Effect of Deficit Financing on Economic Growth in Bangladesh: Cointegration and VECM Approach

Alam, Md. Mahbub; Sadekin, Md. Nazmus; Islam, Rabiul; Moudud‐Ul‐Huq, Syed

doi:10.1177/23197145211057339

Cited by 3 publications

(4 citation statements)

References 29 publications

(41 reference statements)

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“…For instance, Ughulu et al, (2023) found that external sources of deficit financing do not affect economic growth, while Alam et al, (2022), observed that foreign sources of deficit financing increased economic performance. On the other hand, Ibukunle & Akuston (2022) and Abubakar (2021) reported that domestic sources of deficit financing enhanced economic growth in Nigeria; Jakpa & Osho-Itsudi (2020), observed that domestic sources of deficit financing did not enhance the Nigerian economy.…”

Section: Statement Of the Problemmentioning

confidence: 99%

“…Non-bank financing, although not statistically significant, exhibited the right sign as it had a positive effect. Alam et al, (2022) examined the effects of budget deficit financing on economic growth in Bangladesh from 1981 to 2018 using secondary data that were subjected to a co-integration test, vector error correction mechanism (VECM) and Granger causality test. Johansen's cointegration subsequently had a long-run nexus among the variables.…”

Section: Empirical Review Of Literaturementioning

confidence: 99%

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Effects of Budget Deficit Financing on the Economy of Nigeria

Uremadu,

Umezurike,

Onyele

2024

AKSUJACOG

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The study investigated the effects of deficit financing on the Nigerian economy using data that covered 41 years (1981 to 2021). Real gross domestic product (RGDP) was the dependent variable, while government budget deficit financing disaggregated into different sources of budget deficit financing represented the explanatory variables. The ordinary least squares (OLS) regression method was used for the tests and analyses. Results established that both non-bank public sources of deficit financing and banking system sources of deficit financing had positive and significant effects on growth. However, non-bank public deficit financing positively led the Nigerian economy and was followed by banking system deficit financing. Both ways and means and external deficit financing sources were negative and insignificant in influencing the Nigerian economy. Ways and means were third while external deficit financing was fourth in descending order of influence on RGDP growth. The study further applied the Augmented Dickey-Fuller (ADF) approach to unit root tests and observed that the variables were integrated at both levels and first difference, leading to the application of the Autoregressive Distributed lag (ARDL) approach to data estimation. The ARDL bounds tests showed that the model specified for the study followed a long-run path and that a long-run relationship existed between the dependent variable and the explanatory variables. The estimation of the long-run and error correction estimation indicated that the independent variables had a time-varying effect on the real gross domestic product of Nigeria. That ARDL estimation of the error correction mechanism also showed that RGDP adjusted rapidly to short-run discrepancies in the long run. Finally, the error correction mechanism showed that external sources of budget deficit financing, non-banking system public deficit financing, ways and means source of deficit financing, gross capital formation, real interest rate and exchange rate, all had robust effects on growth, though with varying directions of influence. Based on the foregoing, the study has recommended deficit financing, more especially non-bank public deficit financing and banking system deficit financing as better options for attaining the much desired rapid and sustainable economic growth of Nigeria as they have been proven to be non-inflationary in practice compared to ways and means and external source of deficit financing over the years.

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Section: Statement Of the Problemmentioning

confidence: 99%

Section: Empirical Review Of Literaturementioning

confidence: 99%

Effects of Budget Deficit Financing on the Economy of Nigeria

Uremadu,

Umezurike,

Onyele

2024

AKSUJACOG

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“…The findings revealed that external source of financing budget deficit, internal source of financing budget deficit as well as debt servicing has a significant effect on money demand in the Nigerian context. Alam, Sadekin, Islam, and Moudud-Ul-Huq (2021) examined the effect of budget deficit financing on economic growth in Bangladesh throughout 1981-2018. Using secondary data, the paper used the cointegration test, vector error correction mechanism (VECM), and Granger causality test.…”

Section: Empirical Reviewmentioning

confidence: 99%

Effect 0f Deficit Budget Financing Sources on Inflation Rate in Nigeria

Agu,

Oshim

2024

IJBMR

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The study examined the effect of deficit budget financing sources on inflation rate in Nigeria. External debt, Ways and Means Advances, and Treasury Bills were the independent variables of the study, while inflation rate was the dependent variable. The study adopted an ex-post-facto research design, covering the period between 2011 and 2020. Secondary data were extracted from the Central Bank of Nigeria Statistical Bulletin. Ordinary Least Square multiple regression technique was used for the data analysis. In line with the specific objectives of the study which is to ascertain the effect of external debt, ways and means advances, and treasury bills on inflation rate in Nigeria, it was revealed that external debt and treasury bills have a significant effect on inflation rate in Nigeria. Ways and means advances have a positive and significant effect on inflation rate in Nigeria. This implies that among the explanatory variables, ways and means advances is the major determinant of inflation rate in Nigeria. The study recommended therefore that government policies on inflation rate should factor in external debts because of their negative effect on inflation rate. external borrowing should be prudently used in productive activities that can raise investments, reduced inflation and improve the country's exchange rate. The Government should drastically reduce the rate they borrow from CBN. Any of such borrowing should be targeted towards developing the economy and they should always maintain the credit limit set by the CBN. The government should reduce the number of treasury bills issued to the general populace. Other sources of deficit budget funding, such as privatization of obsolete government institutions, should be considered by the government.

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“…Taylor, Proano, Carvalho, and Barbosa (2012) investigated the effects of the primary fiscal deficit on economic growth with VAR which was reported that the more spending and less taxation can positively influenced on the growth of economy of the USA. The rising Asian economy, Bangladesh, adopted deficit budget since 1972 and the recent study with VECM and Granger causality by Alam, Sadekin, Islam, and Moudud-Ul-Huq (2022) conclude that the government domestic debt (GDD) and government external debt (GEXD) affect positively economic growth (RGDP). In a similar vein, the findings of this study, such as those of Navaratnam and Mayandy (2016), showed that the fiscal deficit has a negative influence on economic growth in all of the South Asian nations included in this study, with the exception of Nepal, where the results showed a positive impact.…”

Section: Brief Literature Reviewmentioning

confidence: 99%

Does Fiscal Deficit Cause Economic Growth? Evidence from Nepal

Gajurel

Dangal

2023

Gyanjyoti

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The fiscal deficit soared tremendously after Nepal endorsed economic liberalization aftermath of the 1990s democracy. The purpose of the paper is to investigate the effects of fiscal deficit in the economic growth of Nepal. Data from 1980 to 2019 were used to estimate the short- and long-run causal relations of fiscal deficit proxied by total government expenditure minus total government revenue as a percent of gross domestic product (GDP) and growth rate of real GDP as a proxy of economic growth along with other control variables. The autoregressive distributed lag (ARDL) error correction regression and vector error correction model (VECM) Granger causality have employed to meet the purpose of the study. The study reveals that there is short-run statistically significant negative relationship between Nepal's economic growth and the fiscal deficit of the previous year. However, both domestic and foreign loan and economic growth have positive and significant relations in short run. In contrast, the results reveal that there is positive but not significant relationship between the fiscal deficit and the economic growth of Nepal in long run. The Granger causality suggests that fiscal deficit does not Granger cause the economic growth of Nepal. However, economic growth does Granger causes the fiscal deficit in Nepal. Thus, the growth-driven fiscal deficit will be more effective in the economy of Nepal. Based on stylized facts, it will be necessary to redirect deficit financing into productive channels in order to enhance the sustainable economic growth.

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Effect of Deficit Financing on Economic Growth in Bangladesh: Cointegration and VECM Approach

Cited by 3 publications

References 29 publications

Effects of Budget Deficit Financing on the Economy of Nigeria

Effects of Budget Deficit Financing on the Economy of Nigeria

Effect 0f Deficit Budget Financing Sources on Inflation Rate in Nigeria

Does Fiscal Deficit Cause Economic Growth? Evidence from Nepal

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