Do budget deficits crowd out private investment? An analysis of the South African economy

Rumbidzai Biza, Forget Kapingura and Asrat Tsegaye

International Journal of Economic Policy in Emerging Economies, 2015, vol. 8, issue 1, 52-76

Abstract: South Africa has been experiencing unprecedented budget deficits since the 1960s, in light of this, the study investigates whether budget deficits crowd out or crowd in private investment in South Africa, using quarterly data covering the period 1994 to 2009. An empirical model linking private investment to its theoretical variables is specified and used to assess the quantitative effects of budget deficits on private investment. The study augments the cointegration and vector auto-regression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run and short run dynamic effects on private investment. The empirical results revealed that there is a long-term relationship between private investment and its determinants specified in the model. This implies that budget deficits significantly crowds out private investment in the long-run. These results corroborate the theoretical predictions and are also supported by previous studies.

Keywords: economic growth; budget deficits; South Africa; cointegration; VECM; private investment; vector auto-regression; VAR; impulse response; variance decomposition. (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.inderscience.com/link.php?id=68248 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijepee:v:8:y:2015:i:1:p:52-76

Access Statistics for this article

More articles in International Journal of Economic Policy in Emerging Economies from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().