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The Impact of Domestic Debt on Private Investment in The Gambia: An ARDL Approach

Year 2020, Volume: 5 Issue: 1, 111 - 127, 30.04.2020
https://doi.org/10.30784/epfad.682291

Abstract

This study aims to analyse the impact of domestic debt on private investment in the Gambia by developing an investment model based on the neoclassical investment function and considered an annual time series data set from 1980 to 2013. To examine the nexus between our dependent variable, private investment and the explanatory variables, we used an Autoregressive Distributed Lag (ARDL) model. Based on the bounds test result, a long run relationship exists between our variables. Furthermore, domestic debt was found to have a negative effect on private investment in the short run but not in the long run. On the other hand, the real interest rates had a crowding-out effect on private investment in the long run but a positive effect in the short run. This study will be a guide for policymakers on formulating fiscal and monetary policies to curb the level of domestic borrowing to optimal or sustainable levels. 

References

  • Abdullatif, A. E. M. A. (2006). Crowding-out and crowding-in effects of government bonds market on private sector investment (Japanese Case Study) (IDE Discussion Papers No.74). Retrieved from https://ir.ide.go.jp/?action=repository_action_common_download&item_id=38092&item_no=1&attribute_id=22&file_no=1
  • Acosta, P. and Loza, A. (2005). Short and long run determinants of private investment in Argentina. Journal of Applied Economics, 8(2), 389. https://doi.org/10.1080/15140326.2005.12040634
  • Adofu, I. and Abula, M. (2010). Domestic debt and the Nigerian economy. Current Research Journal of Economic Theory, 2(1), 22-26. Retrieved from https://maxwellsci.com/jp
  • Afonso, A. and Jalles, J. T. (2011). Linking investment and fiscal policies (Working Paper, WP 16/2011/DE/UECE). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1 928980
  • Akomolafe, K. J., Bosede, O., Emmanuel, O. and Mark, A. (2015). Public debt and private Investment in Nigeria. American Journal of Economics, 5(5), 501-507. https://doi.org/10.5923/j.economics.2015 0505.10
  • Asogwa, F. O. and Okeke, I. C. (2013). The Crowding-out effect of budget deficits on private investment in Nigeria. European Journal of Business and Management, 5(20), 161-165. Retrieved from www.iiste.org
  • Bal, D. P. and Rath, B. N. (2014). Public debt and economic growth in India: A reassessment. Economic Analysis and Policy, 44(3), 292-300. https://doi.org/10.1016/j.eap.2014.05.007
  • Bua, G., Pradelli, J. and Presbitero, A. F. (2014). Domestic public debt in low-income countries: Trends and structure (World Bank Policy Research Working Paper No. 6777). Retrieved from https://ssrn.com/abstract=2394975
  • Central Bank of the Gambia. (2007). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2011). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2015). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2016). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2011). Annual report 2011. Retrieved from https://www.cbg.gm/annual-reports
  • Coban, S. and Tugcu, T. C. (2015). Do budget deficits crowd-out or in private investment? A dynamic heterogeneous panel estimation. The Empirical Economics Letters, 14(4). Retrieved from http://www.eel.my100megs.com/
  • Emran, M. S. and Farazi, S. (2008). Government borrowing and private credit: Evidence from developing countries (World Bank Working Papers). Retrieved from http://siteresources.worldbank.org/
  • Erenburg, S. J. and Wohar, M. E. (1995). Public and private investment: Are there causal linkages? Journal of Macroeconomics, 17(1). 1-30. https://doi.org/10.1016/0164-0704(95)80001-8.
  • Forgha, N. G., Sama, M. C. and Aquilas, N. A. (2016). An econometric investigation in to financial intermediation, domestic investment and economic growth in Cameroon. Journal of Finance and Economics, 4(1), 1-9. doi: 10.12691/jfe-4-1-1
  • Kamundia, S. W. (2015). The effects of public debt on private investments and economic growth in Kenya (1980-2013) (Unpublished doctoral dissertation). Kenyatta University, Nairobi, Kenya.
  • King’wara, R. (2014). The impact of domestic public debt on private investment in Kenya. Developing Country Studies, 4(22), 88-96. Retrieved from www.iiste.org.
  • Kuştepeli, Y. (2005). Kamu harcamalarının etkinliği: Dışlama (crowding out) etkisi ve/veya crowding in etkisi?. Yönetim ve Ekonomi: Celal Bayar Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 12(1), 184-192. Retrieved from http://dergipark.org.tr/tr/pub/yonveek
  • Maana, I., Owino, R. and Mutai, N. (2008, July). Domestic debt and its impact on the economy-the case of Kenya. Paper presented at the 13th Annual African Econometric Society Conference. Pretoria, South Africa. etrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.495.4 489&rep=rep1&type=pdf
  • Mahmoudzadeh, M., Sadeghi, S. and Sadeghi, S. (2013). Fiscal spending and crowding out effect: A comparison between developed and developing countries. Institutions and Economies, 5(1), 31-40. Retrieved from https://ijie.um.edu.my/
  • Majeed, M. T. and Khan, S. (2008). The determinants of private investment and the relationship between public and private investment in Pakistan. NUST Journal of Business and Economics, 1(1), 41-48. Retrieved from https://mpra.ub.uni-muenchen.de
  • Majumder, M. A. (2007). Does public borrowing crowd‐out private investment? Evidence from Bangladesh (Working Paper Series No. WP 0708). Retrieved from http://siteresources.worldbank.org/PSGLP/Resources/WP0708Final.pdf
  • Nabende A. B. and Slater J. (2003). Private capital formation: Short-and long-run crowding-in (out) effects in ASEAN, 1971−99. Economics Bulletin, 3(17), 1−16. Retrieved from http://www.economicsbulletin.com/
  • Nazmi, N. and Ramirez, M. D. (1997). Public and private investment and economic growth in Mexico. Contemporary Economic Policy, 15(1), 65-75. https://doi.org/10.1111/j.1465-7287.1997.tb00455.x
  • Olweny, T. and Chiluwe, M. (2012). The effect of monetary policy on private sector investment in Kenya. Journal of Applied Finance and Banking, 2(2), 239-287. Retrieved from https://www.scienpress.com/journal_focus.asp?Main_Id=56
  • Pesaran, M. H. and Shin, Y. (1998). An Autoregressive distributed-lag modelling approach to cointegration analysis. In Econometrics and Economic Theory in the 20th Century. In S. Strøm (Ed.), Econometrics and Economic Theory in the 20th Century (pp. 371-413). Paper presented at The Ragnar Frisch Centennial Symposium (Econometric Society Monographs), Cambridge: Cambridge University Press.
  • Pesaran, M. H., Shin, Y. and Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. https://doi.org/10.1002/jae.616
  • Snyder, T. C. (2011). Do federal budget deficits cause crowding out?. Research in Business and Economics Journal, 4(1). https://doi.org/10.9734/ajeba/2019/v12i130142
  • Şen, H. and Kaya, A. (2014). Crowding-out or crowding-in?: Analysing the effects of government spending on private investment in Turkey. Panoeconomicus, 61(6), 631-651. http://dx.doi.org/10.2298/PAN1406631S
  • Torchongambia. (2017). Gambia: Private sector outline priority for Barrow. Retrieved from http://torchongambia.com/2017/04/23/gambia-private-sector-outline-priority-barrow/
  • Tsikata T., Dwight, L., Sriram, S., Segura-Ubiergo, A., Amornvivat, S. and Marsh, C. (2008). The Gambia: Selected issues and statistical appendix (IMF Country Report No. 08/325). Retrieved from https://www.imf.org/en/Publications/CR/Issues/2016/12/31/The-Gambia-Selected-Issues-and-Statistical-Appendix-22400
  • United Nations Development Program (UNDP). (2016). African economic outlook country note the Gambia united nations development program. Retrieved from www.africaneconomicoutlook.org
  • Xu, X. and Yan, Y. (2014). Does government investment crowd out private investment in China?. Journal of Economic Policy Reform, 17(1), 1-12. https://doi.org/10.1080/17487870.2013.866897.

Gambiya'da İç Borçların Özel Sektör Yatırımları Üzerindeki Etkileri: ARDL Yaklaşımı

Year 2020, Volume: 5 Issue: 1, 111 - 127, 30.04.2020
https://doi.org/10.30784/epfad.682291

Abstract

Bu çalışma, neoklasik yatırım fonksiyonuna dayalı bir yatırım modeli geliştirerek ve 1980-2013 yılları arasında yıllık zaman dizisi verilerini dikkate alarak iç borçların Gambiya'daki özel yatırımlar üzerindeki etkisini analiz etmeyi amaçlamaktadır. Bağımlı değişkenimiz olan özel sektör yatırımları ile bağımsız değişkenlerimiz arasındaki bağlantının incelenmesi amacıyla Gecikmesi Dağıtılmış Otoregresif Modeli (ARDL) kullanılmıştır. Sınır testi sonucuna göre değişkenlerimiz arasında uzun dönemli bir ilişki bulunmaktadır. Ayrıca, iç borcun kısa vadede özel yatırım üzerinde olumsuz bir etkisi olduğu, uzun vadede ise olumusuz bir etkiye sahip olmadığı bulunmuştur. Öte yandan, reel faiz oranlarının uzun vadede özel sektör yatırımları üzerinde dışlama etkisi olmasına karşı kısa vadede olumlu bir etkiye sahip olduğu görülmektedir. Bu çalışma, politika yapıcılar için iç borçlanma seviyesini en uygun veya sürdürülebilir seviyelere çekmek amacıyla geliştirilen maliye ve para politikaları oluşturulması konusunda bir rehber olacaktır. 

References

  • Abdullatif, A. E. M. A. (2006). Crowding-out and crowding-in effects of government bonds market on private sector investment (Japanese Case Study) (IDE Discussion Papers No.74). Retrieved from https://ir.ide.go.jp/?action=repository_action_common_download&item_id=38092&item_no=1&attribute_id=22&file_no=1
  • Acosta, P. and Loza, A. (2005). Short and long run determinants of private investment in Argentina. Journal of Applied Economics, 8(2), 389. https://doi.org/10.1080/15140326.2005.12040634
  • Adofu, I. and Abula, M. (2010). Domestic debt and the Nigerian economy. Current Research Journal of Economic Theory, 2(1), 22-26. Retrieved from https://maxwellsci.com/jp
  • Afonso, A. and Jalles, J. T. (2011). Linking investment and fiscal policies (Working Paper, WP 16/2011/DE/UECE). Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1 928980
  • Akomolafe, K. J., Bosede, O., Emmanuel, O. and Mark, A. (2015). Public debt and private Investment in Nigeria. American Journal of Economics, 5(5), 501-507. https://doi.org/10.5923/j.economics.2015 0505.10
  • Asogwa, F. O. and Okeke, I. C. (2013). The Crowding-out effect of budget deficits on private investment in Nigeria. European Journal of Business and Management, 5(20), 161-165. Retrieved from www.iiste.org
  • Bal, D. P. and Rath, B. N. (2014). Public debt and economic growth in India: A reassessment. Economic Analysis and Policy, 44(3), 292-300. https://doi.org/10.1016/j.eap.2014.05.007
  • Bua, G., Pradelli, J. and Presbitero, A. F. (2014). Domestic public debt in low-income countries: Trends and structure (World Bank Policy Research Working Paper No. 6777). Retrieved from https://ssrn.com/abstract=2394975
  • Central Bank of the Gambia. (2007). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2011). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2015). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2016). Monetary policy committee report. Retrieved from https://www.cbg.gm/monetory-policy-committee
  • Central Bank of the Gambia. (2011). Annual report 2011. Retrieved from https://www.cbg.gm/annual-reports
  • Coban, S. and Tugcu, T. C. (2015). Do budget deficits crowd-out or in private investment? A dynamic heterogeneous panel estimation. The Empirical Economics Letters, 14(4). Retrieved from http://www.eel.my100megs.com/
  • Emran, M. S. and Farazi, S. (2008). Government borrowing and private credit: Evidence from developing countries (World Bank Working Papers). Retrieved from http://siteresources.worldbank.org/
  • Erenburg, S. J. and Wohar, M. E. (1995). Public and private investment: Are there causal linkages? Journal of Macroeconomics, 17(1). 1-30. https://doi.org/10.1016/0164-0704(95)80001-8.
  • Forgha, N. G., Sama, M. C. and Aquilas, N. A. (2016). An econometric investigation in to financial intermediation, domestic investment and economic growth in Cameroon. Journal of Finance and Economics, 4(1), 1-9. doi: 10.12691/jfe-4-1-1
  • Kamundia, S. W. (2015). The effects of public debt on private investments and economic growth in Kenya (1980-2013) (Unpublished doctoral dissertation). Kenyatta University, Nairobi, Kenya.
  • King’wara, R. (2014). The impact of domestic public debt on private investment in Kenya. Developing Country Studies, 4(22), 88-96. Retrieved from www.iiste.org.
  • Kuştepeli, Y. (2005). Kamu harcamalarının etkinliği: Dışlama (crowding out) etkisi ve/veya crowding in etkisi?. Yönetim ve Ekonomi: Celal Bayar Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 12(1), 184-192. Retrieved from http://dergipark.org.tr/tr/pub/yonveek
  • Maana, I., Owino, R. and Mutai, N. (2008, July). Domestic debt and its impact on the economy-the case of Kenya. Paper presented at the 13th Annual African Econometric Society Conference. Pretoria, South Africa. etrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.495.4 489&rep=rep1&type=pdf
  • Mahmoudzadeh, M., Sadeghi, S. and Sadeghi, S. (2013). Fiscal spending and crowding out effect: A comparison between developed and developing countries. Institutions and Economies, 5(1), 31-40. Retrieved from https://ijie.um.edu.my/
  • Majeed, M. T. and Khan, S. (2008). The determinants of private investment and the relationship between public and private investment in Pakistan. NUST Journal of Business and Economics, 1(1), 41-48. Retrieved from https://mpra.ub.uni-muenchen.de
  • Majumder, M. A. (2007). Does public borrowing crowd‐out private investment? Evidence from Bangladesh (Working Paper Series No. WP 0708). Retrieved from http://siteresources.worldbank.org/PSGLP/Resources/WP0708Final.pdf
  • Nabende A. B. and Slater J. (2003). Private capital formation: Short-and long-run crowding-in (out) effects in ASEAN, 1971−99. Economics Bulletin, 3(17), 1−16. Retrieved from http://www.economicsbulletin.com/
  • Nazmi, N. and Ramirez, M. D. (1997). Public and private investment and economic growth in Mexico. Contemporary Economic Policy, 15(1), 65-75. https://doi.org/10.1111/j.1465-7287.1997.tb00455.x
  • Olweny, T. and Chiluwe, M. (2012). The effect of monetary policy on private sector investment in Kenya. Journal of Applied Finance and Banking, 2(2), 239-287. Retrieved from https://www.scienpress.com/journal_focus.asp?Main_Id=56
  • Pesaran, M. H. and Shin, Y. (1998). An Autoregressive distributed-lag modelling approach to cointegration analysis. In Econometrics and Economic Theory in the 20th Century. In S. Strøm (Ed.), Econometrics and Economic Theory in the 20th Century (pp. 371-413). Paper presented at The Ragnar Frisch Centennial Symposium (Econometric Society Monographs), Cambridge: Cambridge University Press.
  • Pesaran, M. H., Shin, Y. and Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. https://doi.org/10.1002/jae.616
  • Snyder, T. C. (2011). Do federal budget deficits cause crowding out?. Research in Business and Economics Journal, 4(1). https://doi.org/10.9734/ajeba/2019/v12i130142
  • Şen, H. and Kaya, A. (2014). Crowding-out or crowding-in?: Analysing the effects of government spending on private investment in Turkey. Panoeconomicus, 61(6), 631-651. http://dx.doi.org/10.2298/PAN1406631S
  • Torchongambia. (2017). Gambia: Private sector outline priority for Barrow. Retrieved from http://torchongambia.com/2017/04/23/gambia-private-sector-outline-priority-barrow/
  • Tsikata T., Dwight, L., Sriram, S., Segura-Ubiergo, A., Amornvivat, S. and Marsh, C. (2008). The Gambia: Selected issues and statistical appendix (IMF Country Report No. 08/325). Retrieved from https://www.imf.org/en/Publications/CR/Issues/2016/12/31/The-Gambia-Selected-Issues-and-Statistical-Appendix-22400
  • United Nations Development Program (UNDP). (2016). African economic outlook country note the Gambia united nations development program. Retrieved from www.africaneconomicoutlook.org
  • Xu, X. and Yan, Y. (2014). Does government investment crowd out private investment in China?. Journal of Economic Policy Reform, 17(1), 1-12. https://doi.org/10.1080/17487870.2013.866897.
There are 35 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Makaleler
Authors

Bilge Kağan Ozdemir 0000-0002-8716-9305

Ebrima Gomez 0000-0002-6738-7153

Publication Date April 30, 2020
Acceptance Date April 20, 2020
Published in Issue Year 2020 Volume: 5 Issue: 1

Cite

APA Ozdemir, B. K., & Gomez, E. (2020). The Impact of Domestic Debt on Private Investment in The Gambia: An ARDL Approach. Ekonomi Politika Ve Finans Araştırmaları Dergisi, 5(1), 111-127. https://doi.org/10.30784/epfad.682291