Debt Stock Research Articles

Effect of External Debt Service on Economic Growth in Nigeria

External debt service is major debt variable in economic growth and public debt debate. However, this variable is often ignored in literature. This study investigated the relationship between external debt service and economic growth in Nigeria from 1981 to 2020. A quantitative research approach was adopted for this study. The method for estimation was the Auto-Regressive Distributed Lags (ARDL) model. The ARDL bound test results showed there was co-integration. The speed of change between the short-run and long-run of the co-integrating equations was 88.86%. The study used debt overhang theory, the neo-classical theory and endogenous theory as the theoretical framework. The study provided evidence of a negative relationship between external debt service and economic growth although this is not statistically significant. The result shows resource depletion effect of external debt services on growth. External debt stock has a positive but not significant relationship with growth. There is a positive but not significant relationship between external reserves to external debt ratio with growth. Debt service to export ratio has a positive relationship with growth. The study recommends that policy makers in Nigeria should develop a methodology to compare the return on external debt to be incurred with the cost of debt so that gains that may eventually offset the cost of debt service. This methodology should be a policy or legislation.

An Empirical Analysis of Public Borrowing and Economic Growth in Nigeria

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 overtime.

The Dynamic Impact of Public External Debt on Capital Formation in Sub-Saharan Africa: The Pooled Mean Group Approach

The increasing reliance on public external debt stocks in Africa and other developing countries has raised the question of debt sustainability, especially in the face of Covid-19, which has forced many counties (both developed and developing) into an unforeseen and unplanned recession. This study contributes to the literature on debt sustainability by examining the effect of public debt on capital formation in Sub-Saharan Africa (SSA) from 2000 to 2008 using the pooled mean group estimation approach. The debt variables considered are external debt stock, debt service on external debt, and interest payment on external debt. Consistent with the overhang theory, our results show that increasing external debt stock and interest payment on external debts only have a marginal impact on capital formation in the short run and exerts a serious negative effect in the long run. Our results also show that debt service burden has a positive effect on gross fixed capital formation in the long run. Therefore, we argue that despite being faced with a huge debt service burden resulting from large external debt stock, SSA countries are not neglecting investments in critical infrastructures needed to drive economic growth. However, we recommend that increasing government revenue base, minimizing economic waste associated with public expenditure, and intensifying negotiations for debt relief may be a plausible way out.

Stock returns, oil prices and leverage: evidence from US firms

PurposeThis paper aims to investigate how the relation between stock returns of US firms and West Texas Intermediate (WTI) oil prices is affected by leverage from 1990 to 2020.Design/methodology/approachThis paper examines how the relationship between stock returns of US firms and WTI oil prices is affected by leverage from 1990 to 2020 using a fixed-effect model estimation framework.FindingsResults from the fixed-effect regression models suggest that leverage effects on stock returns are pervasive both in aggregate and cross-industry levels, while the mining industry is more sensitive. In addition to the positive oil price effects attenuated by leverage at the aggregate level, the authors observe stronger marginal effects of leverage only for the mining sector. Being more exposed to commodity prices, the positive effects of oil prices on stock returns in the mining sector are offset by large debt ratios. Asymmetries, effects of debt maturity structure and implications are also discussed.Research limitations/implicationsThis study is grounded on the contemporary cash flow claim of leverage NOT on the long-run effect of leverage considering cash flow constraints. The oil price increase is assumed to represent an advancement of the overall economy. This study does not capture the oil prices response to some other economic forces and vice-versa.Practical implicationsMining companies should therefore reduce the stock of debt with respect to their assets to make possible the “pass-through” from oil prices to the stock market.Originality/valuePreviously undocumented and the authors show that leverage reduces the total effect of oil prices on stock returns, consistent with the hypothesis. Asymmetric and debt maturity structures effects are also discussed.

Fiscal stress and the formation of zombie firms: Evidence from China

We investigate the causality between government fiscal stress and the formation of zombie firms. We use the province-managing-county reform recently initiated in China to exogenously identify the change in financial pressures of local governments. Matching industrial firm data and county economic data from 1999 to 2013, we carry out difference-in-differences estimation and find that the possibility of zombie firms' formation significantly decreases after the reform. Specifically, the suppression effect is more pronounced in counties with low level of initial economic development, more debt stocks, poor financial situations, and high employment pressures. Further, the mechanism analysis shows that the reform improves firms' performance, such as productivity and profitability, through the decline of tax burden, which inhibits the formation of zombie firms. Our study contributes to a profound understanding of the causes of zombie firms in a large transition economy.

Fiscal rules and creative accounting: Evidence from Japanese municipalities

This paper analyzes a new fiscal rule and creative accounting using stock-flow adjustments. Previous studies investigate creative accounting using country- or state-level data, although the definitions of creative accounting differ depending on the study. We contribute to the literature on creative accounting by using Japanese municipality data from FY2007 to FY2010, following von Hagen and Wolff (2006). We focus on stock-flow adjustments by considering the relationship between the increase in the change in debt stock and the decrease in the deficit to measure creative accounting. Our contribution is the finding that municipalities engage in stock-flow adjustments by increasing their expenditures and revenues through intergovernmental transfers, which represents creative accounting because it allows municipalities to delay improving their fiscal conditions. To evaluate a new fiscal rule, we should check not only the targeted indexes but also the untargeted indexes, which municipalities do not have an incentive to control.

A Managed Policy on Capital Inflows

Cross-border capital flows create dilemmas and trade-offs for monetary policy due to their many benefits, like financing economic growth and consumption of households, and their potential adverse macroeconomic effects, which can be caused by real appreciation of a recipient country’s currency and a large stock of debt that can cause difficulty in servicing. We examine conditions under which a country will restrict capital inflows to mitigate their adverse macroeconomic effects. Our game-theoretic modelling captures a dynamic interaction between policy and investment. Using the subgame perfect Nash equilibrium concept, we show that the government restricts capital inflows if the local economic conditions are strong enough to discourage a surge in capital inflows but relaxes the restriction if the economic conditions in the investors’ home are strong enough to attract capital inflows. The restriction has large impact on short-term capital inflows and is effective in channelling capital inflows into long-term investments.

Public Pensions and Implicit Debt: An Investigation for EU Member States Using Ageing Working Group 2021 Projections

Ιmplicit pension debt is attracting increasing attention worldwide as a driver of fiscal dynamics, operating in parallel to the (explicit) National Debt. A prudent examination of a state’s fiscal prospects should ideally encompass both, with due attention paid to the special features of each kind of debt. The explosion of government deficits as a result of the COVID-19 pandemic only adds to the urgency of understanding the scale and nature of issues around accounting for contingent liabilities. The reports of the EU Ageing working group, produced and published every three years are used to derive estimates of the stock of outstanding implicit pension debt from flows of projected deficits. This can be performed for all European member states. This paper uses the last two rounds of the Ageing Report (2021, 2018) and derives conclusions on the evolution of pension debt and its correlation to the external debt. The paper concludes that producing comparable estimates of IPD should become an important input in EU policy discussion.

China's overseas lending

Compared with China's pre-eminent status in world trade, its role in global finance is poorly understood. This paper studies the size, terms and destination of Chinese official international lending on the basis of a new “consensus” database of 4900 loans and grants to 146 countries, 1949–2017. Using the loan-level lending data we estimate outstanding debt stocks owed to China for more than 100 developing and emerging economies since 2000. As of 2017, China had become the world's largest official creditor, surpassing the World Bank and the IMF. The terms of China's state-driven international loans typically resemble commercial rather than official lending. We also find that 50% of China's official lending to developing countries is not reported in the most widely used official debt statistics. These “hidden” debts have important implications for debt sustainability.

How external debt led to economic growth in South Asia: A policy perspective analysis from quantile regression

The study analyzes the relationship between external debt and economic growth in the South Asian region. The panel ordinary least square (OLS), fixed effect, Quantile regression, and robust output regression were used to analyze the World Bank data from 2000 to 2018. South Asian countries, Afghanistan, Bangladesh, Bhutan, India, Pakistan, Sri Lanka, Maldives, and Nepal, were included in the assessment. The analysis exhibited that external debt has a negative impact, and on the other hand, external debt stock has a positive impact on economic growth. The robust regression analysis substantiated the findings and yielded total external debt and external debt service impact of 39% and 31%, respectively. The study also showed that gross capital formation and trade openness have a positive effect on economic growth. Moreover, compared to domestic debt, Threshold analysis reveals that the external debt becomes a drag on growth and instigates a more substantial adverse effect on growth (due to the rising indebtedness of a country). Thus, the study serves as a base for policymakers and government officials to upsurge economic growth while reducing the foreign debt of the economy. Even though the presence of high borrowing costs, better institutional quality can help alleviate the adverse impact of external borrowing on growth.

Legal and Economic Perspectives to Sustainable Sovereign Debt Management in Nigeria: Energy Poverty in Perspective


 
 
 
 In recent times, Nigeria’s total debt stock and its debt management strategies have been a thorny fiscal policy issue in the academia and the media. This is made worse by the fact that the debt profile continues to increase with no infrastructure to show for the increasing debt profile. With contrasting views being canvassed in different circles as to the economic impact of these loans, it has been difficult to state what the exact impact Nigeria’s debt stock has on its economy and how effective the debt management strategies put in place have been. The debates notwithstanding, the fall in oil prices and the impact of the novel corona virus pandemic on the economy leaves the government with extraordinarily little options to address its budget deficit. Despite the dire economic situation, the energy poverty level in the country continues to rise; thereby increasing the need to deploy resources to address energy access in Nigeria.
 This article therefore undertakes a legal and economic analysis of Nigeria’s debt profile and the debt management strategies. The article does so by comprehensively analysing the economic implications of Nigeria’s debt profile, the impact of its debt management strategies on its economy, and a legal analysis of its debt management strategies and policies. The article also analyses the impact of the total debt stock and the sovereign debt management strategies on energy poverty in the country. The article concludes by arguing that although available data suggests that Nigeria’s public debt is sustainably managed given the low debt to GDP ratio, the high cost of servicing these debts have adverse economic implications on development generally (and energy poverty in particular) and necessitates a thorough review of its legal and policy foundations for managing sovereign debt.
 
 
 

IMPACT OF EXTERNAL DEBT ON ECONOMIC GROWTH IN NIGERIA

Following the rising spate of the debt profile of Nigeria and the fluctuating trend in her macroeconomic indicators, this study critically examined the impact of external debt on economic growth in Nigeria in the period, 1985 to 2019 by examining the causality between external debt stock and economic growth in Nigeria and identify the impact of external debt servicing on economic growth in Nigeria. The study employed the Harrod-Domar theory of economic growth and the Two-Gap model as theoretical framework to explain the impact of external debt on economic growth in Nigeria. The study made use of secondary data sourced from World Development Indicator 2019. Ordinary least square (OLS) technique was adopted for the regression analysis. The data were analyzed with the aid of e-view software (9th edition). The result showed that external debt has negative and insignificant impact on economic growth in Nigeria. Therefore, the study recommended the use of tax revenue to finance public deficit, encouragement of foreign direct investment and domestic investment through improvement in infrastructural facilities and an enabling environment devoid of political and economic instability.
 
 JEL: E32, E41, F33, F34, F43
 
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Pre- and Post-Global Financial Crisis Policy Multipliers

This paper estimates the change in policy multipliers in the U.S. relative to their pre-2008 financial crisis levels. It also estimates the likely impact of the 2020 stimulus packages implemented to address COVID-19. The analysis is based on an augmented Blanchard-Perotti model that allows for the dynamic effects of shocks to the central bank balance sheet, real interest rates and debt levels on economic activity. The results suggest that expenditure multipliers have fallen post-2008, mostly because of higher government debt, implying that the effectiveness of fiscal policy has declined. They also suggest that the impact of quantitative easing is beneficial, but requires sizable interventions to have noticeable effects on real GDP. Because of rising debt stocks, dealing with a crisis is becoming more and more costly despite the current low interest rate environment.

External Debt Burdens and Economic Growth: A Vector Error Correction Approach from Nigeria

This study examined the effect of external debt burden on the growth of Nigeria economy. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1986-2019. Nigeria real gross domestic was proxied for dependent variable while debt servicing; external debt stock, debt overhang, debt sustainability and crowd-out effect of external debt were proxies for independent variables. The study employed multiple regression models to estimate the relationship that exists between external debt burden indicators and Nigeria economic growth. Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations, parsimonious vector error correction model and pairwise causality tests were used to conduct the investigations and analysis. The study findings revealed that 72 percent of the variations in Nigeria gross domestic products can be explained by the changes in external debt burden indicators. The results indicated a negative coefficient with external debt stock and debt overhang while a positive coefficient with debt sustainability, debt servicing and crowd out effect of external debt on Nigeria gross domestic products. From the findings, the study concludes that external debt burdens significantly affect growth of Nigeria economy. We recommend that the fund borrowed should be effectively managed, the federal government should laydown guidelines in terms of defining the purpose, duration, moratorium requirements and commitments, negotiation among others including conditions for external debt loans. Government should initiate and develop policies that will address the fundamental causes of external debt.

Path Dependence in Sovereign Debt Modelling: System Dynamics Approach

The article offers a system dynamic modelling of sovereign debt using the path dependence concept. Using simulation modelling we are trying to find a fixed point in a motion of national sovereign debt towards its equilibrium and to change the existing mental model perception towards sovereign debt by changing the structure of the system.The research reveals the idea of the “debt snowball concept” using recursive dynamic approach. The dynamic linear and nonlinear recursive models of Ukrainian sovereign debt with the appropriate multi – order recursive equations are constructed.The fixed point as an equilibrium value for a country’s sovereign debt stock to GDP ratio with a linear dependence has been built. Finding the initial point for resolving sovereign debt issue is especially actual for national economy under strong fiscal pressure caused by COVID-19 and wartime on the East of the country. For this purpose, the sovereign debt cyclical behaviour was also reproduced using phase plot graphic.The fixed point as an equilibrium value for a country’s sovereign debt stock to GDP ratio with a nonlinear dependence was determined. The main purpose of this part of the analysis was to show the more complicated oscillated behaviour of the system and the multiplicity of possible equilibrium points.The stock and flows SD modelling and simulation analysis of sovereign debt in Ukrainian economy allows to make the conclusion of the inevitability of the sovereign debt existence even on the stable level and with the balanced national budget. JEL classіfіcatіon: E60, H63, H68

Medical Debt in the US, 2009-2020

Medical debt is an increasing concern in the US, yet there is limited understanding of the amount and distribution of medical debt, and its association with health care policies. To measure the amount of medical debt nationally and by geographic region and income group and its association with Medicaid expansion under the Affordable Care Act. Data on medical debt in collections were obtained from a nationally representative 10% panel of consumer credit reports between January 2009 and June 2020 (reflecting care provided prior to the COVID-19 pandemic). Income data were obtained from the 2014-2018 American Community Survey. The sample consisted of 4.1 billion person-month observations (nearly 40 million unique individuals). These data were used to estimate the amount of medical debt (nationally and by geographic region and zip code income decile) and to examine the association between Medicaid expansion and medical debt (overall and by income group). Geographic region (US Census region), income group (zip code income decile), and state Medicaid expansion status. The stock (all unpaid debt listed on credit reports) and flow (new debt listed on credit reports during the preceding 12 months) of medical debt in collections that can be collected on by debt collectors. In June 2020, an estimated 17.8% of individuals had medical debt (13.0% accrued debt during the prior year), and the mean amount was $429 ($311 accrued during the prior year). The mean stock of medical debt was highest in the South and lowest in the Northeast ($616 vs $167; difference, $448 [95% CI, $435-$462]) and higher in poor than in rich zip code income deciles ($677 vs $126; difference, $551 [95% CI, $520-$581]). Between 2013 and 2020, the states that expanded Medicaid in 2014 experienced a decline in the mean flow of medical debt that was 34.0 percentage points (95% CI, 18.5-49.4 percentage points) greater (from $330 to $175) than the states that did not expand Medicaid (from $613 to $550). In the expansion states, the gap in the mean flow of medical debt between the lowest and highest zip code income deciles decreased by $145 (95% CI, $95-$194) while the gap increased by $218 (95% CI, $163-$273) in the nonexpansion states. This study provides an estimate of the amount of medical debt in collections in the US based on consumer credit reports from January 2009 to June 2020, reflecting care delivered prior to the COVID-19 pandemic, and suggests that the amount of medical debt was highest among individuals living in the South and in lower-income communities. However, further study is needed regarding debt related to COVID-19.

Macroeconomic Determinants of External Debt Accumulation in Ethiopia: An ARDL Bound Testing Approach

This study attempts to explore the major macroeconomic determinants of external debt stock growth in Ethiopia prompted by a continuous increase in government external borrowing over the period 1981-2018. For this purpose, the study employed the ARDL bound testing approach and all the necessary time series diagnostic tests were conducted. The long run model estimation result revealed that per capita GDP growth has a positive and significant effect on the country’s external debt stock. The result also revealed that the budget deficit and political instability put a significant upward pressure on the external debt stock growth of the country both in the short run and long run. Consistent with some existing empirical evidence, the study revealed negative and significant influence of openness and infrastructure development on the external debt stock growth. Consequently, the government should embark on prudent borrowing to achieve structural transformation.

Public debt and economic growth: contemporary evidence from a developing economy

PurposeConsidering the continuous rise in the public debt stock of developing countries (particularly Ghana) with the unstable economic growth rate for the past decades and the recent borrowing because of the impact of COVID 19, this paper aims to examine the causal relationships between public debt and economic growth over time.Design/methodology/approachThe paper uses a dynamic multivariate autoregressive-distributed lag (ARDL)-based Granger-causality model to test the causal relationships between public debt and economic growth [gross domestic product (GDP)]. Annual time-series data that spanned 1978–2018 were sourced from the World Bank Development Indicator database and the IMF fiscal Affairs Department Database and WEO.FindingsThe results reveal that public debt has no causal relationship with GDP in the short-run but there is unidirectional Granger causality running from public debt to GDP in the long run. Again, investment spending has a negative bi-directional causal relationship with GDP in the short-run but they have a positive bi-directional causal relationship in the long run. Conversely, no short-run causal relationship exists between government consumption expenditure and GDP but long-run Granger causality runs from government consumption expenditure to GDP. Finally, public debt has a positive impact on the inflation rate in the short run.Practical implicationsThe findings imply that government(s) must ensure high fiscal discipline to serve as a precursor for the effective and efficient use of recent borrowing, that is, the loans should be used for highly prioritized projects (preferably investment spending) that are well evaluated and self-sustained to add positively to the GDP.Originality/valueThis paper provides contemporary findings to augment extant literature on public debt and economic growth by using variables and empirical models, which prior studies could not sufficiently cover in a developing country perspective and affirms that public debt contributes to GDP only in the long run.

Exploring the Channels of Transmission between External Debt and Economic Growth: Evidence from Sub-Saharan African Countries

This study aimed to determine the channels through which external debt transmits its impact on economic growth in sub-Saharan African (SSA) countries. To this end, panel data comprising 30 SSA countries were investigated for the period 1985–2019, using the system generalized method of moments (GMM) estimation technique. The study identified public investment, private investment and total factor productivity as channels transmitting the non-linear effect from external debt to economic growth. Furthermore, the interest rate was also confirmed as a channel but with a direct effect. Contrariwise, the estimates indicated that savings are not a channel of transmission from external debt to economic growth in SSA. These findings call for urgent action from SSA countries to reduce their external debt stocks and implement alternative macroeconomic non-debt strategies to improve the identified channels to counteract the negative effect of high external debt on them.

IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH: AN EMPIRICAL INVESTIGATION FROM SOUTH ASIAN COUNTRIES

Purpose of the study: This study aims to analyze the short-run and as well as long-run effects of public debt on the economy of South Asian countries. And to resolve problems in managing and servicing their massive public debt obligations.
 Methodology: For econometrically investigation, panel data has been used for the era of 1990-2019. For obtaining econometric outcomes, we applied the Fixed Effect Model and PMG/ Panel ARDL.
 Main Findings: The results revealed that public debt negatively affected the economic performance of these countries. This effect is adverse both in short as well as in long period.
 Applications of this study: The study can be effective for simultaneous achievement of the desirable level of economic growth and public debt stock seems to be difficult and could remain elusive if some serious measures have not been taken.
 Novelty/Originality of this study: The study recommends the efficient and productive utilization of borrowed funds to avoid their negative repercussions.