Domestic Product Ratio Research Articles

Nexus between Public Debts, Poverty and Unemployment Rates in Nigeria: A Vector AutoRegression (VAR) Approach

Notwithstanding the upsurge in public debts, it is absurd and worrisome to note that socioeconomic indicators like poverty and unemployment have shown gloomy pictures in Nigeria. The absurd situation makes it unclear on the precise nexus between public debts and unemployment rate on the one hand and poverty rate on the other hand. Consequently, this paper analysed the nexus between public debts, poverty and unemployment in Nigeria. Secondary data of public debts (measured by internal and external debts), poverty and unemployment rates were obtained from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics during the period 1981-2021. Using an unrestricted vector auto-regression model, the study indicated that neither internal nor external debts had any significant impact on poverty; however, they influence the level of unemployment rates in Nigeria. Impliedly, most of the public debts incurred within the period of investigation were not growth-oriented and could partly be explained by the fact that most of the borrowings were mainly to finance trade deficits, which were mainly consumable goods. The paper recommended that the current debt-togross domestic product ratio of less than 20 percent should be sustained to ensure that debt remains within the internationally recommended threshold for developing economies like Nigeria. Also, future public borrowings should be targeted at specified productive sectors of the economy that would engender growth in the long-run in terms of job creation and poverty alleviation; this can be achieved via the procedure of tying every public borrowing to specific growth-driving project that are oriented towards job creation and alleviation of poverty

Too Much Debt and Budget Deficit on Fiscal Sustainability: Do Institutions Matter?

The current study estimates threshold levels of the public debt-to-gross domestic product (GDP) ratio and the budget deficit for 106 developing and 36 developed countries from 1996 to 2018. A PCA-based fiscal sustainability indicator is also constructed and a dynamic panel threshold regression is employed. The main findings reveal a threshold effect in the public debt-to-GDP ratio and budget deficit fiscal sustainability nexus. The public debt-to-GDP ratio and budget deficit are beneficial in maintaining fiscal sustainability at lower or upper threshold levels in different institutional indicators. The highest threshold level of the public debt-to-GDP ratio was 59.56% for developed countries and 64.87% for developing countries. The highest threshold level of budget deficit-to-GDP ratio was 0.41% for developed countries and 3.34% for developing countries. Three institutional indicators contribute significantly to the threshold estimation: regulatory quality, the rule of law and control of corruption. Policymakers are advised to maintain certain threshold points to ensure a fiscally sustainable level. The quality of law enforcement and control of corruption should also be improved.

The causality relationship between foreign direct investment and economic growth in RCEP countries

PurposeThe direction of the causality relationship between Foreign Direct Investment (FDI) and economic growth is a highly controversial issue in the literature. There are two basic approaches advocating different causal directions between FDI and growth, which are called hypotheses of FDI-led Growth and Growth-led FDI. The aim of this study is to analyze the causality relationship between FDI and economic growth in RCEP countries and thus make a new contribution to the discussions in the relevant literature. In addition, the results of the study are expected to provide important implications for the policies to be designed for economic growth based on FDI flows to RCEP countries. Thus, by examining the direction of causality between FDI and economic growth in RCEP countries, we aim to provide a new contribution to related literature and make some implications for the policy design process of economic growth in the RCEP area.Design/methodology/approachWe empirically examined the direction of a causal link between FDI and economic growth in the context of Regional Comprehensive Economic Partnership (RPEC) countries in order to test the hypothesis of FDI-led growth and Growth-led FDI. Accordingly, as our main variables of interest, we incorporated the inward foreign direct investment stock to gross domestic product ratio (FDI) and gross domestic product per capita (GDP). Hatemi-J (2012) asymmetric causality test has been employed in the investigation of the direction of causality between FDI and GDP over the period of 1980–2020. Thus, unlike most of the studies investigating the direction of causality between FDI and growth using the linear causality analysis method, our study performed a nonlinear causality analysis.FindingsEmpirical results reveal that the causal relationship between FDI and national income in RPEC countries is non-linear or asymmetric . The results of the symmetric causality test for both from FDI to national income and from national income to FDI are statistically insignificant for all countries. Therefore, this finding obtained from the study provided an important guide to the econometric methods to be used in other studies to be conducted in the same region in the future. Concerning the asymmetric causality relationship from FDI to growth, positive FDI shocks are an important cause of national income in most RCEP countries. However, the effect of negative FDI shocks on national income is quite weak compared to positive shocks. Regarding the asymmetric causality relationship from growth to FDI, positive national income shocks do not create a significant causal relationship with FDI. Similarly, the effects of negative national income shocks on FDI are statistically insignificant. Overall, asymmetric causality test results reveal that positive FDI shocks have an important causal impact on economic growth in most RCEP countries. Thus, the results of econometric analysis mostly support the argument that the FDI-led growth hypothesis rather than the Growth-led FDI hypothesis in RCEP countries. Accordingly, policy-makers in most of the RCEP countries should continue to provide more incentives and facilities to multinational companies in order to ensure constant economic growth.Originality/valueOur study brings a significant difference in the econometric method used compared to most of the other studies in the literature. Existing empirical studies on the direction of causality between FDI and growth mostly use standard Granger-linear causality-type tests to detect the direction of causality among FDI and growth. Unlike most of the studies in the literature, our study adopted a different methodological approach, namely the Hatemi J test to detect the non-linear causality between FDI and economic growth in RCEP countries. Therefore, this paper made a new methodological contribution significantly to the literature focusing on the causal relationship between FDI and economic growth by using a non-linear causality method rather than a linear causality one.

Sub‐Saharan Africa's debt‐financed growth: How sustainable and inclusive?

AbstractSub‐Saharan African (SSA) countries recorded impressive economic growth in the last two decades. The question however is, how inclusive and sustainable is this growth? With this in mind, this study examined the sustainability and inclusiveness of economic growth in a panel of 44 SSA countries, over a period of 38 years, while taking into account the diversity of the continent's institutional quality, income growth and resource endowment. The study adopts the innovative nonlinear fiscal reaction function and the dynamic panel threshold model to account for potential asymmetric phenomena in public debt series. The study also adopts Driscoll and Kraay's estimator to account for cross‐section dependency and cross‐country heterogeneity. The result shows that the recent increase in the economic growth rate in SSA is not sustainable and inclusive. This is tenable since if economic growth is debt induced, more money will be spent on servicing public debt, thus depriving governments of funds for critical intervention programs. Lastly, the study found a public debt/gross domestic product ratio threshold of 34% beyond which public debt impairs growth inclusiveness across SSA. The research and policy implications are discussed.

Bank competition, financial development and macroeconomic stability: Empirical evidence from emerging economies

In this study, we investigate the potential contribution of bank competition to macroeconomic stability, and the interactive role of financial development. We classify macroeconomic stability into economic and financial stability. Economic stability is represented by the volatility of actual and unexpected output growth, whereas financial stability is assessed by the aggregate Z-score and volatility of the private credit-to-gross domestic product ratio. We employ two structural and two non-structural measures of bank competition in our analysis. Applying a two-step dynamic panel system (GMM) to macroeconomic data from 48 developing nations from 1999 to 2018, we find a bell-shaped relationship between bank competition and macroeconomic stability. The findings imply that a higher level of bank competition promotes macroeconomic stability by reducing output growth volatility, fluctuations in private credit, and the probability of bank default. There is an optimal level of bank competition beyond which it may foster economic and financial instability. Moreover, financial development enhances bank competition’s positive impact on macroeconomic stability.

A stochastic control approach to public debt management

We discuss a class of debt management problems in a stochastic environment model. We propose a model for the debt-to-GDP (Gross Domestic Product) ratio where the government interventions via fiscal policies affect the public debt and the GDP growth rate at the same time. We allow for stochastic interest rate and possible correlation with the GDP growth rate through the dependence of both the processes (interest rate and GDP growth rate) on a stochastic factor which may represent any relevant macroeconomic variable, such as the state of economy. We tackle the problem of a government whose goal is to determine the fiscal policy in order to minimize a general functional cost. We prove that the value function is a viscosity solution to the Hamilton-Jacobi-Bellman equation and provide a Verification Theorem based on classical solutions. We investigate the form of the candidate optimal fiscal policy in many cases of interest, providing interesting policy insights. Finally, we discuss two applications to the debt reduction problem and debt smoothing, providing explicit expressions of the value function and the optimal policy in some special cases.

Albania: Technical Assistance Report-Medium-Term Revenue Strategy: Revenue Administration Reform Options

Albania is formulating a Medium-Term Revenue Strategy (MTRS) with IMF support. The decision to commit to the development of an MTRS was taken against the background of revenue persistently falling short of budget projections, revenue continuing to lag behind regional peers in tax to Gross Domestic Product (GDP) ratios and the Government’s assessment that an increase of revenue of 2.2 – 3.0 percent of GDP will be required to finance its additional spending needs over the next five years.

Prospects and Challenges of Bond in Bangladesh Capital Market: A Comparison with Asian Capital Markets

The bond market always plays a complementary role in allocating funds from surplus sectors to different deficit sectors. In Bangladesh, an efficient bond market can play a vital role in supplementing the banking system to meet the requirements of the corporate sector for long-term capital investment and asset creation while providing a steady source of finance in the event of equity market volatility. The study has explored the prospects and challenges of the bond market in Bangladesh using secondary data from abundant sources. The study has addressed that the amount of tradable government bonds is negligible, secondary trading of government bonds is infrequent, and there has been scarcely any public issue of corporate bonds. It is observed that the bond market remains mostly underdeveloped to finance the large infrastructural projects in Bangladesh. The study has also compared the bond market of Bangladesh with twelve Asian nations and revealed that Bangladeshi bond market appears to be very insignificant in terms of the size and the corporate bond to Gross Domestic Product (GDP) ratio relative to those of countries. There are a plethora of impediments to the expansion of the bond market in Bangladesh, which have been attributed to major structural issues such as low investor base, absence of benchmark yield curve, lack of investor awareness and high issuance cost. For the smooth operation of a deep and liquid bond market in Bangladesh, a comprehensive regulatory framework, bond investment-friendly administrative infrastructure, and augmented investor incentives are recommended. It is a message of optimism that the regulatory authority has already taken initiatives to introduce several bonds with various features to make the capital market more vibrant.

External indebtedness in Sub-Saharan Africa: a spatial econometric perspective

The dilemma around external debt accumulation and the increasing burden of debt servicing in sub-Saharan Africa (SSA) remains a repetitive topic in the development debates. The aim of this study is to investigate the determinants of external indebtedness for SSA countries over the period 2002–2020 while accounting for spatial effects. It departs from the classical literature which uses external debt to Gross Domestic Product ratio as a measure of external indebtedness and formulates another measure, referred to as the Indebtedness Index, which is calculated by making use of the Stochastic Frontier Analysis technique. It accounts for the impact of spatial interactions in external debt accumulation behaviour, by applying the Spatial Durbin Model. The findings of the study show evidence of spatial interactions in external indebtedness among SSA nations. The results also show the reduction capacity of higher exports, political stability and government effectiveness on external indebtedness, while higher share of broad money to GDP exacerbates external indebtedness.

Fiscal multipliers in South Africa after the global financial crisis

Background: South Africa’s fiscal position has deteriorated considerably over the last 10 years, with debt levels reaching historical highs in the post-apartheid period. National Treasury’s intentions for fiscal consolidation have again drawn attention to the fiscal multiplier literature.Aim: The aim in the study is to calculate the size of fiscal expenditure multipliers over the period 2009 to 2019, taking into account the specific economic conditions and the funding choices of government.Setting: In the study fiscal policy is considered at a time when the debt to gross domestic product (GDP) ratio was rising rapidly.Methods: We use an econometric model to calculate the fiscal multipliers over the past decade. Our estimates take account of the specific fiscal conditions for each year, in particular the changing relationship between debt and the sovereign risk premia as well as the impact of tax increases.Results: The model suggests that the fiscal multiplier declined from 1.5 in 2010 to around zero in 2019 as the debt levels became progressively more unsustainable and large tax increases muted the aggregate demand effects from higher government expenditure.Conclusion: The low fiscal multipliers suggest that fiscal consolidation will be less costly in terms of growth forgone than generally perceived.JEL classification: C50, E62, H62, H63

Nonlinearities and expenditure multipliers in the Eurozone

AbstractWe analyze the nonlinear effects of government spending in the Euro area, by using the local projection method and by testing whether the impact of the shock depends crucially on the depth of the recession, on some structural characteristics of the Eurozone (EZ) economies, and on the monetary policy stance. We provide four insights. First, expenditure multipliers in the Euro area are not significantly higher in recessions than in expansions. However they are always above unity. Second, state dependency emerges as soon as deep recession is distinguished from ordinary downturns. Third, structural characteristics, such as the presence of automatic stabilizers, the exchange rate regime, the degree of labor market flexibility, and initial conditions, such as the debt/gross domestic product ratio, do influence the size of expenditure multipliers in the EZ. Fourth, multipliers are much higher when the policy interest rate is at the zero lower bound.

Benchmarking Canadian solid waste management system integrating fuzzy analytic hierarchy process (FAHP) with efficacy methods.

Solid waste management is a recent challenge for both developed and developing countries because of urbanization and population growth. This research aims to identify and compare the economic efficiency of Canadian waste management systems integrating the fuzzy analytic hierarchy process (FAHP) with the efficacy method. Six economic indicators-diversion gross domestic product (DGDP) ratio, gross domestic product (GDP) of all industries, GDP of Sector 562, diversion rate, waste management output indicator, and diversion size indicator-are considered in this study. Initially, the FAHP method was used to calculate the indicator weights, and the efficacy method then ranked the DGDP ratio as the most influential factor for the GDP-related indicators. The DGDP ratio and diversion rate were determined to be most critical in the assessment of the economic efficiency of a solid waste management system in Canada. The result also revealed that the economic performance of the waste management systems of Nova Scotia, British Columbia, and Ontario are better compared to those of other provinces. The outcome of this study will aid the government and provincial organizations in establishing an effective solid waste management plan to improve their overall performance.

Testing for multiple bubbles: historical episodes on the sustainability of public debt in Spain, 1850–2020

PurposeThis paper aims to analyze the dynamics of the Spanish public debt–gross domestic product ratio during the period 1850–2020.Design/methodology/approachThis study uses a recent procedure to test for recurrent explosive behavior (Phillipset al., 2011; Phillipset al., 2015a, 2015b) to identify episodes of explosive public debt dynamics and also the episodes of fiscal adjustments over this long period.FindingsThe identified episodes of explosive behavior of public debt coincided with fiscal stress events, whereas fiscal adjustments and changes in economic policies stabilized public finances after periods of explosive dynamics of public debt.Originality/valueThe longer than usual span of the data should allow the authors to obtain some more robust results than in most of previous analyses of long-run sustainability.

The Armey curve: an empirical analysis of selected Balkan countries and Russia for the period 2006–2019

The subject of the analysis is to check the validity of the Armey curve which is frequently used in the scientific literature and to establish the optimal level of the public sector. The aim of the present study is to analyze the impact of the public sector through public expenditure on the possibility of achieving economic growth. The estimation is based on annual data for the period 2006–2019 of selected Balkan countries and Russia. The authors apply the ordinary least squares (OLS) method for a nonlinear regression model. The conclusion is that the Armey curve is valid for some of the countries involved in the research among which Serbia, North Macedonia and Russia. The public expenditure to Gross Domestic Product ratio’s threshold value, which maximizes economic growth, ranges from 32.94 to 42.37%. The average share of public expenditure in the analyzed countries is approximately equal to the threshold values that are obtained which is indicative of achievement to some extent the desired economic performance. However, the results of the study show that the growth of the public sector and its impact on economic development should not be underestimated.

Developments in the use of technologies in African tax administrations

A substantial number of sub-Saharan African tax administrations have seen efficiency gains by adopting online systems for tax filing and payment. However, the adoption of technology for the automation of tax administration has been markedly slow in comparison to the pace of adoption in developed countries. For African countries’ drive toward domestic resource mobilisation to be successful, automation of core processes is fundamental and the adoption of standards in international cooperation, improving data quality and promoting fiscal decentralisation. This article demonstrates that while much progress has been made in automation, Tax Administration Diagnostic Assessment Tool assessments still illustrate several gaps experienced by tax administrations in compliance risk management, statistical analysis, bulk data analysis, and the quality of data. As ref lected in stagnant tax gross domestic product ratios, without mitigating these risks and not seizing opportunities offered by instruments such as the exchange of information standards, advances made in automation run the risk of being nullified eventually. Therefore, African tax administrations need a digital roadmap and a set of metrics to measure their progress in automation.

External Debt-Economic Growth Nexus: The Sierra Leonean Case (1973-2021)

The study investigates the nexus between external debt and economic growth in Sierra Leone for the period spanning between 1973 and 2021. In many developing countries, huge external indebtedness has been seen as a strong break on the road to economic growth and development. Indeed, the study focuses on both external and internal factors that are responsible for the external debt problem in Sierra Leone. Data employed in this study are secondary and were collected from various sources including the Central Bank of Sierra Leone and the Ministry of Finance. Key macroeconomic variables such as external debt to Gross Domestic Product (GDP) ratio, external debt service to export earnings ratio and terms of trade were specified in the model and tested for stationarity using unit root tests. The study also employed the ordinary least square (OLS) technique for the purpose of estimating the relevant parameters of the model. Various diagnostic tests are carried out to appraise the robustness of the estimated growth equation using appropriate econometric criteria. The study empirically reveals a negative nexus between external debt and economic growth in Sierra Leone for the period under study signifying that debt accumulation impacts adversely on the country’s long-run growth trajectory which confirms debt “overhang” problem in Sierra Leone. This is clearly evident in the coefficients of the variables representing debt as a ratio of GDP, debt service as a ratio of export earning and terms of trade. The study, therefore, proffers certain recommendations in line with the findings.

Does Financial Deepening Cause Liquidity Problems for Banks? Evidence from Nigeria

Attempt to facilitate economic growth makes the Central Banks to formulate monetary policies that seek to deepen the provision of financial resources to target sectors. Since Banks are the main channels through which monetary policies are executed, we attempted to examine whether financial deepening cause liquidity problem among Nigerian banks in this study. We employed time series analytical techniques to analyze selected financial deepening indicators and data for banking system liquidity between 1981 and 2019. The financial deepening variables used include of broad money to the gross domestic product (GDP) ratio; credit to private sector to the GDP ratio; ratio of commercial banks liabilities to the GDP; financial sector contribution to the GDP and ratio of market capitalization to the GDP. On the other hand, the liquidity of the banking system is proxy by its loan/deposit ratio for the period under study. We estimated the statistical properties of the variables examined and conducted some pre-estimation tests (stationarity and co-integration) to ascertain choice estimation techniques. We used a vector error correction mechanism to investigate long and short-run effects of financial deepening on Nigerian banking system liquidity. Both the long run vector autoregressive (VAR) and the short run and vector error correction (VEC) models results showed that there is a positive but statistically insignificant relationship between banking system liquidity and financial deepening variables. In addition, the results of the Granger causality between the dependent and independent variables revealed that there exists no causal relationship between the liquidity of the banking system and financial deepening. These findings imply that financial deepening did not impair banks’ liquidity position in Nigeria during the years under review. The study concluded that financial deepening does not cause liquidity problem for banks in Nigeria; rather, if well managed, can have positive effect on it. In the light of this, the study recommends that banks should re-strategize in the implementation of financial deepening policies that are liquidity friendly and that the Central Bank of Nigeria, should formulate policies that will not only focus on credit and loan beneficiaries, but also on the banks.

Maintenance Time of Permeable Asphalt Pavement Based on Entropy–Analytic Hierarchy Process Analysis

Dust, sediment, and stone chips often block the rainwater-infiltration paths of permeable pavements, which, in conjunction with vehicle load, reduces drainage capacity. To restore this capacity, a reasonable maintenance time and suitable maintenance measures must be determined. Therefore, we investigated the void attenuation and decline in drainage capacity of permeable asphalt pavements under the combined action of dust blockage and vehicle load. First, the water seepage coefficient decay and the decay rate under blocking and compaction were determined via clogging and compaction experiments. Second, experimental data were incorporated into an entropy–analytic hierarchy process analysis model, with the gross domestic product ratio, wind scale, and maximum five-year rainfall for the area. Finally, three test roads were studied as the weight to rank the maintenance urgency and predict the maintenance timing for each road under different rainfall conditions. The results demonstrate that the drainage capacity of permeable pavements obeys the parabolic exponential attenuation law. From the findings regarding road water storage capacity, the latest pavement maintenance time at different rainfall levels were obtained. This predicted maintenance time enables better decisions than regular time on code, which is the effect of drainage caused by multiple factors.

Does the augmentation of monetary and non-monetary factors prerequisite for the improvement of health outcomes? Evidence from the Indian states.

The present study was conducted in Indian states to examine the effect of monetary and non-monetary factors on Infant Mortality Rate (IMR) and Life Expectancy at Birth (LEB) by using the panel regression model. In addition, an attempt was also made to analysis the unequal pattern of health infrastructure and services across states over time with the help of a composite index on health infrastructure and services. It was found that the index value of the best performing state Chhattisgarh is more than fourth six times that of the worst performing state. The study also showed that, despite the higher level of average per capita public health expenditure and moderately better health infrastructure, the COVID 19 induced death rate was high in Punjab, Sikkim, Delhi and Goa. The panel regression results revealed that, an average increase of 1% in the monetary factor, public health expenditure to Gross State Domestic Product ratio (PHEGSDPR), would decrease the average of IMR by about 10%. Moreover, the elasticity of IMR with respect to non-monetary factor, health infrastructure and services per 0.1 million population (HISPLP), was negative and significant. Likewise, the explanatory variables, HISPLP and PHEGSDPR have a positive and significant effect on the LEB.

Does Financial Development Raise Tourism Demand? A Cross-Country Panel Evidence

This study examines the effects of bank and stock market development on three tourism demand indicators: number of tourist arrivals, expenditure to gross domestic product ratio, and expenditure per arrival. We analyze annual data spanning the period 1995-2018 for a sample of 207 countries. The theoretical contribution of this study is threefold: first, we assess a variety of financial development indicators; second, we employ cross-sectionally augmented distributed lags estimator that produces estimates robust to the dependence structure in the data; third, using data on a wide assortment of countries, we generalize the findings of several country-specific case studies. We observe that financial development affects both tourist arrivals and tourism expenditure positively. However, the gains in tourist arrivals are more significant relative to those in tourism expenditure. Furthermore, we find the responsiveness of tourism demand to financial development to vary with the income level.