External debt can positively or negatively impact economic growth. This study analyzes Malaysia's external debt and its effects on economic growth from 1970 to 2005. The results show that in the long run, a 1% increase in total external debt leads to a 1.29% increase in economic growth. Specifically, project loans positively impact growth, while market loans show no significant effect. In the short run, total external debt and project loans also positively impact economic growth. The study uses a VAR model to analyze the relationship between external debt, GDP, capital, labor, and human capital in Malaysia.
External debt, economic growth and investment in nigeriaAlexander Decker
This document summarizes a study that examines the impact of external debt on economic growth and investment in Nigeria from 1980 to 2008. The study uses debt-cum-growth and investment models and multiple regression analysis. The results show a positive relationship between external debt, economic growth, and investment, with a high coefficient of determination of about 79.8%. However, private investment, a measure of real development, shows a decline. The study recommends that government ensure borrowed funds are used optimally to avoid economic crises and reduce private investment, which is key to growth.
Financial Sector Performance and Conceptual FrameworkAtif Ahmed
This document provides an overview of the financial services sector and related concepts. It discusses the history of the sector and how technology has changed operations. The future outlook is uncertain given recent market collapses. It also defines primary and secondary markets, debt and equity, and money and capital markets. Additionally, it outlines different types of financial regulations and describes the US financial industry and subsectors. Finally, it analyzes Pakistan's economic growth rate, inflation rate, and tax-to-GDP ratio over the past decades.
This document discusses international finance issues in Vietnam. It covers 3 main topics: 1) Balance of payments and the current account deficit issues Vietnam faced during the 2008 global crisis, including rising trade and fiscal deficits, unemployment, and inflation. 2) Managing capital flows, including increasing foreign direct investment, official development assistance, and portfolio investment flows into Vietnam. 3) Vietnam's exchange rate policy of unofficially pegging its currency to the US dollar. The document recommends Vietnam focus on institutional reforms, moving up the value chain, improving infrastructure, and strengthening financial supervision and statistics.
This document discusses the development of Asia's financial systems. It notes that while Asia's financial systems demonstrated resilience during the global financial crisis, development of the financial sector still lags behind real economic growth. Asia's financial systems remain bank-dominated with underdeveloped capital markets and limited access to financial services, especially in low-income countries. Further developing Asia's financial systems is important to support continued economic growth and development in the region.
This document provides an overview of the financial system of the enlarged European Union (EU) with 25 member states. It describes the development of financial systems in EU countries since 1995 and compares structures between old and new member states. Key differences are documented between new and old members, with new members generally having less developed financial systems. The document also briefly compares EU financial structures to those of the US and Japan.
Monetary policy review rbi july 2013 0 md317c83c123arjunarikeri
The document discusses recent macroeconomic developments in India during the first quarter of 2012-13. Some key points:
1) Economic growth in India slowed to a 29-quarter low of 5.3% in Q4 of 2011-12 and has likely remained weak in Q1 of 2012-13, with risks to growth increasing from the global slowdown, domestic supply constraints, and a poor monsoon.
2) Inflation has remained persistent, with both wholesale and retail inflation remaining above target levels, posing a challenge for monetary policy.
3) The current account deficit remains large and financing it is difficult given slowing capital inflows, though lower oil prices may provide some relief. External debt is rising
Etude PwC sur les opérations de fusions et acquisitions dans le secteur banca...PwC France
The document discusses how banking mergers and acquisitions (M&A) are evolving in a new environment shaped by long-term trends and short-term factors. It notes that banking M&A has declined significantly since the financial crisis but will remain important for adaptation. Key drivers changing banking M&A include economic growth in emerging markets, increasing banking integration globally, ongoing regulatory reforms, and strategic shifts in goals and participants. The document then analyzes how banking M&A is evolving differently across key regions and through other transactions like loan sales.
Macroeconomic factors that affect the quality of lending in albania.Alexander Decker
This document analyzes the relationship between macroeconomic factors and credit quality in the Albanian banking system from 2005 to 2013. It finds that non-performing loan rates increased, influenced by the economic slowdown after 2008 and currency depreciation. Unemployment, lower GDP growth, reduced remittances, and inflation stability negatively impacted borrowers' ability to repay loans. A regression analysis showed credit risk significantly increased when GDP growth declined and interest rates rose. Macroeconomic changes, like deteriorating GDP growth, substantially affected the level of non-performing loans in Albanian banks.
External debt, economic growth and investment in nigeriaAlexander Decker
This document summarizes a study that examines the impact of external debt on economic growth and investment in Nigeria from 1980 to 2008. The study uses debt-cum-growth and investment models and multiple regression analysis. The results show a positive relationship between external debt, economic growth, and investment, with a high coefficient of determination of about 79.8%. However, private investment, a measure of real development, shows a decline. The study recommends that government ensure borrowed funds are used optimally to avoid economic crises and reduce private investment, which is key to growth.
Financial Sector Performance and Conceptual FrameworkAtif Ahmed
This document provides an overview of the financial services sector and related concepts. It discusses the history of the sector and how technology has changed operations. The future outlook is uncertain given recent market collapses. It also defines primary and secondary markets, debt and equity, and money and capital markets. Additionally, it outlines different types of financial regulations and describes the US financial industry and subsectors. Finally, it analyzes Pakistan's economic growth rate, inflation rate, and tax-to-GDP ratio over the past decades.
This document discusses international finance issues in Vietnam. It covers 3 main topics: 1) Balance of payments and the current account deficit issues Vietnam faced during the 2008 global crisis, including rising trade and fiscal deficits, unemployment, and inflation. 2) Managing capital flows, including increasing foreign direct investment, official development assistance, and portfolio investment flows into Vietnam. 3) Vietnam's exchange rate policy of unofficially pegging its currency to the US dollar. The document recommends Vietnam focus on institutional reforms, moving up the value chain, improving infrastructure, and strengthening financial supervision and statistics.
This document discusses the development of Asia's financial systems. It notes that while Asia's financial systems demonstrated resilience during the global financial crisis, development of the financial sector still lags behind real economic growth. Asia's financial systems remain bank-dominated with underdeveloped capital markets and limited access to financial services, especially in low-income countries. Further developing Asia's financial systems is important to support continued economic growth and development in the region.
This document provides an overview of the financial system of the enlarged European Union (EU) with 25 member states. It describes the development of financial systems in EU countries since 1995 and compares structures between old and new member states. Key differences are documented between new and old members, with new members generally having less developed financial systems. The document also briefly compares EU financial structures to those of the US and Japan.
Monetary policy review rbi july 2013 0 md317c83c123arjunarikeri
The document discusses recent macroeconomic developments in India during the first quarter of 2012-13. Some key points:
1) Economic growth in India slowed to a 29-quarter low of 5.3% in Q4 of 2011-12 and has likely remained weak in Q1 of 2012-13, with risks to growth increasing from the global slowdown, domestic supply constraints, and a poor monsoon.
2) Inflation has remained persistent, with both wholesale and retail inflation remaining above target levels, posing a challenge for monetary policy.
3) The current account deficit remains large and financing it is difficult given slowing capital inflows, though lower oil prices may provide some relief. External debt is rising
Etude PwC sur les opérations de fusions et acquisitions dans le secteur banca...PwC France
The document discusses how banking mergers and acquisitions (M&A) are evolving in a new environment shaped by long-term trends and short-term factors. It notes that banking M&A has declined significantly since the financial crisis but will remain important for adaptation. Key drivers changing banking M&A include economic growth in emerging markets, increasing banking integration globally, ongoing regulatory reforms, and strategic shifts in goals and participants. The document then analyzes how banking M&A is evolving differently across key regions and through other transactions like loan sales.
Macroeconomic factors that affect the quality of lending in albania.Alexander Decker
This document analyzes the relationship between macroeconomic factors and credit quality in the Albanian banking system from 2005 to 2013. It finds that non-performing loan rates increased, influenced by the economic slowdown after 2008 and currency depreciation. Unemployment, lower GDP growth, reduced remittances, and inflation stability negatively impacted borrowers' ability to repay loans. A regression analysis showed credit risk significantly increased when GDP growth declined and interest rates rose. Macroeconomic changes, like deteriorating GDP growth, substantially affected the level of non-performing loans in Albanian banks.
This document introduces a new dataset on small and medium enterprises (SMEs) to fill gaps in cross-country SME data. The summary analyzes the dataset and finds:
1) Global SME lending is estimated to be $10 trillion, with 70% in high-income countries.
2) SME loans average 13% of GDP in developed countries and 3% in developing countries.
3) Differences in SME definitions across countries do not significantly impact cross-country comparisons of SME lending volumes.
The presentation was conducted by the senior VP of the Bank of China American Branches. The event was hosted by the Greater Cincinnati Chinese Chamber of Commerce.
This document analyzes the determinants of foreign direct investment (FDI) in Malaysia's manufacturing industry from 1980-2002. It finds:
1) Malaysia received substantial FDI over this period, which was an important driver of its economic growth and industrialization.
2) An econometric analysis using cointegration and fully-modified least squares methods found that increases in education, infrastructure, market size, and current account balance led to increases in FDI, while increases in inflation and exchange rate led to decreases.
3) Major sources of FDI in Malaysia's manufacturing sector included the US, Japan, Germany, and Singapore, with electrical/electronics, petroleum, and chemicals as top recipient industries.
The trilemma as a framework for understanding China and India’s recent moneta...Hiram Ruiz
This document summarizes and analyzes recent monetary policy choices by China and India through the framework of the "trilemma" of international finance. It discusses China and India's use of capital controls to maintain exchange rate stability and monetary sovereignty while restricting capital flows. The document analyzes the development of each country's domestic financial markets and the role of government ownership in banking. It examines how China and India have approached exchange rate policy and positioned themselves within the trilemma framework over time based on quantitative data and historical context.
Read and follow the top economic indicators for Vietnam, M&A activity, and major developments in finance, banking, and legal. Published Monthly with contribution from LNT & Partners Law Firm.
This document summarizes a thesis that examines the impact of official development assistance (ODA) on foreign direct investment (FDI) in Vietnam using provincial data from 1998 to 2012. The author conducts a literature review that finds mixed results on the relationship between ODA and FDI. Some studies find a positive relationship, others a negative relationship, and some no relationship. The author develops a theoretical model based on neoclassical growth theory to explain the potential relationship. An empirical model is then specified to test the impact of ODA on FDI using panel data and controlling for factors like GDP, openness, and human capital. The author hypothesizes that ODA will have a positive significant effect on FDI inflows in
http://pwc.to/1h2j3Bg
De nombreuses économies émergentes sont en train de perdre leur élan, contestant les plans de croissance des entreprises internationales. Nous avons identifié quatre économies qui pourraient fournir aux entreprises une protection contre un ralentissement.
The document identifies four economies - Poland, Australia, South Korea, and Canada - as potential pockets of opportunity for businesses given their strengths in key conditions for growth. Poland benefits from open access to EU and Russian markets. Australia has a very stable business environment and continued demand for natural resources. South Korea invests heavily in R&D and has a skilled workforce supporting technology sector growth. Canada is energy secure with high renewable energy use, making it less sensitive to energy price changes. These economies are projected to grow substantially faster than the Eurozone over the next five years, outpacing their regional peers.
South Korea has a strong, diversified industrial and manufacturing base that has allowed it to avoid recession since the global financial crisis. However, its open economy and dependence on exports makes it vulnerable to external shocks. South Korea's large trade surpluses and foreign exchange reserves have contributed to its status as one of the strongest emerging markets. But its potential growth rate has declined and population aging poses challenges to long-term growth without policy changes.
This document is a dissertation submitted by Carlos Curbera for a Masters in Banking, Finance and Risk Management. It examines the causes and impacts of the international financial crisis on Spain. The introduction provides background on Spain's housing bubble and economic boom leading up to the 2008 crisis. It discusses the country's high private debt, weak external competitiveness, and skyrocketing unemployment in the aftermath. The dissertation aims to analyze why the crisis had a deeper and longer-lasting impact in Spain compared to other nations and identify actions needed to stimulate economic recovery. It includes chapters on Spain's experience during the subprime crisis, past economic crises in modern Spain, proposed policies to revitalize the economy with a focus on SMEs
This document provides an outlook on the Mongolian economy for 2012. Some of the key points made in the summary and analysis:
- Mongolia experienced unprecedented economic growth in 2011, with estimated real GDP growth of 17.3%, making it the world's fastest growing economy.
- Major drivers of growth included record levels of foreign direct investment (FDI), exports, government spending, and private consumption. FDI hit a record $3.8 billion, with over 80% going to the mining sector. Exports reached an all-time high of $4.8 billion.
- The stock market was the second best performing globally in 2011, with the MSE TOP 20 Index rising 32.6%
Read and follow the top economic indicators for Vietnam, M&A activity, and major developments in finance, banking, and legal. Published Monthly with contribution from LNT & Partners Law Firm.
This document provides a summary of a literature review on the impact of European integration on foreign direct investment (FDI) inflows to Central and Eastern European countries. It finds that previous studies show European integration announcements and progress increased FDI to these countries, as investors anticipated improved institutions and access to EU markets. However, most previous studies did not fully account for different stages of EU integration or the impact of the financial crisis. This study aims to address these gaps by examining the effect of specific political, economic, and monetary integration milestones on FDI inflows to 11 Central and Eastern European EU member states from 1995 to 2013.
This document provides an overview of economic trends and factors relevant for investment analysis and decision making. It covers macroeconomic topics like the political environment, foreign exchange reserves, inflation, interest rates, and taxation. It also discusses how these broader economic conditions can impact industries and companies. The document aims to facilitate informed investment decisions by helping readers understand how economic realities may influence business operations and financial performance. It was prepared collaboratively by four individuals.
This document summarizes the findings of a survey of UK managers regarding the economic outlook. It finds that the vast majority (82%) report the economy is negatively affecting their organization, with an increasing number (45%) saying it is having a severe impact. Public sector managers report a significantly worse impact than other sectors. Managers are increasingly pessimistic about economic growth over the next year, with more expecting a "double dip" recession than growth. Around half of managers think the government is reducing the budget deficit at the right pace, while over three-quarters believe deficit reduction should come from reduced spending rather than increased taxes.
Mongolia is entering a commodity boom as two large mining projects are expected to reach full production this decade. While resource revenues offer development opportunities, they can also cause economic problems if not managed properly. This paper discusses how Mongolia can avoid a "resource trap" by linking social spending to mining performance, reducing macroeconomic volatility, and ensuring major projects have private co-investment to ensure public funds are well spent.
Mongolia is entering a commodity boom as two large mining projects reach full production this decade. However, resource abundance can also suppress long-term growth by increasing volatility, reducing investment incentives, and weakening institutions. Mongolia has taken reform steps and can further avoid a "resource trap" by: (1) linking cash transfers to mining performance to support good governance; (2) de-linking social spending from revenues and improving targeting; and (3) reducing volatility through fiscal and financial reforms while ensuring infrastructure projects attract private co-investment.
This document provides a summary of the global economic outlook and trends for retailers to consider. It discusses slowing economic growth in many leading markets in 2012. In Europe, government spending cuts and debt issues are weakening economies and confidence. In the US, uncertainty around fiscal policy is hurting markets. China is also slowing after monetary tightening. Some positives for retailers include potential margin improvements from lower commodity prices and inflation in some countries. Long term global growth prospects remain strong, especially in emerging markets.
International Journal of Humanities and Social Science Invention (IJHSSI)inventionjournals
International Journal of Humanities and Social Science Invention (IJHSSI) is an international journal intended for professionals and researchers in all fields of Humanities and Social Science. IJHSSI publishes research articles and reviews within the whole field Humanities and Social Science, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Public debt is intended to bridge the gap between domestic savings and investment. This paper examines the effect of public debt on economic growth in Bangladesh using autoregressive distributed lag bound testing approach to cointegration. It finds a negative relationship between public debt and economic growth both in the short-run and the long-run. That is, a significant rise in the public debt in Bangladesh appears to be a burden for the economic growth controlling for other determinants of growth. The findings suggest that funds obtained through public debt are not utilized in the productive economic avenues which may improve the growth scenario in Bangladesh. Also, the adverse effect exerted by public debt may further be responsible for a reduction in investment and slower growth of capital stock, which eventually can hamper the labour productivity growth in the country in long run.
Net External Liabilities and Economic Growth: A Case Study of pakistansanaullah noonari
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
This document introduces a new dataset on small and medium enterprises (SMEs) to fill gaps in cross-country SME data. The summary analyzes the dataset and finds:
1) Global SME lending is estimated to be $10 trillion, with 70% in high-income countries.
2) SME loans average 13% of GDP in developed countries and 3% in developing countries.
3) Differences in SME definitions across countries do not significantly impact cross-country comparisons of SME lending volumes.
The presentation was conducted by the senior VP of the Bank of China American Branches. The event was hosted by the Greater Cincinnati Chinese Chamber of Commerce.
This document analyzes the determinants of foreign direct investment (FDI) in Malaysia's manufacturing industry from 1980-2002. It finds:
1) Malaysia received substantial FDI over this period, which was an important driver of its economic growth and industrialization.
2) An econometric analysis using cointegration and fully-modified least squares methods found that increases in education, infrastructure, market size, and current account balance led to increases in FDI, while increases in inflation and exchange rate led to decreases.
3) Major sources of FDI in Malaysia's manufacturing sector included the US, Japan, Germany, and Singapore, with electrical/electronics, petroleum, and chemicals as top recipient industries.
The trilemma as a framework for understanding China and India’s recent moneta...Hiram Ruiz
This document summarizes and analyzes recent monetary policy choices by China and India through the framework of the "trilemma" of international finance. It discusses China and India's use of capital controls to maintain exchange rate stability and monetary sovereignty while restricting capital flows. The document analyzes the development of each country's domestic financial markets and the role of government ownership in banking. It examines how China and India have approached exchange rate policy and positioned themselves within the trilemma framework over time based on quantitative data and historical context.
Read and follow the top economic indicators for Vietnam, M&A activity, and major developments in finance, banking, and legal. Published Monthly with contribution from LNT & Partners Law Firm.
This document summarizes a thesis that examines the impact of official development assistance (ODA) on foreign direct investment (FDI) in Vietnam using provincial data from 1998 to 2012. The author conducts a literature review that finds mixed results on the relationship between ODA and FDI. Some studies find a positive relationship, others a negative relationship, and some no relationship. The author develops a theoretical model based on neoclassical growth theory to explain the potential relationship. An empirical model is then specified to test the impact of ODA on FDI using panel data and controlling for factors like GDP, openness, and human capital. The author hypothesizes that ODA will have a positive significant effect on FDI inflows in
http://pwc.to/1h2j3Bg
De nombreuses économies émergentes sont en train de perdre leur élan, contestant les plans de croissance des entreprises internationales. Nous avons identifié quatre économies qui pourraient fournir aux entreprises une protection contre un ralentissement.
The document identifies four economies - Poland, Australia, South Korea, and Canada - as potential pockets of opportunity for businesses given their strengths in key conditions for growth. Poland benefits from open access to EU and Russian markets. Australia has a very stable business environment and continued demand for natural resources. South Korea invests heavily in R&D and has a skilled workforce supporting technology sector growth. Canada is energy secure with high renewable energy use, making it less sensitive to energy price changes. These economies are projected to grow substantially faster than the Eurozone over the next five years, outpacing their regional peers.
South Korea has a strong, diversified industrial and manufacturing base that has allowed it to avoid recession since the global financial crisis. However, its open economy and dependence on exports makes it vulnerable to external shocks. South Korea's large trade surpluses and foreign exchange reserves have contributed to its status as one of the strongest emerging markets. But its potential growth rate has declined and population aging poses challenges to long-term growth without policy changes.
This document is a dissertation submitted by Carlos Curbera for a Masters in Banking, Finance and Risk Management. It examines the causes and impacts of the international financial crisis on Spain. The introduction provides background on Spain's housing bubble and economic boom leading up to the 2008 crisis. It discusses the country's high private debt, weak external competitiveness, and skyrocketing unemployment in the aftermath. The dissertation aims to analyze why the crisis had a deeper and longer-lasting impact in Spain compared to other nations and identify actions needed to stimulate economic recovery. It includes chapters on Spain's experience during the subprime crisis, past economic crises in modern Spain, proposed policies to revitalize the economy with a focus on SMEs
This document provides an outlook on the Mongolian economy for 2012. Some of the key points made in the summary and analysis:
- Mongolia experienced unprecedented economic growth in 2011, with estimated real GDP growth of 17.3%, making it the world's fastest growing economy.
- Major drivers of growth included record levels of foreign direct investment (FDI), exports, government spending, and private consumption. FDI hit a record $3.8 billion, with over 80% going to the mining sector. Exports reached an all-time high of $4.8 billion.
- The stock market was the second best performing globally in 2011, with the MSE TOP 20 Index rising 32.6%
Read and follow the top economic indicators for Vietnam, M&A activity, and major developments in finance, banking, and legal. Published Monthly with contribution from LNT & Partners Law Firm.
This document provides a summary of a literature review on the impact of European integration on foreign direct investment (FDI) inflows to Central and Eastern European countries. It finds that previous studies show European integration announcements and progress increased FDI to these countries, as investors anticipated improved institutions and access to EU markets. However, most previous studies did not fully account for different stages of EU integration or the impact of the financial crisis. This study aims to address these gaps by examining the effect of specific political, economic, and monetary integration milestones on FDI inflows to 11 Central and Eastern European EU member states from 1995 to 2013.
This document provides an overview of economic trends and factors relevant for investment analysis and decision making. It covers macroeconomic topics like the political environment, foreign exchange reserves, inflation, interest rates, and taxation. It also discusses how these broader economic conditions can impact industries and companies. The document aims to facilitate informed investment decisions by helping readers understand how economic realities may influence business operations and financial performance. It was prepared collaboratively by four individuals.
This document summarizes the findings of a survey of UK managers regarding the economic outlook. It finds that the vast majority (82%) report the economy is negatively affecting their organization, with an increasing number (45%) saying it is having a severe impact. Public sector managers report a significantly worse impact than other sectors. Managers are increasingly pessimistic about economic growth over the next year, with more expecting a "double dip" recession than growth. Around half of managers think the government is reducing the budget deficit at the right pace, while over three-quarters believe deficit reduction should come from reduced spending rather than increased taxes.
Mongolia is entering a commodity boom as two large mining projects are expected to reach full production this decade. While resource revenues offer development opportunities, they can also cause economic problems if not managed properly. This paper discusses how Mongolia can avoid a "resource trap" by linking social spending to mining performance, reducing macroeconomic volatility, and ensuring major projects have private co-investment to ensure public funds are well spent.
Mongolia is entering a commodity boom as two large mining projects reach full production this decade. However, resource abundance can also suppress long-term growth by increasing volatility, reducing investment incentives, and weakening institutions. Mongolia has taken reform steps and can further avoid a "resource trap" by: (1) linking cash transfers to mining performance to support good governance; (2) de-linking social spending from revenues and improving targeting; and (3) reducing volatility through fiscal and financial reforms while ensuring infrastructure projects attract private co-investment.
This document provides a summary of the global economic outlook and trends for retailers to consider. It discusses slowing economic growth in many leading markets in 2012. In Europe, government spending cuts and debt issues are weakening economies and confidence. In the US, uncertainty around fiscal policy is hurting markets. China is also slowing after monetary tightening. Some positives for retailers include potential margin improvements from lower commodity prices and inflation in some countries. Long term global growth prospects remain strong, especially in emerging markets.
International Journal of Humanities and Social Science Invention (IJHSSI)inventionjournals
International Journal of Humanities and Social Science Invention (IJHSSI) is an international journal intended for professionals and researchers in all fields of Humanities and Social Science. IJHSSI publishes research articles and reviews within the whole field Humanities and Social Science, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Public debt is intended to bridge the gap between domestic savings and investment. This paper examines the effect of public debt on economic growth in Bangladesh using autoregressive distributed lag bound testing approach to cointegration. It finds a negative relationship between public debt and economic growth both in the short-run and the long-run. That is, a significant rise in the public debt in Bangladesh appears to be a burden for the economic growth controlling for other determinants of growth. The findings suggest that funds obtained through public debt are not utilized in the productive economic avenues which may improve the growth scenario in Bangladesh. Also, the adverse effect exerted by public debt may further be responsible for a reduction in investment and slower growth of capital stock, which eventually can hamper the labour productivity growth in the country in long run.
Net External Liabilities and Economic Growth: A Case Study of pakistansanaullah noonari
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
This document discusses the relationship between net external liabilities and economic growth in Pakistan from 1973-2012. It finds that net external liabilities, education enrollment, exports, and gross capital formation are positively associated with GDP growth, while the relationship between debt service and growth was insignificant. The document also reviews previous literature on the impact of external debt on economic growth, discusses the variables and data used in the analysis, and presents the results of unit root tests of the time series data.
Indonesian overseas-debt-relationship-for-economic-development-in-sharia-econ...Anno Tsanjay
1) The document analyzes the relationship between foreign debt and economic development in Indonesia from 2010-2019, as well as perspectives on foreign debt from Islamic economics.
2) It finds that foreign debt in Indonesia has a strong correlation with economic growth and development over the period studied.
3) From an Islamic economics perspective, government foreign debt is permissible if the form and mechanisms of cooperation adhere to Sharia principles and are for the benefit of the people.
External debt and economic growth case of jordan (1990 2011)Alexander Decker
This document summarizes a study examining the relationship between external debt and economic growth in Jordan from 1990-2011. The study finds a positive relationship between external debt and economic growth, indicating that external debt has contributed to Jordan's economic development. However, debt servicing is found to have a negative relationship with economic growth, suggesting it hampers growth. The document provides background on Jordan's economic growth rates and trends in external debt levels over the period studied.
External debt can be a source of income for developing countries, but it also poses risks if not sustainable. While external debt and foreign aid can boost economic growth, Pakistan has struggled with debt repayments, which hinders investment and economic development. High external debt servicing reduces funds available for other economic activities and leads to balance of payments issues. Pakistan has accumulated significant external debt due to factors such as unnecessary government spending, inefficient project investments, and low economic growth. Sustainable external debt depends on a country's ability to maintain sufficient exports to service debt obligations.
This document provides an IMF Article IV-style report on the economy of the United Arab Emirates (UAE) in 2013. It summarizes key economic issues including strong stock market performance driven by increased capital inflows, the monetary policy of maintaining a fixed exchange rate with the US dollar, reliance on oil exports for income which could be impacted by declining global demand, and efforts to diversify the economy through growth in non-oil sectors such as tourism and construction projects. While the UAE economy grew rapidly in the 2000s, it was impacted by the global financial crisis and Dubai's real estate market decline. However, the economy has stabilized since through debt restructuring and remains insulated from political instability in the region.
External debt played both positive and negative roles in Pakistan's economic growth from 2000-2007. Pakistan faced a debt crisis in the late 1990s as external debt increased from $19.2 billion in 1990 to $33.6 billion in 1999. Musharraf's government took steps to reduce this debt burden through policies like the "debt limitation law" and debt was successfully managed after 2001 when Pakistan supported the US war on terror. While debt was reduced, continued management will be needed to encourage sectors like industry and agriculture and meet fiscal gaps.
1. The consequences of high government expenditure and rising debt on Malaysian Economy.
1.1 Executive Summary
2. Discussion of topic chosen with the aid of diagram
2.1 Consequences of rising government expenditure towards Malaysia’s Economy
2.1.1 Low GDP growth rate
2.1.2 Explanation of government debt
2.1.3 Outlook government debt towards Malaysia’s economic growth
3. Identify and highlight economic concepts exhibited in the article.
3.1.1 Government Budgeting and Fiscal Policy
3.2 Aggregate Demand
3.3 Review on Aggregate Supply
3.4 Conclusion
4.0 Conclusion
This document summarizes a new dataset on small and medium enterprise (SME) lending across countries. It finds that many regulators collect SME financing data, though definitions vary. The estimated global SME lending volume is $10 trillion, with 70% in high-income countries. SME loans average 13% of GDP in developed countries and 3% in developing countries. While definitions differ, these differences do not significantly impact reported SME lending volumes.
Financial developemnt and economic growth in ten Asian countries.pdfHanaTiti
The document presents a thesis submitted by Duong Dinh Trieu to the University of Economics in Ho Chi Minh City, Vietnam and the Institute of Social Studies in The Hague, Netherlands as part fulfillment of the requirements for a Master of Arts in Development Economics. The thesis examines the relationship between financial development and economic growth in ten Asian countries using data from 1980 to 2012, with the goal of determining how financial development indicators influence economic growth and providing policy recommendations.
ADBI Working Paper Series Financial Inclusion and Financial Stability: Curren...Dr Lendy Spires
This document discusses financial inclusion and financial stability. It argues that greater financial inclusion can enhance financial stability in several ways:
1) Financial inclusion poses risks at the institutional level but these are not systemic in nature, as evidence shows that low-income groups maintain solid financial behavior during crises.
2) The risk profile of inclusive institutions is characterized by many small clients and transactions, posing minimal risk to financial stability.
3) Risks at the institutional level can be managed with prudent tools and effective consumer protection. Potential costs of inclusion are outweighed by long-term benefits of a deeper, more diversified financial system.
This document discusses financial inclusion and financial stability. It argues that greater financial inclusion can enhance financial stability by cushioning the impact of financial crises at the local level. While financial inclusion poses some risks at the institutional level, these are not systemic in nature and can be managed with prudent regulation. The potential costs of inclusion are outweighed by long-term benefits of a deeper, more diversified financial system that is more resilient to shocks. Innovations to promote inclusion may strengthen financial systems rather than weakening them.
"GLOBAL FINANCIAL CRISIS AND IT'S IMPACT ON INDIAN ECONOMY"Somnath Pagar
In the subsequent parts of the research report, several issues will be discussed which will provide a detailed account of the origin of the crisis (2008-spiraled mortgage crisis, starting in the United States) and the ripple effect of economic downturn of the world„s largest economy which engulfed even the fast growing emerging economies into the crisis. The main aim of the study is to find relevant answers to questions like:
Why and how India has been hit by the crisis?
How the Indian economy and the Reserve Bank of India have responded to the crisis?
Which are the opportunities arisen from the crises?
etc.
This study seeks to evaluate the impact of public borrowing on economic growth in Nigeria using time series data from 1980 to 2018. Specifically, the study seeks to analyze the effect of domestic debt (proxy by Federal Government Bonds-FGB) and external debt (proxy by International Monetary Fund Loan-IMFL) on Nigerian’s Gross Domestic Product (GDP). To achieve this objective, secondary data was collected from the Central Bank of Nigeria Statistical bulleting and the Debt Management Office of Nigeria. A multiple regression model involving the dependent variable (GDP) and the independent variables (FGB and IMFL) was formulated and subjected to econometric analysis. These variables were adjusted with the Jarque-bera test of normality while the correlation result was used to check the possibility of multi-collinearity among the variables. The t-test was used to answer the research questions and test the formulated hypotheses at the 5percent statistical level. Results from the analysis show that a positive relationship exists between IMF Loan and Nigeria’s gross domestic product, while a negative relationship exists between FG Bonds and Nigeria’s gross domestic product, which violates the Keynesian theory of public debt. The study concludes that both domestic and external debt significantly affect economic growth in Nigeria. Therefore, it was recommended that public borrowing should be efficiently used and contracted solely for economic reasons and not for social or political reasons as this will help to avoid accumulation of debt stock over time.
A study on Budget deficit AND Its impact on the economy of BangladeshMd Showeb
Government budget deficit is the difference between government revenues and expenditures. Government has different sources of revenues. Major portion of government revenues comes from direct and indirect taxes. Direct taxes come from income and profits of individuals and institutions and indirect taxes come from import duty, supplementary duty and value added tax. It can be put in different way. Direct taxes are the part of economic revenues and incomes of individuals and institutions and indirect taxes are the part of economic transactions in the form of buy, sale, export and import transactions. If government wants accelerate its revenues to meet the growing public expenditures and to reduce the budget deficit without reducing the expenditures of different influential sectors, much efforts should be made to increase economic revenues and income as well as the economic transactions so that the government revenues can meet the growing demand of the economy with the increase in revenues from income tax, import duty, supplementary duty and value added tax. In this regard the concentration of the report is on the management of deficit budget to minimize bad effects and maximize the utilization of funds. Having budget deficit is not a problem at all. The problems lie with the government inefficiency in the management of budget deficit. The evaluation of different reasons behind deficit budget and the evaluation of different bad effects of deficit budget are two crucial parts of our discussion. The impact of budget deficit on the different sectors of the economy is addressed here with relevant information. It is further concentration point of the report to find ways to improve the management performance of the government to achieve different macroeconomic goals with the help of expansion of economic revenues and transactions. The government revenues increase with the increase in economic revenues and economic transactions. The key point of our discussion is government should not decrease the public expenditures as the population is growing. The expenditures on different public sectors have to be increased as the population is growing. But budget deficit should not grow to meet the expenditures as budget deficit has some associated problems with it. For this reason government has to concentrate on accelerating the revenue collection rapidly with the expansion of economic revenues and economic transactions. For this reason government should try to integrate different policies to achieve key macroeconomic goals.
This paper investigates the barriers to innovation perceived by Polish manufacturing firms. It refers to the heterogeneity of innovation active firms. We introduce a taxonomy of innovative firms based on the frequency with which they introduce commercialised innovations using data from both CIS4 (for 2002-2004) and CIS5 (2004-2006). Two groups of innovation-active firms are distinguished: those which introduced innovation in both periods covered by both CIS (which we call persistent innovators) and those which introduced innovation either in CIS4 or CIS5 (which we call occasional innovators). We use a four step analysis covering binary correlations, Principal Component Analysis, probit model and correlations of disturbances. Two types of explanatory variables describing firms’ characteristics and innovation inputs used are considered. The paper shows that there are considerable differences in sensitivities to the perception of innovation barriers and in complementarities among barriers between persistent and occasional innovators. In the case of occasional innovators, a kind of innovation barrier chain is observed. This has an impact on differences in the frequency of innovation activities between the two groups of innovators and results in a diversification of innovators.
Authored by: Ewa Balcerowicz, Marek Pęczkowski, Anna Wziatek-Kubiak
Published in 2011
The document discusses the impact of the global financial crisis on financial institutions in the Middle East. It covers several key points:
1) The crisis impacted Middle Eastern countries through declining oil prices, reduced global liquidity, and reversals of speculative capital inflows. This placed pressure on bank funding and tightened credit conditions.
2) Financial institutions in the region had to change their investment strategies and saw repercussions in their stock markets as asset prices fell.
3) The crisis highlighted lessons for the region around regulation and strategic planning. Countries that implemented strategic planning were better able to respond to the crisis.
4) The impact varied across the region depending on factors like economic integration and oil export dependence.
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THE 2007 EUROPEAN APPLIED BUSINESS RESEARCH CONFERENCE.pdf
1. See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/297895373
Empirical Evaluation On External Debt Of Malaysia
Article in International Business & Economics Research Journal (IBER) · February 2011
DOI: 10.19030/iber.v7i2.3226
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2. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
95
Empirical Evaluation On External
Debt Of Malaysia
Nor’Aznin Abu Bakar, (Email: noraznin@uum.edu.my), Universiti Utara Malaysia, Malaysia
Sallahuddin Hassan, (Email: din636@uum.edu.my), Universiti Utara Malaysia, Malaysia
Abstract
This study analyzes the effects of external debts on economic growth in Malaysia. The analysis is
conducted both at aggregate and disaggregate levels. The empirical results are based on VAR
estimates using GDP, external debts, capital accumulation, labor force and human capital.
Estimation results at the aggregate level indicate that total external debts affect economic growth
positively. In particular, one percentage point increase in total external debts generates 1.29
percentage point of economic growth in the long term. Meanwhile, the positive effects of project
loan has been detected at the disaggregate level. However, market loan has not shown any
significant effect on economic growth. In the short-run, total external debts as well as project
loan has positive effects on economic growth
Keywords: Debt, economic growth, time-series model
I. Introduction
conomic growth is determined by various factors and one of them is debt. Debt or borrowing is vital
for financing development, whereby a country borrows to boost long-term productivity and economic
output as well as to advance in human development. In this situation, debt is used for growth-related
expenditures. Benefits from economic growth and exports will further stimulate the economy and repay lenders the
principal and interest owed. However, if a country’s debts are disproportionately large as compared to its gross
national product (GNP) and export earnings, it will be a problem to a country because instead of stimulating growth
and helping to advance human development, debt will deplete economic vitality and drain resources from social
sectors. As a result, a country has to divert its resources to repay the high levels of debt i.e. not to default or add
arrears to the total debt.
Debt exerts different effects on the economy than taxation. Government will get the debt needed to run its
extraordinary expenditures, such as education expenditure and economic expenditures. The economist regards at
least some part of education expenditures and economic expenditures as build up human capital and physical capital
respectively which can be considered as a source of economic growth. Therefore, debts play a useful role in
creation of physical and human capital. However, the national debt was considerably larger proportion of Malaysia’s
GNP in the 1960s and 1970s than it is today. Perhaps we should recall that all during those years, we had just begun
an extensive economic development program under five-years Malaysian Economic Plans. Furthermore, Malaysia
is like other developing countries that suffered a heavy burden of debt, particularly during critical worldwide events
in the 1970s and 1980s. During these periods, the oil price shock, high interest rates and recessions in the developed
countries as well as weak primary commodity prices are usually referred as the major contributors to debt explosion
in the developing countries (IMF: 2000). This surge in external debt was accompanied by a debt structural change in
responses to the increased risk that accompanied the repayment difficulties that many countries faced.
Although many empirical studies have investigated the relationship between growth and external debt, the
results are ambiguous. These results show that there is no consensus on the role of external debt on growth. The
economic literature has indicated both direct and indirect channels through which a large foreign debt affects
investment and finally negatively output. A leading explanation for this negative relationship is the so-called debt-
overhang hypothesis, which states that with the very high levels of debt, the government has no incentives to carry
out macroeconomic reforms and policies as the returns of these policies will only be used to repay outstanding debt.
E
3. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
96
With such reforms or policies being postponed, incentives for the private sector to invest may also be reduced. Thus
it may lead to or even negative levels of economic growth. Foreign debt can also be viewed as a tax, where
improvement in the economic performance of the indebted country can be seen increased production and exports
that will be received by the creditors.
A problem with the previous studies is that a positive relationship between growth and external debt can
exist for different reasons. As growth increases the demand for debt increases too, and it will in turn has a positive
effect on debt accumulation. Other things being equal, it is growth that follows debt and not the opposite. The
relationship between the external debt burden and economic growth has been examined in this study using VAR
framework for the case of Malaysia. Specifically the objectives of the study are; (i) to analyze long run and short run
relationship between external debt and economic growth, (ii) to investigate the impact of external debt on
Malaysia’s economic growth. This study is motivated by the lack of country studies on the external debt-economic
growth relationship within the existing literature. There are several concerns with the previous empirical work.
Although the nature of relationship between growth and external debt has been rigorously studied, it has not been
widely explored in developing countries like Malaysia using the time-series analysis. This study has exposed a new
evidence that can be used for policy maker guidance and future study. The paper is organized as follows; section II
discusses Malaysia’s debt situation. Section III presents the theoretical modeling of economic growth and debt. Data
and estimation method are presented in section IV, followed by the empirical results in section V. Section VI
provides the conclusions.
II. Malaysia’s Debt Situation
Beside taxation, debt is another financing alternative of Malaysian government expenditure. The
government seeks to borrow because its tax revenues are not sufficient to finance all expenditures that it has
budgeted. There are two sources of Malaysia’s debt, which are internal debt and external debt. The trend of external
debt and domestic debt in Figure 1 demonstrates that the amount of domestic debt has increased while external debt
has shown a trend of up and down through out the period. The amount of external debt increased during the period
of 1980 – 1986, which can be explained by the economic slump during those years, besides facing a deficit in
balance of payment. In 1981 deficit in the balance of payment was RM11,015 million, due to large government
spending to finance large industrial projects.
Figure 1: External Debt and Domestic Debt
0
50000
100000
150000
200000
250000
1
9
7
0
1
9
7
1
1
9
7
2
1
9
7
3
1
9
7
4
1
9
7
5
1
9
7
6
1
9
7
7
1
9
7
8
1
9
7
9
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
Year
RM
Million
External Debt Domestic Debt
The breakdown of Malaysia’s total debt is shown in Table 1. Domestic debt sources are from public
sectors, which include state governments, statutory bodies and public enterprises, Employee Provident Fund (EPF),
National Savings Bank, Bank Negara, Banking Institutions and Insurance Companies. Meanwhile, the main sources
of Malaysian external debt come from the World Bank and Asia Development Bank. The external debt is mainly
4. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
97
dominated in the US dollar and the balance of the external debt is dominated in various other currencies namely yen,
pound sterling, deutschemark, with the yen debt being the second largest component of the external debt.
Table 1: Federal Government Debt (2001-2006)
Types of
Debt
RM Million GDP (%)
2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006
Domestic
Debt
121,396 128,680 151,483 183770 198,670 217,320 36.3 36.6 38.4 41.9 40.1 39.6
External
Debt
18,821 24,328 37,284 35499 30,000 27,054 7.3 10.6 9.5 8.1 6.1 4.9
Market
Loans
12,041 17,682 28,189 25,695 21,169 17,805 5.3 7.7 7.2 5.9 4.3 3.2
Project
Loans
6,780 6,646 9,095 9,804 8,831 9,249 2.0 2.9 2.3 2.2 1.8 1.7
Total 145,724 167,835 188,767 219,269 228,670 244,374 43.6 47.2 47.9 50.0 46.2 44.6
Source: Economic Report 2002/03, 2004/05, 2006/07
Figure 2 illustrates the growth of external debt and internal debt. During the period of 1960s, the growth in
Malaysian external debt had been modest compared to other periods. The figure shows that the growth of foreign
debt in the 1970s and 1980s is significantly high. The highest peak of external debts was recorded during 1980s. It
can be traced to a combination of internal and external factors. For instance, in the 1970s, on the demand side there
was a pressing need in oil-importing developing countries for foreign exchange in order to finance balance of
payment deficits and public projects following the increase of oil price in the 1970s (Avery, 1990). Along with other
domestic factors, such as high trade and budget deficits, low savings rate and poor project selection by donors
exacerbated the dependence on external debt. Meanwhile on the supply side, the reversionary conditions in the
developed countries forced the international banks to recycle their huge petro-dollar deposits in the developing
countries (Bernal, 1987; Afxentiou and Serletis, 1996).
Figure 2: The Growth of External Debt and Domestic Debt
-40
-20
0
20
40
60
80
1
9
7
0
1
9
7
1
1
9
7
2
1
9
7
3
1
9
7
4
1
9
7
5
1
9
7
6
1
9
7
7
1
9
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8
1
9
7
9
1
9
8
0
1
9
8
1
1
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8
2
1
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8
3
1
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8
4
1
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8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
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4
1
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9
5
1
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1
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1
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1
9
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9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
Year
Percent
Growth of ED Growth of DD
External debt sources can be divided into two types and they are project loans and market loans. Both
types of debt are used for different purposes. External project loan is used to finance government’s capital
expenditure. As shown in Table 1, total external debt in 2006 was RM27,054 million. A major portion of the
external debt amounting to about RM17,805 million or 65 percent is made up of market loans. The balance of about
RM9,249 million or 35 percent comprises of project loans and supplier credits. Specifically, market loans from the
United States was about RM16,553 million (93 percent); from Japan was RM 772 million (4.3 percent) and from the
5. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
98
United Kingdom was RM480 million (2.7 percent). Market loans comprise of three different instruments of
borrowing, which are floating rate notes, syndicated loans and bond issues.
Project loans are obtained from international development financial institutions such as the World Bank
and the Asian Development bank and also from bilateral sources. In 2006, the amount of project loans were
RM9,249 million, with the amount of RM6,121 million (66 percent) came from bilateral sources and loans from
multilateral sources made up the remainder of the project loans – RM3,128 million (34 percent).
III. Theoretical Modeling of Economic Growth and Debt
The main focus of this study is to analyze the effects of external debt burden on GNP in Malaysia using the
growth accounting framework. The basic model is the output as a function of factor inputs, physical capital (K) and
labour (L) as described by Solow (1956). In addition, Romer (1996) point out that human capital (HK) is also
important as physical capital and therefore should be included in the model. The human capital consists of abilities,
skills and knowledge of particular workers. The Solow’s and Romer’s models are extended by including external
debt, where it is treated as separate inputs in a neoclassical production function.
Thus, the model is shown in equation [1]. The function
ED
HK
LF
K
F ,
,
, exhibits constant returns to
scale, positive diminishing returns to inputs, and some positive and smooth elasticity of substitution between the
inputs.
[1]
ED
HK
LF
K
AF
Y ,
,
,
where Y = GNP
A = Index of total factor productivity
K = Capital stock
LF = Labor force
HK = Human capital
ED = External Debt
By differentiating equation [1], we get equation [2] explain economic growth.
[2]
A
A
ED
ED
Y
ED
F
HK
HK
Y
HK
F
LF
LF
Y
LF
F
K
K
Y
K
F
Y
Y
DS
HK
LF
K
If the factors of production are rewarded by their marginal product, then
Y
ED
F
Y
HK
F
Y
LF
F
Y
K
F DS
HK
L
K and
,
, are the share of profits, the share of labour, the share of human capital, and
the share of debt services, respectively. With a homothetic production function, these shares sum to one. Hence, if
we denote
Y
K
FK and
Y
LF
FL ,
Y
HK
FL then .
1
Y
ED
FDS Thus equation [2] become
[3]
A
A
ED
ED
HK
HK
LF
LF
K
K
Y
Y
1
[4]
A
A
ED
ED
HK
HK
LF
LF
K
K
Y
Y
where, 0
0
,
1
,
1
0
0
and
0
0
If y
Y
Y
, ,
,
,
, a
A
A
ds
ED
ED
hk
HK
HK
lf
LF
LF
k
K
K
and thus equation [2.4] can be shown by equation [5].
6. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
99
[5] a
ed
hk
lf
k
y
where y = output growth rate
k = capital stock growth rate
lf = labor force growth rate
hk = human capital growth rate
ed = external dedbt growth rate
As stated by Cunnigham (1993), the debt burden can be considered as debate in the production function
due to its effects on the productivity of labor and capital in a similar manner to the inclusion of export in the
production function. The need to service a country’s debt will affect how labor and capital will be employed in the
production function. Specifically, if the benefits of the production increase go to foreign creditors and not domestic
agents, little motivation is given to increase the productivity of capital or labor; therefore an increase in debt burden
will decrease economic growth. However, the model used by Cunningham (1993) assumes that the production
function only consists of physical capital and labor. When a country has a substantial debt burden, the way which
labor and capital will be exploited in the production process is bound to be influenced by the need to service debt.
Specifically, if the increase in productivity gives more benefit to foreign creditors rather than domestic agents, the
latter are discouraged from increasing capital or labor.
IV. Methodology
Model Specification
The analytical framework developed in Section III provides theoretical motivation for the existence of
growth and external debt linkage. It also has some testable implications worth investing on empirical grounds.
Hence, to estimate equation [5], we proceed with the empirical specification shown by equation [6].
[6] LY = 0 + 1 LK + 2 LLF + 3 LHK + 4 LED +
where LY denotes natural log of economic growth, LK the natural log of capital stock, LLF the natural log of
labor force, LHK the natural log of human capital, and LED the natural log external debt.
Since ED is disaggregated into two categories, market loan (ML) and project loan (PL), the empirical
specification are shown by equation [7] and [8]. ML and PL are also in natural log.
[7] LY = 0 + 1 LK + 2 LLF + 3 LHK + 4 LML +
[8] LY = 0 + 1 LK + 2 LLF + 3 LHK + 4 LPL +
The capital stock is defined as the values of the existing supply of physical goods that are used in the
production process i.e. buildings, machinery, equipment and inventory. As stated by Ghali (1998), the capital stock
is important not only as a component of final aggregate demand but also in terms of the impact of capital stock on
the economy’s growth and employment. 1 is expected to have a positive coefficient. The labor force is defined as
the employed labor force. Since the rate of utilization of the labor force is important in production, employed labor
force is used rather than the full labor force. 2 is expected to be positive. The human capital is described, as the
knowledge and skills embodied in individuals and it is an important source of economic growth. Human capital
accumulation is believed to promote higher growth by improving labor force, which will be more productive on the
job, by requiring less supervision and processing greater initiative in handling job-related problems. It can be
proxied by government education expenditures (see Gungor, 1997). The external debt is expected to have negative
effect on economic growth. When a country has a large debt burden the manner in which labor and capital will be
exploited in the production process is bound to be influenced by the need to service that debt. (see Rockerbie, 1996;
Afxentious, 1993; and Cunningham1993). For empirical purposes, external debt service is decomposed into two
measures, market loan and project loan.
7. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
100
Data
The secondary time series data for the period of 1970-2005 are used through out the study. They are
gathered and verified from various sources, i.e. International Financial Statistics by International Monetary Fund
(IMF), Bank Negara Malaysia and Malaysian Department of Statistics.
Method Of Analysis
This study is conducted both at the aggregate and disaggregate levels. A Vector Autoregression (VAR)
analysis, which was introduced by Sims (1980), is used to estimate and to evaluate the effect of external debts on
economic growth. The VAR approach is chosen because it has become a more usual tool and one of the principal
tools of macroeconometric analysis, as it allows for the endogeneity of both external debts and growth including
dynamic effects between the variables. The approach has a number of advantages over Ordinary Least Square
(OLS) method such as the VAR approach does not impose any causal links between the variables a priori, allows for
indirect links between the variables, and does not assume that there is at most one long-run (cointegration)
relationship among the variables in the model.
We employed a VAR model of the form shown by equation [9]
[9] t
1
-
t
t ε
μ
A(L)Y
Y
where Yt is a vector of endogenous variables, μ is a vector of constant terms and t
ε is a vector of error terms,
'
'
kt
1t
t ,
...
,
that are assumed to be white noise, i.e. '
'
0
t
E , '
'
'
t
t
E , and '
'
'
0
s
t
E for '
'
t
s ,
with '
a '
k
k symmetric positive definite matrix. The vector Yt comprises the
variables
t
t
t
t
t
t ED
,
HK
,
LF
,
K
,
GDP
Y , where GDP stands for real output, K for capital stock, HK for human
capital and ED for external debt.
V. Empirical Results
Unit Root Tests
The graphical analysis of the previous section suggests that all series entering the model are non-stationary.
To empirically prove non-stationary, the unit root test is performed. The results for unit root tests are shown in
Table 2. The null hypothesis of no stationary is not rejected in any case; either with a constant and trend is included
in the estimation, in level at conventional levels of statistical significance. They imply that all series exhibit non-
stationary in levels. However, when the series are first differenced, the no stationary hypothesis is dismissed in
almost all cases, as can be inferred from Table 2. This suggests that these series are integrated of order one i.e., I
(1). As to the optimal number of lags, the AIC and SIC suggest choosing 2 lags, or k = 2 for the level VAR
Misspecification tests for residual autocorrelation, normality and heteroscedasticity indicate that the model is well
specified.
Cointegration Analysis
The results of unrestricted cointegration rank tests presented in Table 3 could reject the null hypothesis of
no cointegration at the five per cent confidence level. Focusing on the max
and the trace
, both the statistics show
evidence consistent with the presence of two cointegration vector since the null hypothesis of no cointegration (r =
0) can be rejected in each of the three cases. For example, for model A, the calculated max
statistic of 51.062 is
larger than its critical value of 37.164. Therefore, these results, like those of model A through C, indicate the
presence of a long-run equilibrium among external debt, market loan, project loan and economic growth or they
have permanent effects on economic growth.
8. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
101
Table 2: ADF Unit Root Tests
Variables Level First Difference
Lags Included ADF Statistics Lags Included ADF Statistics
Trend and constant are not included in the regression
GDP
ED
ML
PL
LF
K
HK
0
1
1
0
5
0
9
1.637
-0.365
-0.651
1.239
1.475
0.568
2.069
0
0
0
0
6
0
7
-5.124**
-3.351**
-3.481**
-4.074**
2.075**
-4.925**
2.873**
Constant is included in the regression
GDP
ED
ML
PL
LF
K
HK
0
6
1
0
2
0
9
-0.146
-1.579
-1.858
-1.087
2.514
-0.743
1.864
0
0
0
0
1
0
7
-5.744**
-3.402**
-3.494**
-4.409**
-5.525**
-5.101**
-6.999**
Trend and constant are included in the regression
GDP
ED
ML
PL
LF
K
HK
0
5
1
1
2
0
4
-2.509
-3.346
-2.492
-1.778
-0.959
-2.154
3.001
9
9
0
0
1
9
1
-4.069*
-3.593**
-3.409***
-4.368**
-6.536**
-4.657**
-7.900**
Note: Number of lags was selected using the AIC criterion.
* signify rejection of the unit root hypothesis at the 1 percent level of significant.
** signify rejection of the unit root hypothesis at the 5 percent level of significant.
** signify rejection of the unit root hypothesis at the 10 percent level of significant.
Table 3: Johansen Cointegration Tests
Number of
cointegrating
vector (r)
Eigenvalue Trace Test
trace
Critical Value
(5%)
Maximum
Eigenvalue Test
max
Critical Value
(5%)
i) Model A: Aggregate External Debt
None *
At most 1 *
At most 2
At most 3
At most 4
0.787
0.611
0.409
0.266
0.041
111.206
60.145
28.999
11.599
1.399
79.341
55.246
35.011
18.398
3.841
51.062
31.145
17.399
10.201
1.399
37.164
30.815
24.252
17.148
3.841
ii) Model B: Market Loan
None *
At most 1 *
At most 2
At most 3
At most 4
0.802
0.599
0.431
0.262
0.055
114.143
60.645
30.506
11.878
1.864
79.341
55.246
35.011
18.398
3.841
53.498
30.139
18.627
10.014
1.864
37.164
30.815
24.252
17.148
3.841
iii) Model C: Project Loan
None *
At most 1 *
At most 2
At most 3
At most 4
0.768
0.565
0.334
0.297
0.173
106.981
58.780
31.293
17.903
6.257
79.341
55.246
35.011
18.398
3.841
48.200
27.487
13.391
11.646
6.257
37.164
30.815
24.252
17.148
3.841
Maximum Eigenvalue and Trace tests indicate 2 cointegrating equationn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
9. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
102
Subsequently, we proceeded to estimate long-run relationship between growth and external debts, market
loan and project loan. The long-run relationships have been estimated by estimating cointegrating vector
parameters. By imposing two cointegration relationship yielded aggregate and disaggregate results shown by
equation [15]. The estimated coefficient for debt is highly significantly different from zero, which suggests that a
long-run cointegration relationship exists.
[15] i) Aggregate Estimation:
Model A:
lnGDP = 0.587 + 1.299lnED - 11.944lnLF - 2.506ln HK + 1.304lnK
(0.128) (0.255) (4.779) (0.294) (0.285)
ii) Disaggregate Estimation:
Model B:
lnGDP = 0.293 - 0.466lnML + 9.873lnLF + 0.774ln HK - 0.051lnK
(0.032) (0.054) (1.190) (0.084) (0.085)
Model C:
lnGDP = 0.293 - 0.236lnPL + 7.125lnLF - 0.274ln HK + 0.422lnK
The estimation results for aggregate and disaggregate approaches appear to be rather similar in the case of
estimated coefficients. Aggregate estimation yields a much higher estimate and correct sign of the coefficient of
external debts.
Error Correction Model
Before estimating ECM, we determine the appropriate lag. Since, the AIC suggests an optimal number of
two lags, or k = 2, for the level VAR and we thus use two lags, or k = 2, for the estimation of ECM in equation [7].
The results for aggregate analysis are shown in Table 4.
Table 4: Estimated Short-Run Relationship
Variables Coefficients Standard Errors t-values
Constant
ECT
D(LNGDP(-1))
D(LNGDP(-2))
D(LNED(-1))
D(LNED(-2))
D(LNLF(-1))
D(LNLF (-2))
D(LNHK(-1))
D(LNHK (-2))
D(LNK (-1))
D(LNK (-2))
0.067
-0.922
-1.949
-1.687
0.146
0.229
3.538
4.600
-0.053
-0.032
0.038
0.052
0.088
0.333
0.786
0.744
0.067
0.166
1.921
1.884
0.145
0.015
0.030
0.010
0.761
-2.769*
-2.482*
-2.267*
2.181*
1.379
1.842
2.442*
-0.368
-2.063*
3.088*
5.035*
R-squared
F-statistic
Akaike AIC
Schwarz SC
0.779
3.741
-1.116
-0.571
* denotes rejection of the hypothesis at the 0.05 level
The estimated value of ECT is -0.922 and it is highly significantly different from zero, indicating the speed
of adjustment of growth to the long-run equilibrium. The result confirms the existence of a long-term growth-debt
cointegration relationship and that short run is driven by the extent of the gap between current and long run
10. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
103
equilibrium value. The coefficients of external debts for both lags have the expected signs and highly significantly
different from zero which are consistent with the theory. Meanwhile the disaggregate analysis is shown in Table 5
and Table 6. These findings, either for the long run or short-run similar to past researches which have found that
debt is significant in explaining growth.
Table 5: Estimated Short-Run Relationship
Market Loan (ML):
Variables Coefficients Standard Errors t-values
Constant
ECT
D(LNGDP(-1))
D(LNGDP(-2))
D(LNML(-1))
D(LNML(-2))
D(LNLF (-1))
D(LNLF (-2))
D(LNHK (-1))
D(LNHK (-2))
D(LNK (-1))
D(LNK (-2))
0.075
-0.089
-2.825
-0.849
-0.140
0.056
4.667
6.039
-0.097
0.015
0.316
0.448
0.084
0.042
1.165
0.613
0.145
0.116
2.857
2.889
0.140
0.136
0.441
0.279
0.895
-2.129*
-2.425*
-1.386
-0.967
0.486
1.634
2.090*
-0.688
0.111
0.717
1.604
R-squared
F-statistic
Akaike AIC
Schwarz SC
0.608
0.502
-1.021
-0.477
* denotes rejection of the hypothesis at the 0.05 level
Table 6: Estimated Short-Run Relationship
Project Loan (PL):
Variables Coefficients Standard Errors t-values
Constant
ECT
D(LNGDP(-1))
D(LNGDP(-2))
D(LNPL(-1))
D(LNPL(-2))
D(LNLF (-1))
D(LNLF (-2))
D(LNHK (-1))
D(LNHK (-2))
D(LNK (-1))
D(LNK(-2))
-0.004
-0.313
0.326
-0.234
-0.061
0.912
-1.204
-1.044
0.147
-0.172
0.050
0.085
0.076
0.259
0.504
0.374
0.194
0.221
1.227
1.161
0.114
0.085
0.299
0.026
-0.054
-1.203
0.647
-0.626
-0.313
4.134*
-0.981
-0.899
1.290
-2.031*
0.167
3.244*
R-squared
F-statistic
Akaike AIC
Schwarz SC
0.622
3.142
-1.761
-1.216
* denotes rejection of the hypothesis at the 0.05 level
Impulse Response
Figure 4, Figure 5 and Figure 6 display impulse responses functions (IRFs) of growth to external debts
shock, market loan, and project loan respectively which are reflected by a one-standard-deviation shock. The
vertical axes measure the cumulative effects on growth (percentage changes in growth) due to a one per cent
unexpected increase in external debt, market loan and project loan.
11. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
104
-.10
-.05
.00
.05
.10
.15
2 4 6 8 10 12 14 16 18 20 22 24
i ) R e s p o n s e o f L N G D P t o L N E D
-.10
-.05
.00
.05
.10
.15
2 4 6 8 10 12 14 16 18 20 22 24
ii ) R e s p o n s e o f L N G D P t o L N LF
-.10
-.05
.00
.05
.10
.15
2 4 6 8 10 12 14 16 18 20 22 24
i ii ) R e s p o n s e o f L N G D P t o L N H K
-.10
-.05
.00
.05
.10
.15
2 4 6 8 10 12 14 16 18 20 22 24
iv ) R e s p o n s e o f L N G D P t o L N C F
Response to Cholesky One S.D. Innovation 2 S.E.
Figure 4: Impulse Response of Growth to External Debt, Employment, Education and Capital Formation
-.10
-.05
.00
.05
.10
.15
.20
2 4 6 8 10 12 14 16 18 20 22 24
i) R e s p o n s e o f L N G D P t o L N M L
-.10
-.05
.00
.05
.10
.15
.20
2 4 6 8 10 12 14 16 18 20 22 24
ii ) R e s p o n s e o f L N G D P t o L N L F
-.10
-.05
.00
.05
.10
.15
.20
2 4 6 8 10 12 14 16 18 20 22 24
iii ) R e s p o n s e o f L N G D P t o L N H K
-.10
-.05
.00
.05
.10
.15
.20
2 4 6 8 10 12 14 16 18 20 22 24
i v ) R e s p o n s e o f L N G D P t o L N C F
Response to Cholesky One S.D. Innovation 2 S.E.
Figure 5: Impulse Response of Growth to Market Loan, Employment, Education and Capital Formation
12. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
105
-.08
-.04
.00
.04
.08
.12
.16
1 2 3 4 5 6 7 8 9 10
R e s p o n s e o f L N G D P t o L N P L
-.08
-.04
.00
.04
.08
.12
.16
1 2 3 4 5 6 7 8 9 10
R e s p o n s e o f L N G D P t o L N L F
-.08
-.04
.00
.04
.08
.12
.16
1 2 3 4 5 6 7 8 9 10
R e s p o n s e o f L N G D P t o L N H K
-.08
-.04
.00
.04
.08
.12
.16
1 2 3 4 5 6 7 8 9 10
R e s p o n s e o f L N G D P t o L N C F
Response to Cholesky One S.D. Innovation 2 S.E.
Figure 6: Impulse Response of Growth to Project Loan, Employment, Education and Capital Formation
Notes: Solid lines are point estimate of the impulse response, and dashed line represents one-standard-deviation bands.
These figures show that at most horizons (including the 24-month horizon), the IRFs of the economic
growth to a external debts shock. So, in addition to its own shocks, economic growth responds significantly to
shock in external debts and other variables. As expected, the results support the argument that there is response of
the economic growth to a external debts shock. The figure illustrates that economic growth reacts negatively at the
beginning, particularly before year four and positively to external debts at long horizon. It also has a positive
response to shock of other variables. External debts shock has a permanent impact on the economic growth.
Variance Decomposition
Table 7, Table 8 and Table 9 report the FEDVs of the economic growth to external debt, market loan and
project loan shock. In model A (Table 7), for instance, a year after impact, the shock can significantly explain only
2.2 per cent of fluctuations in the economic growth. Therefore, the debt transitory shock can be considered as a
minor driving force of the economic growth in the short run. A striking fact revealed by the FEVDs is that, even in
the long run, the other variables transitory shock dominated fluctuations in the economic growth. The table shows
that, for the three models, 12 year after impacts, an external debt, market loan and project loan shocks can explain
almost 3.5 – 6.5 percent of fluctuation in the economic growth. Other shocks have more importance effect over the
period under consideration.
Table 7: Forecast Error Variance Decomposition of LNGDP (LNED)
Period S.E. LNGDP LNED LNLF LNHK LNK
1
2
3
4
5
6
7
8
9
10
11
12
0.109
0.146
0.169
0.183
0.193
0.199
0.202
0.206
0.211
0.215
0.219
0.224
100.000
96.606
91.919
84.746
79.526
76.215
73.961
71.857
69.661
67.642
66.135
65.258
0.000
2.204
2.020
1.868
1.701
1.777
2.263
3.037
3.933
4.693
5.211
5.485
0.000
0.389
2.017
5.357
8.603
11.429
13.456
14.707
15.267
15.391
15.314
15.207
0.000
0.043
1.581
3.581
4.691
4.771
4.593
4.875
5.816
7.114
8.322
9.169
0.000
0.758
2.463
4.448
5.479
5.808
5.728
5.524
5.324
5.159
5.017
4.879
13. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
106
Table 8: Forecast Error Variance Decomposition of LNGDP (LNML)
Period S.E. LNGDP LNML LNLF LNHK LNK
1
2
3
4
5
6
7
8
9
10
11
12
0.113
0.151
0.174
0.189
0.199
0.205
0.209
0.213
0.217
0.221
0.225
0.229
100.000
97.803
93.703
87.795
83.288
80.283
78.213
76.399
74.630
73.060
71.920
71.295
0.000
0.966
0.987
0.933
0.849
0.939
1.324
1.933
2.603
3.144
3.471
3.598
0.000
0.359
1.647
4.237
6.947
9.433
11.365
12.679
13.410
13.732
13.828
13.847
0.000
0.322
2.031
4.111
5.250
5.413
5.205
5.228
5.704
6.465
7.204
7.711
0.000
0.549
1.632
2.925
3.666
3.931
3.893
3.761
3.653
3.599
3.577
3.549
Table 9: Forecast Error Variance Decomposition of LNGDP (LNPL)
Period S.E. LNGDP LNPL LNLF LNHK LNK
1
2
3
4
5
6
7
8
9
10
11
12
0.095
0.128
0.147
0.158
0.163
0.167
0.168
0.170
0.172
0.176
0.179
0.182
100.000
91.354
79.229
71.134
66.557
64.458
63.169
61.783
59.918
57.822
55.928
54.486
0.000
6.324
5.020
5.048
5.941
6.689
7.113
7.093
6.878
6.694
6.598
6.548
0.000
0.846
7.649
12.270
15.189
16.766
17.476
17.582
17.323
16.908
16.509
16.215
0.000
0.624
1.864
2.505
2.569
2.489
2.818
4.058
6.212
8.763
11.114
12.944
0.000
0.852
6.237
9.043
9.744
9.597
9.425
9.484
9.668
9.817
9.850
9.806
VI. Conclusion
The central focus of this study is to analyze the impact of external debt on Malaysia’s economic growth.
This paper also examined the structure, magnitude and composition of Malaysia’s external debt. As mentioned
earlier the causes of external debt in Malaysia can be attributed to both internal and external factors; which include
deterioration of terms of trade leading to balance of payment deficits, high world interest rate and increased
protectionism by developed countries.
A vector autoregression (VAR) analysis is used to estimate and to evaluate the effect of external debts on
economic growth. Specifically, the analysis is conducted both at aggregate and disaggregate levels in which for
disaggregate analysis the total debt is decomposed into market and project loans. Results obtained indicate the
existence of a long run cointegration relationship among variables. The aggregate estimation yields a much higher
estimation and shows a correct sign of the coefficient of external debts. Using an error correction model, the
estimation results confirm the existence of a long-term growth-debt cointegration relationship and that short-run is
driven by the extent of the gap between current and long run equilibrium value.
Impulse response analysis provides a significant short-term dynamic interaction between GDP and
independent variables. Meanwhile the estimations of variance decomposition indicate that in the short run the debt
transitory shock plays a minor role as a driving force of economic growth in Malaysia. As for the total external debt
the shock can significantly explain 2.2 percent of fluctuation in growth, after one year; as for market loans and
project loans the shocks can explain only 0.96 percent and 6.32 percent respectively.
14. International Business & Economics Research Journal – February 2008 Volume 7, Number 2
107
From the results it is evident that external debt has an impact on Malaysia’s economic growth, a one-
percentage point will lead to an increase of GDP by RM1.29 million. It is also reveal that Malaysia does not has a
debt overhang problem which creates adverse incentive effects on the economic growth in the long-run. Specifically
the debt overhang problem stated that debts do not only affect investment in physical capital but also affect activities
that involves incurring costs up-front for the sake of increased output in the future; i.e. investment in human capital
and technology acquisition. Prudent debt management remains an integral thrust of fiscal policy in Malaysia.
Effective policies and an efficient debt monitoring system ensure that the debt level is contained at a manageable
level. Malaysia has adopted various financing strategies to diversify its external debt profile by achieving cost
saving method and lengthening the maturity profile of the nation’s debt; diversifying borrowings is one of the
strategies. Heavy reliance on US dollar dominated loans, bringing about a situation whereby 93 percent of the
market loans are made up of US dollar loans. No new external borrowing was raised in 2006, other than the
disbursement of existing project loans to achieve the objective of reducing external debt and minimize exposure to
external risks (see Economic Report, 2006/2007). The external borrowing that have been drawn down from bilateral
and multilateral sources are used to finance ongoing projects, primarily for education and training, upgrading and
rehabilitation of water supply, poverty eradication and ICT venture capital.
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NOTES
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