Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: http://www.sciepub.com/journal/jfe Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Go
Journal of Finance and Economics. 2019, 7(4), 148-163
DOI: 10.12691/jfe-7-4-5
Open AccessArticle

Impact of Public Debt on Investment: Case of ECGLC

Oliver Kasele1, , Lucien Momeka1, Grace Bahaya1 and Bahati Ntumwa1

1Faculty of Economics and management, Université Evangélique en Afrique, Bukavu, Democratic Republic of Congo

Pub. Date: December 22, 2019

Cite this paper:
Oliver Kasele, Lucien Momeka, Grace Bahaya and Bahati Ntumwa. Impact of Public Debt on Investment: Case of ECGLC. Journal of Finance and Economics. 2019; 7(4):148-163. doi: 10.12691/jfe-7-4-5

Abstract

The ECGCL (Economic Community of the Great lakes countries) and its member states, like most low-income countries, have a very large public external debt and a weakness in terms of investment. Hence the question of asking “What impact can the public debt have on public and private investment.”? To carry out this study, two models were specified on the basis of the existing theoretical and empirical literature and according to the specificities of the economy of the ECGCL and its member countries. After preliminary tests (individual effects tests and Hausman specification test) which led to private investment estimation through the Folly-modified Ordinary Least Square and Ordinary Least Square ; and to public investment estimation by the Generalized Least Square, it appears from this study, that public investment positively impacts private investment and vice versa, the government-backed stock of public debt, on the other hand, has a negative impact on private investment, contrary to its positive relationship with the public investment. As for the servicing of the public debt and guaranteed by the State, it negatively influences the investment (public and private long-term).

Keywords:
private investment public investment public debt panel data

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

Figures

Figure of 2

References:

[1]  MILLET, D., & TOUSSANIT, E. (2012). 65 questions, 65 réponses sur la dette. La FMO et la Banque mondiale.
 
[2]  NAUTET, M., & MEENSEL, V. (2013). Impact économique de la dette publique. Bruxelles: De Boeck.
 
[3]  BERR, E. (2005). La dette des pays en développement : bilan et perspectives. Université Montesquieu-Bordeau IV.
 
[4]  IMF. (2010, Octobre). Perspectives de l’économie mondiale: Reprise, risques et rééquilibrage, Études économiques et financières.
 
[5]  CARTON, B. (2013). Dette et croissance. Editions La Découverte.
 
[6]  MBUYI, M. (2008). Droit international public, Cours inédit, G3 Droit,. UNIGOM.
 
[7]  WARNER, A. (1992). Did the debt crisis cause the investment crisis? Quaterly Journal of Economics, 107 (4).
 
[8]  GAIDAM, M. (s.d.). Impact de la dette publique sur l’investissement au Niger, Mémoire DEA. Université Cheikh Anta Diop, 106.
 
[9]  GREEN, J., & VILLANUEVA, D. (1991). Private lnvestment in Deve1loping Countries. IMF Staff Papers.
 
[10]  SERVEN, L., & SOLIMANO, A. (1993). Debt crisis, adjustment policies and capital formation in developing countries. World Development.
 
[11]  DESPHANDE, A. (1997). The debt overhang and the disincentive to invest. Journal of development Economics, 52.
 
[12]  BLEJER, M., & KHAN, M. (1984). Government policy and private investment in developing countries. IMF staff papers, 31 (2).
 
[13]  WERE, M. (2001). The impact ofexternal debt on growth and private investment in Kenya: An empirical assessment. Working paper, Kenya Institute for public policy research and analysis.
 
[14]  CLEMENTS, B., BHATTACHARYA, R., & NGUYEN, T. (2005). L’allégement de la dette peut-il doper la croissance des pauvres ? FMI.
 
[15]  Bank World. (2015). Bilan de l’exercice. Washington D.C: Word Bank.
 
[16]  J.-E. STURM (2011), Explaining IMF Lending Decisions after the Cold War, The Review of International Organizations, vol. 6.
 
[17]  Eggertsson & KRUGMAN (2012), Debt, deleveraging, and the liquidity trap: A fisher-Minsky-Koo approach, Quarterly Journal of Economics. 127(3).
 
[18]  TORNELL & VALESCO (1992). The tragedy of the commons and economic growth: Why does capital flow from poor to rich countries? Journal of Political Economy, 100(6): 1208-1231.
 
[19]  COHEN, D. (1993, June). Low Investment and Large LOC Debt in the 1980's. American Economics Review. 436-449.
 
[20]  Raffinot, M. (1998). Soutenabilité de la dette extérieure: de la théorie aux modèles d'évaluation pour les pays à faible revenu. Document de travail.
 
[21]  FITZGERALD, A. H. (1992). Empirical investment equations for developing countries in striving. World Bank.
 
[22]  ELBADAWI, I., NDULU, B., & NDUNGU, N. (1997). Debt overhang and economic growth in SubSaharan, in External finance for low-income countries. (Z. I. (eds.), Éd.) International Monetary Fund.
 
[23]  HOFMAN, B., & REISEN, H. (1990). Debt Overhang, Liquidity Constraints and Adjustement Incentives. OECD Developpement Centre Working Paper (30).
 
[24]  HANSEN, B. E. (2001). Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity. Journal of Economic Perspectives, 15 (4), 117-128.
 
[25]  BURAK, G., & RAFFINOT, M. (2001). Surendettement et effet d'éviction: le cas de la Turquie. La Turquie et le Développement.
 
[26]  Banque Mondiale (1989), L’Afrique Sub-saharienne, de la crise à une croissance durable, Etude de prospective à long terme, Washington D.C.
 
[27]  CHOWDHURY, K. A. (1994). Structural Analysis of External Debt and Economic Growth: Sorne Evidence from Selected Countries in Asia and Pacific. Applied economics, 26.
 
[28]  International Monetary Fund. (1990, Juin). Growth, External, and Sovereign Risk in Small Open Economy. (S. p. Fund), Éd.) Palgrave Macmillan Journals, 388-417.
 
[29]  OJO, O., & OSHIKOYA, T. W. (1995). "Determinants of Long-Tenn Growth: Sorne African Results". Journal of African Economics , 4 (2), 163-191.
 
[30]  DESSUS, S., & HERRERA, R. (1996, Mars). Capital public et croissance: une étude économétrique sur un panel des pays en développement dans les années 80. Mimeo, Centre de Développement.
 
[31]  HJERTHOLM, P., LAURSEN, J., & WHITE, H. (1998). Macroeconomic issues in foreign aid. A paper presented at a conference of foreign aid, Development economics research group (DERG), Institute of economics, university of Conpenhagen.
 
[32]  FOSUS, A. K. (1999). The External debt Burden and Economie Growth in the 1980s: Evidence from Sub-saharan Africa. Canadien Journal of Developmenl Studies.
 
[33]  ROCKERBIE, D. (1994). Did the debt crisis cause the investment crisis? Further evidence. Applied Economies (26), 731-738.
 
[34]  OSHIKOYA (1994), Macroeconomic Determinants of Domestic Private Investment in Africa: An empirical analysis, Economic Development and Cultural Change, vol 42, issue 3, 573-96.
 
[35]  SUNDARARAJAN and THAKUR (1980), TUN WAI and WONG (1982), Fund-supported adjustment Programs and Economic growth, International Monetary Fund, Washington DC, (1985).
 
[36]  International Monetary Fund, 2005.
 
[37]  Levin, A. and Lin, C.F. (1992)/ Unit root n panel data; asymptotic and finite sample properties. Discussion Paper, No. 92-92; California, USA; University of California at San Diego.
 
[38]  Im, K.S., Pesaran, M.H., Shin, Y. (1997). Testing for unit root in heterogenous panels. Mimeo.
 
[39]  PEDRONI, P. (2001). Purchasing power parity tests in cointegration panels. Rev. Econ. Stat. 3 (A), 121 li.