Crowding-out Effect of Public Borrowing in Sri Lanka
Journal Title: Journal of Economics and Business - Year 2019, Vol 2, Issue 3
Abstract
The government of Sri Lanka has been disproportionately borrowing from the domestic banking and non-banking sectors to finance its budget deficit. These sectors also serve as funding sources for the country's private investors. The government's expansionary fiscal policy has increased its total income, but it may also raise interest rates and reduce private investment. This study estimates the crowding-out effect of public borrowing from domestic sources on private investment in Sri Lanka. Using time-series data from 1960-2014 sourced from the Central Bank of Sri Lanka and World Development Indicators, we develop an investment function with three independent variables, public borrowing, interest rate, and gross domestic product. Unit root tests and the autoregressive distributed lag and vector error correction models are also utilized. To test the long-run relationships among the variables, we conduct a bound test of co-integration, and the results show that there is long-run co-integration between the variables. Vector autoregressive models, variance decomposition analysis, the Granger causality test, and impulse response functions are used to analyse the results. The study provides evidence for the absence of a crowding-out effect in Sri Lanka as a result of public borrowing from domestic sources. This evidence has important implications of fiscal management in Sri Lanka. To avoid external indebtedness and unnecessary inflation due to debt financing, the government can rely on domestic sources without hurting private investment in the country.
Authors and Affiliations
Nawalage L. A. Cooray
Keywords
Related Articles
- EP ID EP646514
- DOI 10.31014/aior.1992.02.03.130
- Views 57
- Downloads 0
The Incremental Value of Islamic Social Reporting: Evidence from Companies Listed in Jakarta Islamic Index
The purpose of this study is to investigate the value relevance of Islamic social reporting disclosures in influencing the firm value. Islamic Social Reporting (ISR) is a Corporate Social Responsibility (CSR) reporting m...
Factors Influencing Islamic Bank Financing in Indonesia
As intermediary institutions, Islamic banks gather funds from society and then transmit in the form of financing. In practice, the distribution of financing that is the main feature that runs Islamic banks is not as easy...
Role of Audit Committee in Tax Avoidance of Family and Non-Family Firms: Evidence from Indonesia
Companies often use tax avoidance and cost of debt substitutionally to achieve the desired marginal tax rate, without attracting the attention of the Tax Department of the State. We examine the role of the audit committe...
Oil Prices and Sectoral Stock Prices with Mining Sector Stock Prices in the Exporting Countries as well as Oil Importers
This paper uses the panel vector autoregressive (PVAR) to find out the dynamic relationship between oil prices, inflation, exchange rates, industrial production and the stock prices of 18 mining sector companies in Indon...
Impacts of Founder on The Success of Crowdfunding in Vietnam
Being one of FinTech's most innovative operating tools in the age of 4.0, crowdfunding is one of the ways that is used to raise money without financial intermediations. This method helps companies and individuals worldwi...