Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

Aswata, Millicent Bridgit; Nnyanzi, John Bosco; Bbale, John Mayanja

doi:10.4236/me.2018.912126

Cited by 9 publications

(6 citation statements)

References 23 publications

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“…Our results show that increasing domestic public debt and debt service costs in South Africa have had a negative effect on private capital formation during the recent years. These findings support the crowding-out proposition and previous findings in papers such as Aswata et al (2018). However, external public debt is found to crowd-in private investment.…”

Section: Introductionsupporting

confidence: 91%

“…In sub-Saharan Africa (SSA), this result has been established for Nigeria (Akomolafe et al, 2015) and the SSA region (Ghura and Goodwin, 2000). Aswata et al (2018) further explore the relationship between public debt and both domestic private and foreign direct investment in East Africa. Whilst the crowding-out effect is observed in their results, an interesting finding is that the impact decreases when corruption is controlled for.…”

Section: Literature Reviewmentioning

confidence: 84%

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The impact of debt service costs and public debt on private capital formation in South Africa

Zhou

2021

AJEMS

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PurposeThe aim of this paper is to analyse the relationship between public debt, corporate debt service costs and private capital formation in South Africa.Design/methodology/approachTo capture the long-run characteristic of investment, the study adopts the Fully Modified Ordinary Least Squares approach and tests for cointegration using Hansen (1992)'s Parameter Instability test.FindingsWe find that private capital formation increases in domestic debt and decreases in external debt during the pre-crisis period. However, during the period post the Global Financial Crisis, we find evidence of domestic public debt crowding out private capital formation, whereas external debt crowds-in capital formation. Debt service costs are found to reduce investment due to the effect of the debt overhang throughout the period under analysis.Research limitations/implicationsThe paper has important implications for macroeconomic policy. In particular, there is need for deleveraging and allocation of a higher proportion of debt to public infrastructure expenditure which has complementary effects on private investment.Practical implicationsDebt overhang signal that South African firms could be over-leveraged, which hinders future growth prospects. Firms that face high levels of debt should consider debt restructuring.Originality/valueEmpirical studies undertaken to explore this relationship have yielded contradicting results suggesting that the relationship between public debt and private investment is heterogeneous depending on a given economy or prevailing macroeconomic environment. In particular, existing research does not provide evidence on whether recent increases in public debt in South Africa have led to crowding-in or crowding-out of private investment. This paper therefore contributes to empirical literature on the impact of public debt on private investment within a small open economy.

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Section: Introductionsupporting

confidence: 91%

Section: Literature Reviewmentioning

confidence: 84%

The impact of debt service costs and public debt on private capital formation in South Africa

Zhou

2021

AJEMS

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“…Aschauer [7] found that public investment crowds-in private investment. Similarly, two other studies also support the existence of the crowding-in effect public on private investment [3] and [5]. Authors [28] found a greater crowding-in effect in developing rather than developed countries by public investment.…”

Section: Literature Reviewmentioning

confidence: 63%

A Test of the validity of Crowding-out (or- in) hypothesis: A new examination of link between public borrowing and private investment in Emerging Europe

Ganić

Hodžić

Riđić

2021

Cro. Oper. Res. Rev.

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This study seeks to test the existence of the crowding-out (or- in) hypothesis in a sample of 17 Emerging Europe countries divided in two panels. The study employs a panel autoregressive distributed lag (ARDL) model based on three estimators, Mean Group Estimator (MG), Pooled Mean Group (PMG) and Dynamic Fixed Effect (DFE), in order to evaluate the of stability of short run and long run coefficients using consistently compiled public borrowing and private investment data between 2000 and 2019. The empirical findings of the paper generally confirm the existence of a crowding out effect in both long run and short run in European post-transition countries, and in the long run for European transition countries. More specifically, elasticity of private investment with respect to public debt is greater in the European transition countries than in the European post-transition countries. However, the findings on the crowding out (in) effect of government spending and economic growth on private investment are mixed and conflicting in both the long run and the short run. Accordingly, the study recommends that selected countries should reassess their austerity agendas employed for lowering debt levels, and follow new strategies for managing public debt burden.

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“…The ARDL model is used in the paper because it is applied if all the time series variables are either I(0) or I(1) and/or if they are a combination of I(0) and I(1) but it cannot be used if one of the time series variables is I(2) (Pesaran et al, 2001). In addition, the method produces unbiased estimates even in the presence of endogenous covariates, applies to small sizes like for our paper, and estimates the short-run and long-run dynamic relationship among macroeconomic variables (Shaari et al, 2022 andAswata et al, 2018). The estimated ARDL model is specified as presented in Equation ( 2).…”

Section: Literature Reviewmentioning

confidence: 93%

The Nexus Between Renewable Energy Consumption, Financial Development, and Trade Openness Based on Environmental Quality in Uganda: An Application of the ARDL

Mayanja,

Arinaitwe,

Kasaijja

et al. 2024

IJEEP

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Environmental degradation is attributed to human activities associated with economic development. This study examines renewable energy consumption (REC), financial development (FD), trade openness, and environmental quality nexus in Uganda over the period 1990-2019 using the Autoregressive Distribution Lag (ARDL). Findings show that REC improves environmental quality both in the short and long run. In addition, while trade openness is negatively related to environmental quality in the short and long run, a negative correlation exists between FD and environmental quality only in the long run. Furthermore, economic growth has a positive relationship with environmental quality in the short run while in the long run, GDP2 improves environmental quality. However, the results from the study find no statistical relationship between FDI and environmental quality, and thus neither the pollution haven nor pollution halo hypotheses are confirmed in the Ugandan case. This paper does not only recommend investing more in renewable energy development to improve the quality of the environment but also in financial sector development to support investments that promote a low-carbon and green economy.

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Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis

Cited by 9 publications

References 23 publications

The impact of debt service costs and public debt on private capital formation in South Africa

The impact of debt service costs and public debt on private capital formation in South Africa

A Test of the validity of Crowding-out (or- in) hypothesis: A new examination of link between public borrowing and private investment in Emerging Europe

The Nexus Between Renewable Energy Consumption, Financial Development, and Trade Openness Based on Environmental Quality in Uganda: An Application of the ARDL

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