How Does Public Debt Affect the Indian Macroeconomy? A Structural VAR Approach

2020 ◽  
Vol 14 (3) ◽  
pp. 253-284
Author(s):  
Ranjan Kumar Mohanty ◽  
Sidheswar Panda
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Public Debt ◽  
Positive Impact ◽  
Decomposition Analysis ◽  
Structural Var ◽  
Adverse Impact ◽  
Mixed Effect ◽  
Domestic Debt ◽  
The Impact

The study investigates the macroeconomic effects of public debt in India during 1980–2017 using a structural vector autoregression framework. The objective is to examine the impact of public debt on the interest rate, investment, inflation and economic growth in India. The results of the impulse response functions show that public debt has an adverse impact on economic growth but a positive impact on the long-term interest rate in the short run and a mixed effect (both negative and positive) on investment and inflation. We also find that domestic debt has a more adverse impact on the economy than external debt. The estimated variance decomposition analysis finds that much of the variation in selected macro variables are explained by public debt and growth in India. This study suggests that public debt especially domestic debt should be controlled and channelled productively to have a favourable impact on the economy. JEL Classification: H63, O40, C40

scholarly journals Impact of Domestic Public Debt on Economic Growth - An Empirical Study in the Indian Context

2016 ◽  
Vol 6 (4) ◽  
pp. 101-116
Author(s):  
Srinivasa Rao Gangadharan ◽  
Lakshmi Padmakumari
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Positive Impact ◽  
Least Square ◽  
Distributed Lag ◽  
Long Run ◽  
Domestic Debt ◽  
Integration Test ◽  
Ordinary Least Square Regression ◽  
The Impact

This study is an empirical investigation to assess the impact of domestic debt on India’s Economic growth during the period 1980 – 2014. We use data on Domestic Debt, Net Fiscal Deficit, Exports, Savings, Real Gross Domestic Product, Population and Terms of Trade. This study adopts the ARDL Co-Integration and Granger Causality techniques to investigate the relation between the key variables. The study also employs various post estimation tests to validate the fitness and stability of the models based on Gauss Markov assumptions, after employing the ordinary least square regression on various models. We find that debt negatively impacts economic growth while savings has a positive impact. The Auto Regressive Distributed Lag (ARDL) technique used to test the robustness suggests existence of co-integration among the variables. However, none of the long run co-efficient is significant. The granger causality and co-integration test results support the traditional view that debt negatively impacts economic growth.

Interest rate liberalization and economic growth nexus: does corruption matter?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulhadi Aliyara Haruna ◽  
Abu Sufian Abu Bakar
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Positive Impact ◽  
Reform Process ◽  
Negative Effects ◽  
African Countries ◽  
Cross Sectional ◽  
Content Type ◽  
Interest Rate Liberalization ◽  
The Impact

Purpose This paper aims to examine the impact of interest rate liberalization on economic growth and the relevance of corruption in the five selected sub-Saharan African countries. Design/methodology/approach The study used the modified version of Driscoll and Kraay’s model by Hoechle, which solved the effects of cross-sectional dependence and heteroscedasticity. Findings The findings reveal a positive impact of the index on economic growth, and it was found that foreign direct investment (FDI) and credit to private sector by banks (CPSB) all stimulate economic growth. The interaction terms of corruption with FDI and CPSB indicate negative effects that show how corruption erodes the benefits of liberalization. Finally, the paper recommends the pursuit of appropriate policies with the sole aim of eradicating corruption and providing a conducive environment for business. Originality/value The paper developed a composite domestic financial liberalization index to capture the timing and essential dimensions of the reform process. The study investigates the effect of interest rate liberalization on economic growth and the relevance of corruption. Most of the recent and past studies only examined the impact of interest rate reforms on growth without investigating the relevance of corruption.

scholarly journals Interest Rate Deregulation, Bank Development And Economic Growth In South Africa: An Empirical Investigation

2010 ◽  
Vol 9 (11) ◽  
Author(s):  
Nicholas M Odhiambo
Keyword(s):  
Economic Growth ◽  
South Africa ◽  
Interest Rate ◽  
Causal Relationship ◽  
Financial Development ◽  
Positive Impact ◽  
Strong Support ◽  
Prima Facie ◽  
Financial Depth ◽  
The Impact

In this paper the dynamic relationship between interest rate reforms, bank-based financial development and economic growth is examined – using two models in a stepwise fashion. In the first model, the impact of interest rate reforms on financial development is examined using a financial deepening model. In the second model, the dynamic causal relationship between financial development and economic growth is examined, by including investment as an intermittent variable in the bi-variate setting, thereby creating a simple tri-variate causality model. Using cointegration and error-correction models, the study finds strong support for the positive impact of interest rate reforms on financial development in South Africa. However, contrary to the results from some previous studies, the study finds that financial development, which results from interest rate reforms, does not Granger cause investment and economic growth. In addition, the study finds a uni-directional causal flow from investment to financial development and prima-facie causal flow from investment to growth. The study, therefore, concludes that although interest rate reforms impact positively on financial depth in South Africa, the causal relationship between financial depth and economic growth tends to take a demand-following path. Moreover, given the causal flow from investment to financial development and a prima facie causal flow from investment to growth, it is likely that the economic development in South Africa is driven largely by the growth of the real sector rather than the financial sector.

Assessing Growth Impact of Public Debt in Sri Lanka

2020 ◽  
pp. 097674792091747
Author(s):  
Suvra Prokash Mondal ◽  
Biswajit Maitra
Keyword(s):  
Economic Growth ◽  
Sri Lanka ◽  
Public Debt ◽  
Extended Period ◽  
Asian Country ◽  
Policy Implications ◽  
Financial Variables ◽  
Domestic Debt ◽  
Fixed Capital Formation ◽  
The Impact

Whether public debt spurs economic growth is an unsettled issue in both theoretical and empirical grounds. The issue has attracted lots of attention to economists and policymakers in recent times. This article addresses the debt–growth issue in the case of a small emerging south Asian country—Sri Lanka. The impact of external, domestic debt, in association with a set of financial variables on income, is assessed for an extended period of 1965–2017, and also for the post-reform period of 1978–2017. The article finds some robust evidence that external debt is not beneficial; rather it depresses income. The impact of domestic debt and foreign aid on income is trivial. On the other hand, gross fixed capital formation and money supply spur income growth, whereas the impact of openness to trade is dismaying, and all these findings are invariant across the extended period and the post-reform periods. The results have policy implications for the long-term sustained economic growth of Sri Lanka. JEL: H63, F35, O40, C22

scholarly journals The Impact of Public Debt in Economic Growth

2020 ◽  
Vol 9 (4) ◽  
pp. 177
Author(s):  
Ariana Xhemajli Selimaj ◽  
Bedri Statovci ◽  
Alma Shehu Lokaj ◽  
Ermira Beqiri
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Public Debt ◽  
Financial Stability ◽  
Positive Impact ◽  
Debt Management ◽  
Public Expenditures ◽  
Economic Growth Rate ◽  
The Impact

Different countries around the world, in addition to collecting public revenues as sources to cover public expenditures, also need other sources of funding, because frequently, most countries cannot generate sufficient budgetary revenue to afford all the budget expenditures. This is one of the reasons why public debt is created. There is always debate among economists as to what the optimal percentage of public debt should be so as not to impede the economic development of a country. To avoid impediments to economic development, then public debt management needs to be done properly so that it is earmarked for adequate projects that will contribute to economic growth and development. In this paper, we will analyse the impact of public debt on economic growth. Kosovo serves as our case study for the period 2009-2016, where remittances, exports, increase of average payments and subsidies were considered as other influencing factors. The prudent use of public debt, such as in various investments, job creation, and productivity growth, can all contribute to economic growth and financial stability. Otherwise, misuse of public debt will inadvertently affect the country’s destabilization, create an inflationary situation, and will only continue to increase liabilities to lenders – essentially, it will have no positive impact on the country. Reckless use of public debt will have a direct effect on lowering the economic growth rate.

Can inbound medical tourism boost Malaysia’s economic growth?

2016 ◽  
Vol 18 (4) ◽  
pp. 505-513 ◽  
Author(s):  
Chor Foon Tang ◽  
Ahmad Sofwan Nathan Abdullah
Keyword(s):  
Economic Growth ◽  
Medical Tourism ◽  
Positive Impact ◽  
Decomposition Analysis ◽  
Tourism Industry ◽  
Negative Externalities ◽  
Long Run ◽  
Variance Decomposition Analysis ◽  
The Impact

Medical tourism is an extensively researched sub-sector of the tourism industry because of its acknowledged role as an important catalyst for economic growth. Nevertheless, the impact of medical tourism on economic growth remains contentious due to associated negative externalities. This paper assesses medical tourism’s role in Malaysia’s long-term economic growth using a neoclassical growth model as its framework and a set of time series econometric approaches, namely cointegration, Granger causality and variance decomposition analysis as core instruments. The results indicate that medical tourism has significant positive impact on Malaysia’s economic growth in the long run.

The Impact of Public Debt on Economic Growth: A Review of Contemporary Literature

2018 ◽  
Vol 45 (4) ◽  
pp. 339-357
Author(s):  
Talknice Saungweme ◽  
Nicholas M. Odhiambo
Keyword(s):  
Economic Growth ◽  
Public Debt ◽  
Positive Impact ◽  
Empirical Studies ◽  
Theoretical Models ◽  
Empirical Literature ◽  
Long Run ◽  
Negative Effect ◽  
The Impact ◽  
The Relationship

This article provides a detailed survey of existing theoretical and empirical literature on the impact of public debt on economic growth in both developing and developed economies. The aim of the article is to add to the existing debate on the relationship between public debt and economic growth in world economies. The survey finds diverse and, in some cases, inconsistent evidence on the relative impact of public debt on economic growth. Although the majority of the surveyed literature supports the negative effect of public debt on economic growth, several other studies have found a long-run positive impact of public debt on economic growth through the fiscal multiplier effect. The article also found that a few other studies support the Ricardian Equivalence Hypothesis (REH), which states that the relationship between public debt and economic growth is nonexistent. On balance, the article also found that there is a growing body of empirical evidence, which supports the presence of threshold effects in the relationship between public debt and economic growth. Overall, it concludes that theoretical models and empirical studies yield inconclusive results depending on a set of heterogeneous factors, including the level of development of the sampled countries, data coverage, methodology used, and the researchers’ choice of control variables, among other factors. This literature survey differs predominantly from other earlier studies in that it provides a comprehensive review of the linkage between government debt and economic growth, in addition to disentangling public debt into two components, domestic and foreign, and expounding on their relative effects on economic growth.

scholarly journals INTEREST RATE REFORMS AND ECONOMIC GROWTH IN SADC COUNTRIES: THE SAVINGS AND INVESTMENT CHANNEL

2019 ◽  
Vol 66 (4) ◽  
pp. 507-523
Author(s):  
Clement Moyo ◽  
Pierre Le Roux
Keyword(s):  
Economic Growth ◽  
Interest Rate ◽  
Interest Rates ◽  
Global Financial Crisis ◽  
Positive Impact ◽  
Real Interest Rates ◽  
Financial Reforms ◽  
Pooled Mean Group ◽  
Low Levels ◽  
The Impact

The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. The results show that interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.

Does Crude Oil Price Affect the Inflation Rate and Economic Growth in India? A New Insight Based on Structural VAR Framework

2021 ◽  
pp. 001946622199883
Author(s):  
Ankita Sarmah ◽  
Debi Prasad Bal
Keyword(s):  
Economic Growth ◽  
Crude Oil ◽  
Positive Impact ◽  
Negative Relationship ◽  
Jel Classification ◽  
Structural Var ◽  
Oil Price ◽  
Crude Oil Price ◽  
Partial Sum ◽  
The Impact

Based on a structural vector autoregressive framework on the monthly data from April 1997 to July 2016, this study is an attempt to show the impact of crude oil price on the rate of inflation and economic growth in India. The results showed that the crude oil price has a positive impact on the rate of inflation whereas an inverse relation exists between crude oil price and economic growth. Further, we segregated the crude oil price into two components, that is, positive and negative partial sum of oil price through the nonlinear and asymmetric autoregressive distribution lag framework. A similar kind of result is derived in the case of positive partial sum of oil price on the rate of inflation and economic growth, while a significant negative relationship is found in the negative partial sum of crude oil price on economic growth. From the policy perceptive, we suggest that policymakers may focus on reducing the consumption of crude oil and using renewable energy for accelerating the economic growth. This would not only prevent the domestic economy from international oil price fluctuations and inflation but also assist in achieving sustainable environmental goal of reduced crude oil use. JEL Classification Codes: C3, O4, Q4

IMPACT OF GOVERNMENT DEBT ON FINANCIAL SECURITY OF UKRAINE

2017 ◽  
Author(s):  
Olena Pikaliuk ◽  
◽  
Dmitry Kovalenko ◽  
Keyword(s):  
Economic Development ◽  
Public Debt ◽  
Positive Impact ◽  
The State ◽  
Financial Security ◽  
State Budget ◽  
The Public ◽  
Debt Security ◽  
The Stability ◽  
The Impact

One of the main criteria for economic development is the size of the public debt and its dynamics. The article considers the impact of public debt on the financial security of Ukraine. The views of scientists on the essence of public debt and financial security of the state are substantiated. An analysis of the dynamics and structure of public debt of Ukraine for 2014-2019. It is proved that one of the main criteria for economic development is the size of public debt and its dynamics. State budget deficit, attracting and using loans to cover it have led to the formation and significant growth of public debt in Ukraine. The volume of public debt indicates an increase in the debt security of the state, which is a component of financial security. Therefore, the issue of the impact of public debt on the financial security of Ukraine is becoming increasingly relevant. The constant growth and large amounts of debt make it necessary to study it, which will have a positive impact on economic processes that will ensure the stability of the financial system and enhance its security.

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