2003)

X14 � CurrentAssetsCurrentLiabilities�

Liquidity Yap et al. (2010)

X15 �CurrentAssetsTotalAssets � Liquidity Urgurlu and Aksoy (2006)

X16 �CurrentLiabilitiesTotalAssets � Liquidity Geng, Bose and Chen (2015)

X17 log-.TotalAssets/01 Size Altman (2014)

X18 log-.TotalSales/01 Size Opler and Titman (1994)

X19 .Salest-Salest-1//Salest-1 Growth Chava and Purnananandan (2010)

X20 .NetProfitt-NetProfitt-1//NetProfitt-1 Growth Nam, Kim, Park and Lee (2008)

X21 .TotalAssetst-TotalAssetst-1//TotalAssetst-1 Growth Jo, Han and Lee (1997)

Using the ratios highlighted in Table 1, this study will adopt a variance-equal weighting method to generate the

index of financial soundness for the non-financial firms listed on the KSE.

6


The most common weighting method; Variance-equal weighting method will be used in the analysis. This

method generates an index which gives equal importance to each of the variable. An assumption for this method is important that variables are to be normally distributed and before dividing the mean by standard deviation it is

subtracted from every variable. Hence it is termed as “Variance equal weights”.

Prior literature related financial distress indicators are mostly assessed on the basis of their errors “Type I”

and “Type II”. Type I error indicates the probability of failure of distress prediction. Type II error is the chance of

incorrect indication a financial distress. The company’s management will cope with these issues to minimize them

as per their elastic limit of loss function. It is proposed that using of similar kind of probabilistic evaluation criteria

will be helpful where the results of current study are believed to indicate real events of occurrence of financial distress. The criterion for the indication of high stress event is if an index crosses the threshold of standard deviation

which is two. Notably, the ranking of the measures does not change significantly due to choice of threshold.

4. SIGNIFICANCE OF THE STUDY

A measurement which can timely evaluate the financial mechanism and that can provide the quality

indicator of the mechanism period by period; is a beneficial tool for financial regulators and policy makers as it can highlight the weaknesses of the mechanism. Moreover, such measures can help policy makers and financial

regulators to take on time and effective regulatory decisions to minimize the impact of the instability periods and

financial crises. Considering this fact, the calculated financial stability index can be used to measure the financial health of the non financial sector of Pakistan.

The index constructed for the study will weigh the most related accounting ratios that are suggested by past

literature. The behavior of the index is likely to be quite accurate, and has a good index model that considers the period of low level of financial distress. Essentially, the index will forecast the financial crisis of the country few

years prior to crises situation, during that the index shows sudden increase in the stress level. Another quality of the

index, it is so simple and understandable and also it shows a quantifiable and continuous measurement along with an

annual periodicity, which shows an exhaustive monitoring. One of the major contributions of this study is to provide measuring indicators for financial health at macro level that is at an aggregate level and by industry as well.

This paper would be a beginning point for developing early warning systems (EWS) with the help of a financial soundness index for Pakistan. Similarly, it is also expected that the index can be used as a base point for

measuring the stability of financial system for future period, considering the fact that the index is a continuous

measure that is capable of generating detailed information in the development of EWS than a binomial model where

we describe if we are in crisis or not.

5. CONCLUDING REMARKS

The FSI assists in providing an ordinal measure which helps to predict financial bankruptcy. It serves as an

initial effort to compute the financial stress level. At this point the variations in FSI are quite helpful in assessing the increase or decrease in the level of financial distress, and also for the estimation of time period for externalities.

The use of FSI is encouraged as a reference series for future research which can highlight the important

indicators regarding bankruptcy prediction and assessment of financial soundness of non financial sector of

Pakistan. Considering the fact that the FSI is a continuous-valued series, it is quite useful in establishing of a EWS.

It can be regressed on several lagged variables which contain major information about crises or distress and then its results could be used to establish measures of financial fragility that will specify the probability of an exogenous

extreme event affecting the degree of stress given perceived weaknesses in financial mechanism.

6. FUTURE RESEARCH

Researches in future study can also conduct some estimation of the FSI in order to get an insight regarding

the financial health in future. For this it is important to create two different models: first, to regress an autoregressive model ARIMA knowing that all the vial information in forecasting the future values is available in the indicator

history; second, to regress a multivariate model VECM in which macroeconomic variables are used as

recommended by most of the prior literature.

7


Further research could also be done using the FSI to describe variations in the real economic variables for example investment and GDP. As tremendously high level of financial distress damages the financial mechanism

and also play vital role in creating major losses for the economy. Low level of financial distress has lesser impact on

real economy: such as, they can result in asset-price instability and tight liquidity conditions, both of these factors could result in reducing the private investment and consumption and increasing the cost of capital.

Future study could also be done by extending the approaches developed in the study to construct FSIs for

different economies. It would be quite difficult to validate the results without performing professional financial

surveys in other countries. Such FSIs could also be helpful if studied as a weighted combination like one based on financial linkages or trade; which will help in studying the external environment and financial contagion

experienced by the non financial sector of Pakistan. This will ultimately serves as an important tool to analyze

domestic macroeconomic levels as well as financial stability of the country.

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© 2018, TextRoad Publication

ISSN 2090-4304

Journal of Basic and Applied

Scientific Research www.textroad.com

Corresponding Author: M. Fazal-ur-Rehman, Chemistry Department, University of Education, Lahore-Vehari Campus-VEHARI, Punjab, Pakistan. [email protected]

Novel Applications of Nanomaterials and Nanotechnology in Medical

Sciences-A Review

M. Fazal-ur-Rehman

Chemistry Department, University of Education, Lahore-Vehari Campus-VEHARI, Punjab, Pakistan

Received: December 9, 2017

Accepted: February 15, 2018

ABSTRACT

Nanotechnology is a Scientific Technology, to manufacture the tools, materials and devices at atomic and molecular levels, including the synthesis of very minute sized particles called nanomaterials or nanomaterials. Nanomaterials are the nano-crystalline particles which owing the grain size with very minute ranges of about 10-9m. Nanomaterials have noticeable fascinating and valuable characteristics which can be implied for most of sciences and technologies today. Due to very sharp unique, beneficial, chemical and mechanical properties of nanomaterials, these are being used for broad form of scientific programs like next era laptop electronic chips, Kinetic Power Penetrators etc. Innovations in nanotechnology promise to modernize the drug synthesis, drug supply, and therapeutic diagnostics. By learning how substances behave contrarily at the specific cellular or unit level, researchers are beginning to expose the massive medical prospective of nanoscale tools. Though much of this work is still in its early stages, scientists and researchers are creating novel tools and developing new methods for crucial research areas of drug synthesis, drug carriers, targeting technologies, toxicity reduction, and materials optimization. By additionally inquire about in nanotechnology, it can be valuable for each part of human life. Solution, regenerative drug, undifferentiated organism research and nutraceuticals are among the main parts that will be changed by nanotechnology developments. KEY WORDS: Nanotechnology; Nanomaterials; Nano-devices; nano-crystalline particles; nanoscale tools

1. INTRODUCTION

The products of the chemical industry are used to produce objects that vary enormously in their size from say the iron girders for bridge building to silicon chips in microprocessors[1]. However, techniques are now available which make it possible to manipulate materials on the atomic or molecular scale to produce objects which are no more than a few nanometres in diameter. A nanometre is 1×10-9metres (a billionth of a metre). This is more than a 1000 times smaller than a silicon chip. The processes used to make and manipulate such materials are known as nanotechnology and the materials or objects themselves are called nanomaterials[2]. Nanotechnology is the manufacturing of tools and nano-devices by controlling the matter at the atomic level[3]. It also said that Nanotechnology is a Scientific Technology, dominated by advances in Elementary Chemistry, Physics and medical Researches[4], where the occurrences on very small levels (atomic along with molecular levels) are implied to offer the materials or tools and structures that accomplish the tasks which are impossible to perform using the tools in their Typical Macroscopic System[5]. The Advancement in Technology and Instrumentation, along with its related scientific fields, such as Chemistry, Physics and medical fields, is making the research studies developed and aggressive on nanotechnology[6]. Nanotechnology deals with the study of particles in the size of range of 0.1-100 nm; conversely[7], it is besides essential that these particles must show diverse properties; magnetism, optical effects, chemical reactivity, electrical conductance, and physical strength[8]. Nanotechnology focuses on material at sizes in the nanometer scale length (0.1-100 nm), and thus can be applied for a wide range of uses and applications, and the formation of several types of nanomaterials and nano-devices[9].Materials or objects (Fig.2) that need to be measured in nanometers have always existed but the techniques for manipulating materials on this scale have only been developed during the last twenty years or so[10].

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Rehman, 2018

Fig.1: Applications of Nanomaterials

Nanomaterials are the nano-crystalline particles which owing the grain size with very minute ranges of about 10-9m. Nanomaterials have noticeable fascinating and valuable characteristics[11] which can be implied for most of sciences and technologies today. The small dimensions of nanomaterials also lead to the chance of them developing intimate mixtures with other materials with the assessment to improving the characteristics of the material[12]. In medical treatments, they can be tailored to provide opportunities to target some medications more precisely[13]. Due to very sharp unique, beneficial, chemical and mechanical properties of nanomaterials, these are being used for broad form of scientific programs (Fig.1) like next era laptop electronic chips[14], Kinetic Power Penetrators etc. These are being popularly used as excellent insulating stuff[15]. These are used extremely in High Definition TVs, Low Cost Flat-Panel Displays, Very Hard and Tough Cutting Tool, and High Power Magnets[16]. These are also used to eliminate the environmental pollution, to make the High Range weapons, Long-term satellites, medical appliances[17], Ductile, Machinable Ceramics, enormous Electrochromic display devices[18]. Innovations in nanotechnology promise to modernize the drug synthesis, drug supply, and therapeutic diagnostics. By learning how substances behave contrarily at the specific cellular or unit level, researchers are beginning to expose the massive medical prospective of nanoscale tools. Though much of this work is still in its early stages, scientists and researchers are creating novel tools and developing new methods for crucial research areas of drug synthesis, drug carriers, targeting technologies, toxicity reduction, and materials optimization[19-20].

12


Fig.2: A scale to show the relative dimensions of various objects

2. Medicinal use of Nano Materials

Nano medicine is a comparatively novel field of science and technology. By interrelating with biotic particles at nano scale, nanotechnology develops the scope of research and applications[21]. Collaborations of nano devices with biotic particles can be assumed mutually in the extracellular media and within the human bio-cells[22]. Process at nano scale permits utilization of physical characteristics, unlike from those perceived at micro scale such as the volume to surface ratio. Two practices of nano medicine that have previously been experienced in mice and are pending for human trials; practice of gold nano shells to aid the analyze and cure the cancer, and the practice of liposome as serum adjuvants and as automobiles for drug transportation. Also, drug detoxification is additional application for nano medicine which has been tested effectively in mice. Medical tools can make use of smaller devices are less intrusive and can probably be embedded inside of body, and their biological response times are much smaller. As compared to typical drug delivery, nano devices are faster and additional complex[23].

3. Nanotechnology in health and medicine Nanotechnology will have amassive impression in the healthcare and particular care industries, because of the enormously small extents of nanomaterials and their flexibility[24]. The chemical reaction kinetics, the location of influence, and duration of a therapy all are altered by particle size. Effective drug delivery is being verified already. Biological micro-electro-mechanical devices injected and fixed within patient’s body to deliver the drugs[25] or transport new cells to injured tissues In the field of biomedical imaging, the application of nanomaterials (Fig.3) as image enhancers is being advanced[26]and most developed. Even today various disease like cancer, Alzheimer’s disease, Parkinson’s disease, diabetes, multiple sclerosis and cardiovascular diseases, also different kinds of serious provocative or infective diseases, for example; HIV and AIDS[27], create a broad range of severe and complex disorders which are creating a most problematic situation for the humans. Nano medicine is an application of nanotechnology which works in the field of health and medicine. Nano-medicine makes use of nano materials, and nano electronic biosensors [28]. In the future, nano medicine will benefit molecular nanotechnology. The medical field of nano medicine application has many predictable welfares and is hypothetically appreciated for all human competitions[29]. With the help of nano medicine, early detection and prevention, improved diagnosis, proper treatment and follow-up of diseases are possible. Certain nano scale particles are used as tags and labels, biological can be performed quickly, the testing has become more sensitive and more flexible. Gene sequencing has become more efficient with the invention of nano devices like gold nanomaterials, these gold particles when tagged with short segments of DNA[30] can be used for detection of genetic sequence in a sample. With the help of nanotechnology, damaged tissue can be reproduced or repaired. These so called artificially stimulated cells are used in tissue engineering, which might revolutionize the transplantation of organs or artificial implants.

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Rehman, 2018

Advanced biosensors with novel features can be developed with the help of Carbon nano tubes[31]. These biosensors can be used for astrobiology and can throw light on study origins of life. This technology is also being used to develop sensors for cancer diagnostics. Though Carbon Nano Tube (CNT) is inert, it can be functionalized at the tip with a probe molecule[32]. Their study uses AFM as an experimental platform. i. Probe molecule to serve as signature of leukemia cells identified. ii. Current flow due to hybridization will be through CNT electrode to an IC chip. iii. Prototype biosensors catheter development. Nanotechnology has made excellent contribution in the field of stem cell research. For example, magnetic nanomaterials have been successfully used to isolate and group stem cells. Quantum dots have been used for molecular imaging and tracing of stem cells, for delivery of gene or drugs into stem cells, nano materials such as carbon nano tubes, fluorescent CNTs and fluorescent MNPs have been used. Unique nanostructures were designed for controllable regulation of proliferation and differentiation of stem cells is done by designed unique nano structures[34]. All these advances speed up the development of stem cells toward the application in regenerative medicine. The recent applications of nanotechnology in stem cell research promises to open new avenues in regenerative medicine. Nanotechnology can be a valuable tool to track and image stem cells, to drive their differentiation into specific cell lineage and ultimately to understand their biology. This will hopefully lead to stem cell-based therapeutics for the prevention, diagnosis and treatment of human diseases[35]. Nano devices can be used in stem cell research in tracking and imaging them. It has its applications for basic science as well as translational medicine. Stem cells can be modulated by mixing of nano carriers with biological molecules. Nano devices can be used for intracellular access and also for intelligent delivery and sensing of biomolecules[36]. These technologies have a great impact in stem cell microenvironment and tissue engineering studies and have a great potential for biomedical applications.

Fig.3: Nanotechnology applications in stem cell biology and medicine.

4. Drug Delivery

In nanotechnology nanomaterials are used for site specific drug delivery. In this technique the required drug dose is used and side-effects are lowered significantly as the active agent is deposited in the morbid region only. This highly selective approach can reduce costs and pain to the patients. Thus variety of nanomaterials such as dendrimers, and nano porous materials find application. Micelles obtained from block co-polymers, are used for drug encapsulation. They transport small drug molecules to the desired location. Similarly, nano electromechanical systems are utilized for the active release of drugs[37]. Iron nanomaterials or gold shells are finding important application in the cancer treatment.

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A focused on prescription diminishes the medication utilization and treatment costs, influencing the treatment of patients to savvy. Nano prescriptions utilized for medicate conveyance, are comprised of nano scale particles or atoms which can enhance sedate bioavailability. For expanding bioavailability both at particular places in the body and over some stretch of time, atomic focusing on is finished by nano built gadgets, for example, nano robots[38]. The atoms are focused on and conveying of medications is finished with cell accuracy. In vivo imaging is another range where Nano apparatuses and devises are being produced for in vivo imaging. Utilizing nano molecule pictures, for example, in ultrasound and MRI, nanomaterials are utilized as complexity. The nano built materials are being produced for successfully regarding sicknesses and illnesses, for example, growth[39]. With the headway of nanotechnology, self-gathered biocompatible nano gadgets can be made which will identify the harmful cells and consequently assess the sickness, will cure and get ready reports. The pharmacological and remedial properties of medications can be enhanced by legitimate outlining of medication conveyance frameworks, by utilization of lipid and polymer based nanomaterials. The quality of medication conveyance frameworks is their capacity to adjust the pharmacokinetics and bio distribution of the medication[40]. Nanomaterials are intended to stay away from the body's resistance systems can be utilized to enhance medicate conveyance. New, complex medication conveyance components are being produced, which can get tranquilizes through cell layers and into cell cytoplasm, subsequently expanding productivity. Activated reaction is one path for sedate particles to be utilized all the more proficiently[41]. Medications that are put in the body can enact just on accepting a specific flag. A medication with poor solvency will be supplanted by a medication conveyance framework, having enhanced dissolvability because of essence of both hydrophilic and hydrophobic situations. Tissue harm by medication can be forestalled with tranquilize conveyance, by managed sedate discharge. With medicate conveyance frameworks bigger freedom of medication from body can be decreased by changing the pharmacokinetics of the medication[42]. Potential nano medications will work by particular and surely knew components; one of the significant effects of nanotechnology and nanoscience will be in driving advancement of totally new medications with more valuable conduct and less reactions. Thus nanomaterials are promising tools for the advancement of drug delivery, as diagnostic sensors and bio imaging[43]. The bio-distribution of these nanomaterials is still imperfect due to the complex host's reactions to nano- and micro sized materials and the difficulty in targeting specific organs in the body. Efforts are made to optimize and better understand the potential and limitations of nano particulate systems. In the excretory framework, investigation of mice dendrimers is epitomized for tranquilize conveyance of emphatically charged gold nanomaterials, which were found to enter the kidneys while contrarily charged gold nanomaterials stayed in the critical organs like spleen and liver. The positive surface charge of the nanoparticle diminishes the rate of opsonization of nanomaterials in the liver, along these lines influencing the excretory pathway. Because of little size of 5 nm, nanomaterials can get put away in the fringe tissues, and in this manner can get gathered in the body after some time. In this way nanomaterials can be utilized effectively and productively to target and dispersion, additionally research should be possible on nano danger so its restorative uses can be expanded and moved forward. Silver nanomaterials provide powerful antiseptic properties and are used, for example, in baby food cartons to prevent cross-contamination[44] and in fabric dressings(Fig.4).

Fig.4: Silver Nanoparticle based antibacterial plaster

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5. The applications of nanomaterials in drug delivery

Nano technology based drug delivery is based upon three facts: i) efficient encapsulation of the drugs, ii) successful delivery of said drugs to the targeted region of the body, and iii) successful release of that drug there. Abraxane, is egg whites bound paclitaxel, a nano molecule utilized for treatment of bosom disease and non-little cell lung growth[45]. Nanomaterials are utilized to convey the medication with upgraded viability for treatment for head and neck tumor, in mice demonstrate contemplate, which was done at from Rice University and University of Texas MD Anderson Cancer Center[46]. The announced treatment utilizes Cremophor EL which permits the hydrophobic paclitaxel to be conveyed intravenously. At the point when the poisonous Cremophor is supplanted with carbon nanomaterials its reactions decreased and medicate focusing on was quite enhanced and needs a lower measurements of the lethal paclitaxel. Nano molecule fasten was utilized to convey the medication doxorubicin to bosom growth cells in a mice learn at Case Western Reserve University. The researchers arranged a 100 nm long nano molecule chain by artificially connecting three attractive, press oxide nano circles, to one doxorubicin stacked liposome[47]. After infiltration of the nano chains inside the tumor attractive nanomaterials were made to vibrate by producing, radiofrequency field which brought about the burst of the liposome, in this way scattering the medication in its free shape all through the tumor. Tumor development was ended more successfully by nanotechnology than the standard treatment with doxorubicin and is less hurtful to sound cells as less dosages of doxorubicin[48] were utilized. Polyethylene glycol (PEG) nanomaterials conveying payload of anti-microbials[49] at its center were utilized to target bacterial disease all the more exactly inside the body, as announced by researchers of MIT. The nano conveyance of particles, containing a sub-layer of pH touchy chains of the amino corrosive histidine, is utilized to annihilate microorganisms that have created protection from anti-microbials on account of the focused on high dosage and delayed arrival of the medication[50]. Nanotechnology can be productively used to treat different irresistible infections. ‘Mini cell’ nano particle are used in early phase clinical trial for drug delivery for treatment of patients with advanced and untreatable cancer. The mini cells are built from the membranes of mutant bacteria and were loaded with paclitaxel and coated with cetuximab, antibodies and used for treatment of a variety of cancers. The tumor cells engulf the mini cells. Once inside the tumor, the anti-cancer drug destroys the tumor cells. The larger size of minicells plays a better profile in side effects. The minicell drug delivery system uses lower dose of drug and has less side-effects can be used to treat a number of different cancers with different anti-cancer drugs. Nano sponges are important tools in drug delivery, due to their small size and porous nature they can bind poorly-soluble drugs within their matrix and improve their bioavailability. They can be made to carry drugs to specific sites, thus help to prevent drug and protein degradation and can prolong drug release in a controlled manner[51].

6. Pharmaceutical nanotechnology

Pharmaceutical nanotechnology is isolated in two fundamental sorts of nano apparatuses viz. nano materials and nano gadgets. These materials can be sub characterized into nano crystalline and nano organized materials. Nano structure comprises of nano particles, dendrimers, micelles, medicate conjugates, metallic nano particles[52] and so on.

7. Carbon nano tubes (fig)

These are little macromolecules that are one of a kind for their size (Fig.5), shape, and have exceptional physical properties. Nano tubes have some exceptional favorable circumstances[53] over other medication conveyance and symptomatic frameworks because of their one of a kind physical properties.

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Fig.5: Carbon Nano Tube

8. Liposomes Liposomes are composite structures made of phospholipids and may contain little measures of different particles. Despite the fact that liposomes can shift in measure from low micrometer range to many micrometers, unilamellar liposomes, as envisioned here, are normally in the lower estimate run with different focusing on ligands joined to their surface taking into consideration their surface-connection and aggregation in neurotic zones for treatment of malady. These have been widely investigated and most created nano bearers for novel and focused on tranquilize conveyance because of their little size, these are 50-200 nm in estimate[53]. At the point when dry phospholipids are hydrated, shut vesicles are shaped (Fig.6). Liposomes are biocompatible, adaptable and have great ensnarement proficiency. It discovers application as long circulatory and in aloof and dynamic conveyance of quality, protein and peptide.

Fig.6: Liposome

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9. Dendrimers Dendrimers (Fig.7) are hyper stretched, tree-like structures. It contains three distinct areas: center moiety, stretching units, and firmly pressed surface. It has globular structure and encases inward holes. Its size is under 10 nm. These are utilized for long circulatory, controlled conveyance of bioactive material, directed conveyance of bioactive particles to macrophages[55] and liver focused on conveyance.

Fig.7: Dendrimers in drug delivery

10. Metallic nano particles

Metallic nano particles have used in drug delivery, especially in treatment of cancer and also in biosensors. Amongst various metals, silver and gold nano particles are of prime importance for biomedical use.

11. Proteins and Peptide Delivery Protein and peptides are macromolecules and are called biopharmaceuticals. These have been identified for treatment of various diseases and disorders as they exert multiple biological actions in human body. Nano materials like nano particles and dendrimers are called as nano biopharmaceuticals, are used for targeted and/or controlled delivery.

12. Cancer Treatment

Nano shells of 120 nm distance across, covered with gold were utilized to execute disease tumors in mice by Prof. Jennifer at Rice University. These nano shells are focused to attach to carcinogenic cells by conjugating antibodies or peptides to the nano shell surface. Range of the tumor[56] is illuminated with an infrared laser, which warms the gold adequately and murders the disease cells. The applications of various nano systems in cancer therapy are summarized as: • Carbon nano tubes, 0.5–3 nm in diameter and 20–1000 nm length, are used for detection of DNA mutation and for detection of disease protein biomarker. • Dendrimers, less than 10 nm in size are useful for controlled release drug delivery, and as image contrast agents. • Nano crystals, of 2-9.5 nm size cause improved formulation for poorly-soluble drugs, labeling of breast cancer marker HeR2 surface of cancer cells. • Nano particles are of 10-1000 nm size and are used in MRI and ultrasound image contrast agents and for targeted drug delivery, as permeation enhancers and as reporters of apoptosis, angiogenesis. • Nano shells find application in tumor-specific imaging, deep tissue thermal ablation. • Nano wires are useful for disease protein biomarker detection, DNA mutation detection and for gene expression detection. • Quantum dots, 2-9.5 nm in size, can help in optical detection of genes and proteins in animal models and cell assays, tumor and lymph node visualization.

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13. Tuberculosis treatment

Tuberculosis (TB) is the savage irresistible infection. The long length of the treatment and the pill weight can hamper quiet way of life and result in the advancement of multi-drug resistant (MDR) strains. Tuberculosis in youngsters constitutes a noteworthy issue. There is business non accessibility of the principal line tranquilizes in pediatric shape. Novel anti-infection agents can be intended to conquer medicate protection, cut off the term of the treatment course and to lessen sedate associations with antiretroviral treatments[57]. A nanotechnology is a standout amongst the most encouraging methodologies for the advancement of more compelling and consistent drugs. The headways in nano based medication conveyance frameworks for exemplification and arrival of hostile to TB medications can prompt advancement of a more viable and reasonable TB pharmacotherapy.

14. Alzheimer's disease Around the world, more than 35 million individuals are influenced by Alzheimer's ailment (AD), which is the most widely recognized shape dementia. Nano innovation finds huge applications in neurology. These methodologies depend on the, early AD determination and treatment is made conceivable by planning and designing of a plenty of nanoparticle substances with high specificity for mind slim endothelial cells[58]. Nano particles (NPs) have high liking for the flowing amyloid-β (Aβ) structures and in this manner may initiate "sink impact" and enhance the AD condition. In vitro diagnostics for AD has progressed because of ultrasensitive NP-based bio-standardized tags and safe sensors, and in addition examining burrowing microscopy methods equipped for distinguishing Aβ1−40 and Aβ1−42.

15. Other Applications

Nano particles were found useful in delivering the myelin antigens, which induce immune tolerance in a mouse model with relapsing multiple sclerosis. In this technique, biodegradable polystyrene micro particles coated with the myelin sheath peptides will reset the mouse’s immune system and thus prevent the recurrence of disease and reduce the symptoms as the protective myelin sheath forms coating on the nerve fibers of the central nervous system. This method of treatment can potentially be used in treatment of various other autoimmune[59] diseases.

16. Conclusion

Nano materials have expanded surface region and nano scale impacts, subsequently utilized as a promising instrument for the headway of medication and quality conveyance, biomedical imaging and symptomatic biosensors. Nano materials have one of a kind physicochemical and natural properties when contrasted with their bigger partners. The properties of nano materials can incredibly impact their associations with bio particles and cells, because of their impossible to miss estimate, shape, concoction piece, surface structure, charge, dissolvability and agglomeration. For instance, nano particles can be utilized to create excellent pictures of tumor destinations; single walled carbon nanotubes, have been utilized as high-productivity conveyance transporters for biomolecules into cells. There is a brilliant future to nano innovation, by its converging with different advancements and the consequent rise of mind boggling and inventive half and half advances. Science based advancements are interlaced with nanotechnology. Nanotechnology is now used to control hereditary material, and nano materials are as of now being constructed utilizing organic segments. Advancements in nanotechnology guarantee to modernize the medication blend, sedate supply, and remedial diagnostics. By figuring out how substances carry on conversely at the particular cell or unit level, specialists are starting to uncover the gigantic medicinal forthcoming of nanoscale instruments. In spite of the fact that quite a bit of this work is still in its beginning times, researchers and analysts are making novel devices and growing new strategies for urgent research zones of medication combination, sedate bearers, focusing on advances, lethality diminishment, and materials streamlining. The capacity of nanotechnology to design matter at the littlest scale is upsetting territories, for example, data innovation intellectual science and biotechnology and is prompting new and interlinking these and different fields. By additionally inquire about in nanotechnology, it can be valuable for each part of human life. Solution, regenerative drug, undifferentiated organism research and nutraceuticals are among the main parts that will be changed by nanotechnology developments.

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are considered to be the final version of the manuscript. With the exception of typographical or minor clerical errors, no changes will

be made in the manuscript at the proof stage.

Check List

We recommend that you ask a colleague to read over your paper prior to submission to ensure it is of a high standard and conforms

to a high level of scientific writing.

Before submission of your manuscript, please check that:

• All references cited in the text are included in the reference section.

• All figures and tables are cited in the text.

• Figures are at least 300 d.p.i.

• The pages are numbered.

Journal of Basic and Applied Scientific

Research

Journal of Social Sciences and Humanity

Studies

Journal of Basic and Applied Chemistry

Journal of Basic Sciences and Applied

Research

Journal of Applied Environmental and

Biological Sciences

Journal of Computer Sciences and

Communication

Journal of Pharmaceutical and Biomedical

Sciences

Journal of Engineering and Higher

Technology

Journal of Agriculture and Food

Technology

Current Economics and Management

Research

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TEXTROAD Publishing Corporation

Copyright © 2018, TEXTROAD Publishing Corporation

Journal of Basic and Applied Scientific Research … Vol. 8...Journal of Basic and Applied...

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