Budget deficits, investment and economic growth: a panel cointegration approach
-
Author(s)Goitsemodimo Abel Molocwa , Yohane Khamfula ,Priviledge CheteniLink to ORCID Index: https://orcid.org/0000-0002-1301-9486
-
DOIhttp://dx.doi.org/10.21511/imfi.15(3).2018.15
-
Article InfoVolume 15 2018, Issue #3, pp. 182-189
- Cited by
- 990 Views
-
180 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
This paper discusses the political economy of budget deficits among the BRICS nations between 1997 and 2016 using a panel cointegration approach to determine the long-run relationship between economic growth, budget deficits, inflation and gross investment. The results of the study show a long-run equilibrium association among economic growth and the selected variables. Furthermore, there is a positive relationship between budget deficit, inflation, and economic growth, for the period under study for BRICS countries. Lastly, the results support the view that there is bi-directional linkage from budget deficit to economic growth and vice versa.
- Keywords
-
JEL Classification (Paper profile tab)E22, F21, C35, C36
-
References43
-
Tables5
-
Figures1
-
- Figure 1. Average GDP (actual and predictions)
-
- Table 1. Panel unit root results: Levin, Lin, and Chu test
- Table 2. Panel unit root results: Im, Pesaran, and Shin test
- Tabel 3. Pedroni panel cointegration results
- Table 4. FMOLS and DOLS results
- Table 5. Panel Granger causality results
-
- Abuaf, N., & Jorion, P. (1990). Purchasing power parity in the long run. The Journal of Finance, 45(1), 157-174.
- Ahmad, N. (2013). The role of budget deficit in the economic growth of Pakistan. Global Journal of Management and Business Research, 13(5).
- Alesina, A. (2000). The political economy of the budget surplus in the United States. The Journal of Economic Perspectives, 14(3), 3-19.
- Alesina, A., & Perotti, R. (1995). The political economy of budget deficits. Staff Papers, 42(1), 1-31.
- Alesina, A., & Tabellini, G. (1989). External debt, capital flight and political risk. Journal of international Economics, 27(3-4), 199-220.
- Baltagi, B. (2008). Econometric analysis of panel data. John Wiley & Sons.
- Barro, R. J. (1974). Are government bonds net wealth? Journal of political economy, 82(6), 1095-1117.
- Braun, M. (2006). The political economy of debt in Argentina, or why history repeats itself. Centro de implementación de políticas publicas para la equidad y el crecimiento, 1-42.
- Breitung, J. (2001). The local power of some unit root tests for panel data. In Nonstationary panels, panel cointegration, and dynamic panels (pp. 161-177). Emerald Group Publishing Limited.
- Buchanan, J. M., & Wagner, R. E. (1977). Democracy in deficit. Acad. Press.
- Choi, I. (2001). Unit root tests for panel data. Journal of international money and Finance, 20(2), 249-272.
- Cukierman, A., & Meltzer, A. H. (1989). A political theory of government debt and deficits in a neo-Ricardian framework. The American Economic Review, 713-732.
- Dao, B. T. (2013). The Relationship between Budget Deficit and Economic Growth in Vietnam.
- Dao, B. T., & Bui, T. (2016). Budget Deficit and Economic Growth Prediction in the Case of Vietnam.
- Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.
- Gale, W. G., & Samwick, A. A. (2014). Effects of income tax changes on economic growth.
- Glover, A., Heathcote, J., Krueger, D., & Ríos-Rull, J. V. (2011). Intergenerational redistribution in the great recession (No. w16924). National Bureau of Economic Research.
- Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. The Econometrics Journal, 3(2), 148-161.
- Hsiao, C. (2003). Analysis of panel data (2nd ed.). Cambridge: Cambridge University Press.
- Huynh, N. D. (2007). Budget Deficit and Economic Growth in Developing Countries: The Case of Vietnam. Kansai Institute for Social and Economic Research (KISER).
- Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of econometrics, 115(1), 53-74.
- International Monetary Fund (2016). IMF financial activities-update.
- Kao, C., & Chiang, M. H. (2001). On the estimation and inference of a cointegrated regression in panel data. In Nonstationary panels, panel cointegration, and dynamic panels (pp. 179-222). Emerald Group Publishing Limited.
- Keho, Y. (2016). Impact of Budget Deficit on Private Consumption in WAEMU Countries: Evidence from Pooled Mean Group Estimation. International Journal of Economics and Finance, 8(3), 189.
- Kose, M. A., Prasad, E. S., & Terrones, M. E. (2003). Financial Integration and Macroeconomic Volatility. IMF Staff Papers, 50, 119-142.
- Kurantin, N. (2017). The Effects of Budget Deficit on Economic Growth and Development: The Experience of Ghana (1994–2014). European Scientific Journal, ESJ, 13(4).
- Leachman, L. L., Rosas, G., Lange, P., & Bester, A. (2007). The political economy of budget deficits. Economics & Politics, 19(3), 369-420.
- Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of econometrics, 108(1), 1-24.
- Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
- Musyoka, H. M. (2013). Relationship between budget deficit and economic growth in Kenya.
- O’Neill, J. (2012). Outlook for Global Economy. Goldman Sacks.
- Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653-670.
- Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric theory, 20(3), 597-625.
- Persson, T., & Svensson, L. E. (1989). Why a stubborn conservative would run a deficit: Policy with time-inconsistent preferences. The Quarterly Journal of Economics, 104(2), 325-345.
- Seater, J. J. (1993). Ricardian equivalence. Journal of economic literature, 31(1), 142-190.
- Shahrokhi, M., Cheng, H., Dandapani, K., Figueiredo, A., Parhizgari, A. M., & Shachmurove, Y. (2017). The evolution and future of the BRICS: Unbundling politics from economics. Global Finance Journal, 32, 1-15.
- Tabellini, G. (1991). The politics of intergenerational redistribution. Journal of Political Economy, 99(2), 335-357.
- Thirunavukkarasu, V., & Achchuthan, S. (2013). Fiscal deficit and economic growth: A study on Sri Lankan economic perspective. Developing Country Studies, 3(3), 166-174.
- Turnbull, G. K. (1998). The overspending and flypaper effects of fiscal illusion: Theory and empirical evidence. Journal of Urban Economics, 44(1), 1-26.
- Ura, J. D., & Socker, E. M. (2011). The Behavioral Political Economy of Budget Deficits: How Starve the Beast Policies Feed the Machine. The Forum, 9(2), 7.
- Willett, T. D., & Laney, L. O. (2014). Monetarism, budget deficits, and wage push inflation: The cases of Italy and the UK. PSL Quarterly Review, 31(127).
- Wilson, D., & Purushothaman, R. (2003). Dreaming with BRICs: The path to 2050, 99. New York, NY: Goldman, Sachs & Company.
- Woo, J. (2003). Economic, political, and institutional determinants of public deficits. Journal of Public Economics, 87(3), 387-426.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam ,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11918 Downloads: 5693 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9139 Downloads: 5470 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7875 Downloads: 1375 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
