The Effect of the Domestic Debt on the Financial Development: A Case Study for Turkey

Altaylıgil, Yasin Barış; Akkay, Reşat Can

doi:10.5539/ijef.v5n5p64

Cited by 8 publications

(6 citation statements)

References 30 publications

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“…The short-run association between public domestic debt and financial development is inelastic and significant, indicating that financial development variation is less responsive to public domestic debt changes. These results agree with Altaylıgil et al, (2013), who asserted that reducing public domestic debt allowed the financial sector to advance more to the private sector, which catalyses financial development. This result further confirms the Hauner (2006) lazy bank hypothesis, which asserted that financial institutions' excessive public debt held by financial institutions renders the institutions comfortable with the easy profits and reduces competition over clients hampering financial expansion.…”

Section: Hypothesis Testing Resultssupporting

confidence: 91%

“…An elasticity coefficient of 0.3514 existing between public domestic debt and financial development suggests that a 1% growth in public domestic debt leads to a 0.3514% decrease in Kenya's financial development in the longrun. This result agrees with Altaylıgil et al (2013), which asserted that decreasing public borrowing allows the private sector to advance more to private investors, hence fostering financial development. The results contradict Mogaka (2017), which affirms that public sector borrowing positively correlates with financial development.…”

Section: Lnfdt=β0+β1lnpddt+ β2lnpedt+ β3lnintt+µt (6)supporting

confidence: 90%

“…According to Mirac (2016), public debt may, directly and indirectly, impact the financial sector development, and the direction of the impact depends on economic development and the nature of the country's public debt. According to Altaylıgil and Akkay (2013), the threshold at which public debt harms the financial sector development depends on the current economic growth levels and the amount of public debt of a country.…”

Section: Introductionmentioning

confidence: 99%

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Relationship Between Public Debt And Financial Development In Kenya

Kipyego

Njoka

Muniu

2022

IJFA

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Purpose: This study sought to analyze the relationship between public debt and financial development in Kenya. The specific objectives were to examine the association between public domestic debt and financial development, to analyze the connexion between public external debt and Kenya's financial development. The study was underpinned on Financial Repression, Financial Liberalization, Lazy Bank Hypothesis, Demand following hypothesis, and the MacKinnon theoretical model. Methodology: The study applied positivism philosophy and explanatory research design. The study used country data hence no need for sampling. Data was collected for 1964 to 2019 from Kenya's Central Bank. Descriptive and inferential statistics were used in the study. Diagnostic tests such as Multi-collinearity, Auto-correlation, Normality, and Unit root were performed. Specifically, the long-run and short-run relationships were analyzed using the Auto-Regressive Distributive lag (ARDL) bound test for cointegration. An error correction model was applied to examine the short-run association. Finding: The test suggested the presence of a stable long-run relationship between financial development, public domestic debt, public external debt, and interest rate. The study finding indicates that public domestic debt has a statistically significant negative relationship with Kenya's financial development both in the long and short run. Also, public external debt has a statistically significant positive long and short-run association with financial development. Unique Contribution to Theory, Practice and Policy: The affirms liberalization theory by Shaw and Mackinnon (1973), advocating for a reduction in direct government participation in the financial market credit restriction In addition the study's findings are consistent with the lazy bank hypothesis by Hauner (2009) In addition, the government must ensure appropriate market-determined interest rate must be applied in domestic public debt. Furthermore, the government should continue fostering financial liberalization policies that encourage public external debt has its impacts positively on financial development.

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Section: Hypothesis Testing Resultssupporting

confidence: 91%

Section: Lnfdt=β0+β1lnpddt+ β2lnpedt+ β3lnintt+µt (6)supporting

confidence: 90%

Section: Introductionmentioning

confidence: 99%

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Relationship Between Public Debt And Financial Development In Kenya

Kipyego

Njoka

Muniu

2022

IJFA

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“…The extended Endogenous Growth Theory captures the threshold relationship between fiscal deficit and economic growth (Slimani, 2016). According to the theory, government plays a significant role through wellselected productive investments like promoting the accumulation of knowledge, research and development, real public investment, human capital development and law and order, which can generate growth both in the short-and longrun (Altayligil & Akkay, 2013). The model emphasises an explicit link between government spending and long-run economic growth in endogenous growth and shows the process of determining optimal public expenditure.…”

Section: Theoretical Literaturementioning

confidence: 99%

The Threshold Effect of Domestic Public Borrowing on the Nigerian Economy

Alenoghena,

Amase,

Aghughu

2022

IJRISS

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TLike many other developing countries, the Nigerian government has increased domestic borrowing recently. This study examines the nonlinear relationship between domestic borrowing and economic growth, covering 1980 and 2019. The study adopts the threshold regression approach to establish the switching point between domestic borrowing and economic growth in Nigeria. The results reveal that the domestic borrowing and economic growth threshold is 14.88% of GDP with an inverted U-shaped curve. The maximum turning point of the variables implies the application of the debt Laffer Curve in Nigeria, showing that domestic borrowing is favourable to the economy before the threshold. However, additional domestic borrowing after the threshold induces an adverse effect on the economy. Also, the regression results of the non-varying threshold measures show that while the effect of external debt has been positive and significant on economic growth, gross fixed capital formation and inflation were negative and significant. Therefore, while recommending more rigorous monitoring and efficient utilisation of domestic borrowed funds by the government, the study emphasises the application of the threshold of 14.88% of GDP on domestic borrowing in the country.

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“…In many developing countries, the weight of domestic debt in total public debt has increased considerably, for some countries due to difficulties in accessing financing in international markets (mainly due to the decrease in multilateral and concessional loans), and for others due to the simple strategy of governments to reduce external dependency (Panizza 2008). Although reducing macroeconomic risks, the rapid increase in the share of domestic credit absorbed by the public sector in many developing countries (such as Cape Verde) raises questions about the consequences for the development of the financial sector (Panizza 2008;Hauner 2009) such as conceding inefficient credit to the private sector and precarious financial development (Altayligil and Akkay 2013).…”

Section: Introductionmentioning

confidence: 99%

The Effects of Government Bonds on Liquidity Risk and Bank Profitability in Cape Verde

Teixeira

Vieira

Ferreira

2021

IJFS

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To analyze the effects of government debt securities on the liquidity risk and profitability of banks in Cape Verde, this research employs an unbalanced panel dataset from 2000 to 2017 on the activity of all commercial banks operating at the end of 2017 (seven in total). The study employs models with lagged regressors, estimated by the ordinary least squares estimation method. The results show that government debt securities have no effect on bank liquidity risks, but they have an effect on bank profitability, with government debt securities having a positive impact on assets’ profitability, in the long run. When government debt securities include Consolidated Securities of Financial Mobilization, the effects on profitability are negative both in the short and the long run. The study concludes that banks’ strategy to hold the more conventional government debt securities as safe assets and risk-free alternative for the domestic application of liquidity surpluses is appropriate and a viable way to gain profitability in the long run. These results show the negative effect of government debt securities when the Consolidated Securities of Financial Mobilization are included, which helps to explain the low average profitability rates of Cape Verde’s banks, when compared to other similar sub-Saharan African countries, like Mauritius or Seychelles.

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The Effect of the Domestic Debt on the Financial Development: A Case Study for Turkey

Cited by 8 publications

References 30 publications

Relationship Between Public Debt And Financial Development In Kenya

Relationship Between Public Debt And Financial Development In Kenya

The Threshold Effect of Domestic Public Borrowing on the Nigerian Economy

The Effects of Government Bonds on Liquidity Risk and Bank Profitability in Cape Verde

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