Effects of Government Borrowing on Private Investments in Kenya

Lidiema, Caspah

doi:10.12691/jfe-6-2-3

Cited by 13 publications

(19 citation statements)

References 11 publications

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“…To sum up, the findings on the presence of asymmetry in the relationship between private investment and public debt are in line with the literature that studies non-linear relationship between the two variables (see, e.g., Ebi & Imoke, 2017). Both long-run and short-run results suggest that higher public debt crowds out private investment, which is in line with the crowding-out effect hypothesis and empirical studies in China (Huang et al, 2016), advanced and emerging economies (Huang et al, 2018), Kenya (King'wara, 2014;Lidiema, 2018), OECD countries (Salotti & Trecroci, 2012), and Egypt (Shetta & Kamaly, 2014). Higher public debt may increase cost of borrowing for private investment through two ways.…”

Section: Empirical Analysissupporting

confidence: 74%

The Asymmetric Link between Public Debt and Private Investment in Malaysia

Lau

Tan

Liew

2019

MJES

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This paper intends to examine the existence of asymmetric effect of public debt on private investment in Malaysia. As Malaysia's public debt has been rising in recent years the question has been raised on whether the persistently high debt level can negatively affect private investment or otherwise. This study, which uses non-linear autoregressive distributed lags (NARDL) estimation with data from 1980 to 2016, shows some evidence of asymmetrical effect in private investment-public debt nexus in both the long-and short-run. There are evidences of long-run asymmetry between private investment and total public debt, external debt, and federal government debt. In the short run, asymmetric relationship exists between private investment and domestic debt, external debt, and federal government debt. The findings also conclude that, in both long-run and short-run, higher public debt crowds out private investment, which is in line with the crowding-out effect hypothesis. Hence, policy-makers are advised to maintain public debt at a healthy level to ensure private investment is not being crowded-out.

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Section: Empirical Analysissupporting

confidence: 74%

The Asymmetric Link between Public Debt and Private Investment in Malaysia

Lau

Tan

Liew

2019

MJES

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“…In Kenya [21] using data from 1975 to 2014 empirical confirmed that excessive domestic borrowing by the government negatively affect investment by the private sector. Using panel data from 60 developing countries [12] provided evidence that there is a significant crowding out effect of government borrowing on private credit in these countries.…”

Section: Evidence From Other Countriesmentioning

confidence: 92%

Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria

Akanbi¹

2020

JIM

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The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks' prime lending rates, private sector lending by the banks, the bank's investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.

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“…As such, loanable funds theory strengthens the fact that conventional factors of real interest rates, private sector credit availability, and past economic growth influence the behavior of investments according to Ames et al (n.d.). Government domestic borrowing to finance public expenditure affects loanable funds available for private domestic investments (Lidiema, 2017). On the other hand, a decline from private domestic investments in Kenya from 1.3 points to 0.3 points of GDP was due to government fiscal expansion (World Bank report (2018)).…”

Section: Loanable Funds Theorymentioning

confidence: 99%

The Nexus Between Internal Investment and Economic Growth in Kenya

Kamenju¹,

Olweny²

2020

Journal of Applied Finance &Amp; Banking

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Countries with a high investment GDP ratio benefit from better, competitive products and services. Which increases capital stock for production, more employment, and income; in turn reducing social and income disparities. The Kenyan government envisaged a sustained economic growth of 10% by investing in priority sectors; to become an industrialized middle-income country by the year 2030; though un-achieved to date. To examine the nexus between internal investments and economic growth, the study used annual time-series observations from the years 1996 to 2017; where internal investments are from the government; private domestic; and public-private partnership; and exogenous variables were rates of real interest; social discount; commercial lending interest; and the country risk premium on lending for investment decisions. The inference used stationarity; cointegration; significance; causality; variance decomposition of forecast error; and impulse response function. Stationarity tests suited the ARDL model which also supports small size observations. Findings were; a significant and positive influence on economic growth from lags of real GDP, government, private domestic, except public-private partnership investments. Anticipation for growth lies with; significant pairwise causality (real GDP with public investment); significant block exogeneity (public investment); endogeneity (real GDP), and exogeneity (public investment) influence; and short-run private domestic investment recovery. Keywords: ARDL, Economic Growth, Public Investment, Private Domestic Investment, Public-Private Partnership Investment, Investment Decisions.

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Effects of Government Borrowing on Private Investments in Kenya

Cited by 13 publications

References 11 publications

The Asymmetric Link between Public Debt and Private Investment in Malaysia

The Asymmetric Link between Public Debt and Private Investment in Malaysia

Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria

The Nexus Between Internal Investment and Economic Growth in Kenya

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