External Debt and Economic Growth: A Dynamic Panel Study of Granger Causality in Developing Countries

Zhang, Biqiong; Dawood, Muhammad; Al-Asfour, Ahmed

doi:10.13106/jafeb.2020.vol7.no11.607

Cited by 10 publications

(5 citation statements)

References 37 publications

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“…Regarding the trade factor, the trade openness variable did not affect Indonesia's economic growth. The results of this study were in line with Zhang et al (2020), who found that debt causes high uncertainty and risk, triggers liquidity problems, crowds out, and burdens the state budget. Several previous studies have also indicated a negative effect of debt on economic growth.…”

Section: Finding and Discussionsupporting

confidence: 90%

Debt and Economic Growth: The Case of Indonesia

Sari

2022

JDE

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Debt is an intriguing state financing to be studied and analyzed because debt can have positive or negative impacts. Sources of debt can be from the issuance of domestically-sold bonds or foreign investment. Indonesia uses debt instruments to address the fiscal gap and increase capital for economic development. This study aims to analyze the impact of debt on Indonesia’s economic growth and investment during the 1970-2018 period, using the Autoregressive Distributed Lag (ARDL) method. The study found that debt had a negative effect on GDP in the short and long run. Meanwhile, it did not affect investment in the short run but had a negative effect in the long run. The study model also had good stability as a result of Cusum and Cusum of Squares testing. Thus, appropriate debt management policies are needed to support economic growth.

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Section: Finding and Discussionsupporting

confidence: 90%

Debt and Economic Growth: The Case of Indonesia

Sari

2022

JDE

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“…This result agrees with the submissions of Iitula (2018). However, the findings of Musa (2015); Zhang et al (2020) and Uslu (2021) violate it. The results of Table 6 also indicated that there is no causal link between external debt service and economic growth.…”

Section: Empirical Results and Discussionmentioning

confidence: 91%

“…In order to investigate the causal relationship between public and private external debt and economic growth in developing economies, Zhang, Dawood, and Al-Asfour (2020) used 18 selected Asian developing and transition economies from 1995 to 2019 and the Dynamic Heterogeneous Panel Data methodologies, Pooled Mean Group (PMG), robust Cross-sectional augmented Autoregressive Distributed Lag (CS-ARDL), and Granger causality test. The results showed that there is a causal relationship between external debt and economic growth in the short and long runs, respectively, based on the PMG and CS-ARDL approaches.…”

Section: Theoretical Framework and Empirical Issuesmentioning

confidence: 99%

External debt and economic growth in selected African economies: A heterogeneous dynamic panel data analysis

Duru,

David,

Paul O

et al. 2024

ATSSR

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The nexus between external debt and economic growth of Ghana, Kenya, Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021 was examined in this study. For analysis, the Pooled Mean Group Heterogeneous Dynamic Panel Data Approach and the Toda Yamamoto Granger causality tests technique were deployed. The results indicated that external debt had a negative effect on economic growth. Moreover, debt service exerted a positive impact on economic growth. The findings of the causality tests showed that there is no causal link between external debt and economic growth. Furthermore, no causal link was established between debt service and economic growth. As a result, the study suggests that the capacity of these economies in terms of revenue generation and debt servicing should be reinforced by their governments through the channelling of external debt into long-term productive investments for the realization of positive economic growth. Moreover, the policies on debt servicing in these economies should be sustained since it is yielding the desired results. Furthermore, thoroughly assessed projects of high significance should be the only yardstick for the contraction of foreign loans in these economies. Also, the policy objectives of external debt, debt service and economic growth can be pursued separately from one another in this group of economies in Africa.

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“…Therefore, this study adopted an extensively used "second-generation unit root test under the possible crosssectional dependency." As discussed by Pesaran (2007), the second-generation unit root test, namely Pesaran's cross-sectional augmented Dicky-Fuller (CADF) procedure, allow for cross-sectional dependence in the panel data series, and adoption of this unit-root test further strengthens the reliability of the results (Hasan, 2019;Shariff and Hamzah, 2015;Zhang et al, 2020).…”

Section: Empirical Modelmentioning

confidence: 99%

Interaction between wealth management products and bank deposits: evidence from China's shadow banking

Shah

Yan

et al. 2021

IJBM

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PurposeShadow banking has been evolving rapidly in China, with banks actively using wealth management products (WMPs) to evade regulatory restrictions. These products are the largest constituent of China's shadow banking sector. A large number of these products are off-balance-sheet and considered a substitute for bank deposits. China's banking sector, especially the small and medium-sized banks (SMBs), uses these products to avoid regulatory restrictions and sustainability risk in the deposit market.Design/methodology/approachThis study empirically examined how banks in China, specifically SMBs, utilize these products on a short and long-run basis to manage and control their deposit levels. This study utilized a quarterly panel dataset from 2010 to 2019 for the top 30 Chinese banks, by first implementing a Panel ARDL-PMG model. For cross-sectional dependence, this study further executed a cross-sectional augmented autoregressive distributive lag model (CS-ARDL).FindingsUnder regulations avoidance theory, the findings revealed that WMPs and deposits have a stable long-run substitute relationship. Furthermore, the WMP–Deposit substitute relationship was only significant and consistent for SMBs, but not for large four banks. The findings further revealed that the WMP–Deposit substitute relationship existed, even after the removal of the deposit rate limit imposed by the People's Bank of China (PBOC) to control the deposit rates.Research limitations/implicationsThe individual bank-issued WMPs' amount data is not available in any database. Therefore, this study utilized the number of WMPs as a proxy for China's banking sector's exposure to the wealth management business.Practical implicationsThis research helps policymakers to understand the Deposit–WMP relationship from the off-balance-sheet perspective. During the various stages of interest rate liberalization, banks were given more control to establish their deposit and loan interest rates. However, the deposit rates are still way below the WMP returns, making WMPs more competitive. This research suggests that policymakers should formulate a more balanced strategy regarding deposit rates and WMPs returns.Originality/valueThis study contributes to the existing literature on China's shadow banking by concentrating on the WMPs. This research represents one of the few studies that analyze regulatory arbitrage in terms of the WMP–Deposit relationship. Moreover, the implementation of CS-ARDL panel data models and multiple data sources makes this study's findings more reliable and significant.

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External Debt and Economic Growth: A Dynamic Panel Study of Granger Causality in Developing Countries

Cited by 10 publications

References 37 publications

Debt and Economic Growth: The Case of Indonesia

Debt and Economic Growth: The Case of Indonesia

External debt and economic growth in selected African economies: A heterogeneous dynamic panel data analysis

Interaction between wealth management products and bank deposits: evidence from China's shadow banking

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