Do budget deficits crowd out private investment? An analysis of the South African economy

Biza, Rumbidzai Aime; Kapingura, Forget Mingiri; Tsegaye, Asrat

doi:10.1504/ijepee.2015.068248

Cited by 19 publications

(18 citation statements)

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“…This finding is contrary to the previous study done by Van and Sudhipongpracha (2015) which concluded that there was no relationship between budget deficit and economic growth in Vietnam's economy. However, our result is especially in line with that of some empirical studies in both developed and developing countries (Cebula, 1995;Ghura, 1995;Fatima et al, 2012;Biza et al, 2015;Arjomand et al, 2016). This result also implies that fiscal deficit has a harmful effect on economic growth in the long run in Vietnam.…”

Section: Regression Resultssupporting

confidence: 93%

“…Their findings also showed that the foreign direct investment played an important role in support the economic productivity (and growth) in Vietnam in the study period. Biza et al (2015) done an investigative study about the effect of budget deficit on private investment in South Africa with quarterly data in 1994-2009. The study applied the cointegration and vector auto-regression technique to provide the long run and short run dynamic effects on private investment.…”

Section: Literature Reviewmentioning

confidence: 99%

“…And the available research results on this topic provide rather contradictory conclusions. Thus, there was some evidence showing a negative impact of fiscal deficit on economic growth (Cebula, 1995;Ghura, 1995;Biza et al, 2015;Arjomand et al, 2016), however, other researchers have concluded it has a positive impact (Ahmad, 2013) or an insignificant one (Radman, 2012;Velnampy and Achchuthan, 2013).…”

Section: Introductionmentioning

confidence: 99%

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The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam

Tùng

2018

Journal of International Studies

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Fiscal deficit has been sharply increasing in the developing economies worldwide. This paper examines the effect of fiscal deficit on economic growth in Vietnam, the country now is one of the most dynamically emerging countries, but its government has been facing large fiscal deficits for many years by now. Our study has applied the Error Correction model on the quarterly data of 2003-2016. The empirical results strongly indicate there is a cointegration relationship between fiscal deficit and economic growth in Vietnam, in which fiscal deficit had harmful effects on economic growth in both short and long run. In particular, the correlation analysis has confirmed that fiscal deficit can hurt not only the gross output but also private investments, foreign direct investments, and net exports. Our results provide evidence for policymakers, and not only in Vietnam but also in other emerging countries which are in need of urgent solutions so that to reduce the fiscal deficit rate and have more sustainable growth in the future.

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Section: Regression Resultssupporting

confidence: 93%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam

Tùng

2018

Journal of International Studies

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“…Nevertheless, our results differ from those reported in Jung and Thornecke (2003), Annabi et al (2011) and Dissou et al (2016) which observe a positive interactive effect of government and human capital on economic growth. However, as argued by Biza et al (2015), government size in African countries tend to crowd out the positive effects of investments on economic growth.…”

Section: The Interactive Effect Between Fiscal Size and Human Capitalmentioning

confidence: 99%

The human capital–economic growth nexus in SSA countries: what can strengthen the relationship?

Karambakuwa

Ncwadi

Phiri

2020

IJSE

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PurposeThe purpose of this study is to examine the impact of human capital on economic growth for a selected sample of nine SSA countries between 1980 and 2014 using a panel econometric approach.Design/methodology/approachThe authors estimate a log-linearized endogenous using the fully modified ordinary least squares (FMOLS) and the dynamic ordinary least squares (POLS) applied to our panel data time series.FindingsThe empirical analysis shows an insignificant effect of human capital on economic growth for our selected sample. These findings remain unchanged even after adding interactive terms to human capital, which are representatives of government spending as well as foreign direct investment. Nevertheless, the authors establish a positive and significant effect of the interactive term between urbanization and human capital on economic growth.Practical implicationsThe results emphasize the need for African policymakers to develop urbanized, “smart”, technologically driven cities within the SSA region as a platform toward strengthening the impact of human capital-economic growth relationship.Originality/valueThis study becomes the first in the literature to validate the human capital–urbanization–growth relationship for African countries.

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“…In South Africa reviewing existing literature with regards to the relationship between budget deficits and economic growth remains a vast challenge. However fewer researchers including Murwirapachena, Maredza and Choga (2013), Biza, Kapingura & Tsegaye (2015), Mujuta (2013) as well as Bonga-Bonga (2011) conducted studies to examine the effect of budget deficits on South Africa's economic growth and other macroeconomic variables. Both researchers concluded that budget deficits are not desirable for South African economy and as a result, government must apply expenditure ceiling and improve the taxation system to find sense of balance between government expenditure and revenue collected through taxation.…”

Section: Literature Reviewmentioning

confidence: 99%

Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa

Molefe¹,

Maredza²

2017

JEBS

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The primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies.

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Do budget deficits crowd out private investment? An analysis of the South African economy

Cited by 19 publications

References 0 publications

The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam

The effect of fiscal deficit on economic growth in an emerging economy: Evidence from Vietnam

The human capital–economic growth nexus in SSA countries: what can strengthen the relationship?

Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa

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