Real effects of government debt on sustainable economic growth in Malaysia

Burhanudin, Muhammad Danial Ariff; Muda, Ruhaini; Nathan, Siti Badariah Saiful; Arshad, Roshayani

doi:10.14254/2071-8330.2017/10-3/12

Cited by 32 publications

(22 citation statements)

References 26 publications

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“…Secondly, the lower economic growth that is caused by high public debt can also be explained theoretically using the debt overhang (Krugman, 1988). Debt overhang happens when the highly indebted countries have a lower present value of the national income relative to their total accumulated debt (Burhanudin et al, 2017;Ewaida, 2017;Snieska & Bursakaitiene, 2018). One possible reason might be the inefficiency of the countries to manage borrowed funds (Schkolnyk & Koilo, 2018).…”

Section: Empirical Workmentioning

confidence: 99%

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Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal

Bhatta¹,

Mishra

2020

NRB Econ. Rev.

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One of the common agenda of underdeveloped economies is to achieve a high and sustainable level of economic growth in the long run. Domestic and external borrowings are playing a crucial role in fulfilling the resource gap in the context of Nepal for a long period. A growing number of recent studies support the idea of a debt threshold level (turning point) above which debt starts reducing economic growth. This paper empirically investigates the relationship between economic growth and several other factors (investment, trade openness, population growth, domestic savings, and government debt) in the context of Nepal. The debt-growth relationship has been estimated by regression analysis and further explored the non-linear relationship between public debt and economic growth using time series annual data for the period of 1976-2019. The ARDL bound technique has been applied to estimate the short-run and the long run impact of debt on economic growth. Moreover, a quadratic bivariate model based on ARDL coefficients has been estimated to identify the growth maximizing level of debt. The estimated parameters confirm the optimum public debt to GDP ratio in the context of Nepal is 33 per cent. The policy implication of this finding for the Government of Nepal (GoN) is to ensure public debt management in line with the growth maximizing debt threshold. Further, a high level of trade deficits and government effectiveness in public sector management squeezes the fiscal space in utilizing adequate public debt in Nepal.

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Section: Empirical Workmentioning

confidence: 99%

“…On the other hand, public debt can also contribute to higher economic growth, for instance, Malaysia (Burhanudin et al, 2017) and European countries (Gomez-Puig & Sosvilla-Rivero, 2017a). Theoretically, it can be explained by using the conventional view of debt by Elmendorf and Mankiw (1998).…”

Section: Empirical Workmentioning

confidence: 99%

Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal

Bhatta¹,

Mishra

2020

NRB Econ. Rev.

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“…Another advantage of this approach is that the model takes sufficient numbers of lags to capture the data-generating process in a general-to-specific modeling framework (Laurenceson and Chai 2003). Moreover, a dynamic error correction model (ECM) can be derived from ARDL through a simple linear transformation (Banerjee et al 1993). In addition, the ECM integrates the short-run dynamics with the long-run equilibrium without losing long-run information.…”

Section: Co-integration Testmentioning

confidence: 99%

Uganda’s experience with debt and economic growth: an empirical analysis of the effect of public debt on economic growth—1980–2016

Ssempala

Ssebulime

Twinoburyo

2020

Economic Structures

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Background: Empirical evidence on the effect of public debt on the economic growth of a country remains ambiguous. No theoretical convergence on the respective nexus has been attained. For the case of Uganda in particular, the public debt question remains critical in the country's development trajectory. Under the Highly Indebted Poor Countries (HIPCs) initiative, Uganda was the first country to receive a debt relief of worth US$650 million in the 1990s and later in 2006, under the Multilateral Debt Relief Initiative (MDRI), the country generously received 100% debt forgiveness/cancelation which consequently reduced the stock of country's debt to $1.6 billion. However, of recent, the debt stock has kept on increasing from UGX 14.257 trillion ($5.5 billion) in 2000 to the current UGX 35.3 trillion (9.8b) in July 2017 and it is projected to continue increasing in the short to medium term given the robust NDPII core projects and priorities which are set to attract more borrowing. The study employs the Auto Regressive Distributed Lag (ARDL)-bounds testing approach which is superior and suitable for our small sample. Results: The results reveal that public debt has a significant negative impact on economic growth in short run whereas in long-run debt has a mixed impact on Uganda's economy. The total debt service has a negative impact whereas Gross debt as a share of GDP has a positive impact on the economy. The findings also reveal that Public debt has a negative effect on Uganda's economic growth in the short run. The impact is however found to be positive in the long run. This result is in line with the study expectations and some findings by earlier researchers who found a negative impact of public debt on GDP and investment. The results suggest that the current trend of Uganda's borrowing is to continue constraining the resources in the short run. Conclusion: The conclusion of the study in view of emerging findings especially on debt, various policy implications have emerged. At the current rate of borrowing, Uganda is likely to have deteriorating economic growth partly because such public borrowing adversely affects investment. The study thus recommends for policies geared toward efficient use of borrowed funds especially for such projects that have high potential to unlock the production capabilities of the country. There is a need for

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“…Apart from that, the negative relationship can also be explained theoretically using the debts overhang [8]. Debt overhang happens when the highly indebted countries have a lower present value of the national income relative to their total accumulated debt [36]; Ewaida [37]. One possible reason is the inefficiency of the country to manage the borrowed funds [38].…”

Section: The Long Run Effect Of External Debt Stock On Economic Growtmentioning

confidence: 99%

Impact of National Debt on Economic Growth in Tanzania: 1980-2019

Lelya

Ngaruko

2021

AJEBA

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This paper is based on the study that examined the impact of external and domestic debt on economic growth of Tanzania over the period 1980-2019. The study’s specific objectives were; to examine trends of external and domestic debts from 1980 to 2019, to determine long run relationship between external debt stock and economic growth in Tanzania from 1980 to 2019, and to examine the long run relationship between domestic debt and economic growth in Tanzania from 1980 to 2019. The study used time series data of Tanzania collected from the Bank of Tanzania (BOT), National Bureau of Statistics (NBS) and the World Bank indicators. The study used Vector error correction model (VECM) for estimation of the time series since all the variables’ data were stationary in first difference I (1), and there was cointegration within the variables. To ensure the validity and reliability of the data; the study carried out normality test, multicollinearity, heteroscedasticity, and unit root tests. The empirical findings reveal that both external and domestic debt significantly affects the economic growth of Tanzania. The study recommends that the government should promote moderate levels of domestic borrowing which can be sustained as it promotes economic growth if used in productive and efficient avenues. The study further recommends that policymakers should efficiently allocate and develop constraints that will ensure the external borrowing is utilized on more productive and development expenditures, so that the finance is a source of increase in net investment in the country.

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Real effects of government debt on sustainable economic growth in Malaysia

Cited by 32 publications

References 26 publications

Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal

Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal

Uganda’s experience with debt and economic growth: an empirical analysis of the effect of public debt on economic growth—1980–2016

Impact of National Debt on Economic Growth in Tanzania: 1980-2019

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