The Impact of Public Debt on Private Investment: Sri Lankan Experience

H.R.A. Chamini Thilanka () and J.G. Sri Ranjith ()
Additional contact information
H.R.A. Chamini Thilanka: Assistant Lecturer, Department of Economics and Statistics, University of Peradeniya,Sri Lanka.
J.G. Sri Ranjith: Department of Economics and Statistics, University of Peradeniya, Sri Lanka.

International Journal of Business and Social Research, 2018, vol. 8, issue 8, 1-20

Abstract: Governments tend to borrow financial resources from domestic as well as external sector when its tax revenues are not sufficient to meet the required financial needs. In the Sri Lankan context, there has been a gradual increasing trend in the accumulation of public debt since the post liberalization phase. Herein, this ambience of public debt has caused to make congenial effects while leading to some unfavorable effects on the economy. Hence, this study examines the impact of public debt on private investment in Sri Lanka using the annual data from 1978-2015. The study follows some econometric steps respectively unit root test, Johansen co-integration test and finally employing the Vector Error Correction Model (VECM) to find out the long-run impact. Empirical findings of our study show the evidence for the presence of crowding-in effect of public debt on private investment in the long-run implying that government has diverted borrowing funds as spurring private sector. Further, real GDP also affects positively on private investment suggesting further expansion of the economy is inevitable. Hence, the policy compilation with regard to fiscal operations should be aimed at the well- managed borrowing for the purpose of boosting private investment further.

Keywords: Public Debt; Private Investment; Crowding out/in Effect (search for similar items in EconPapers)
JEL-codes: C22 E62 G11 H5 H63 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://thejournalofbusiness.org/index.php/site/article/view/1122/686 (application/pdf)

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:lrc:larijb:v:8:y:2018:i:8:p:1-10

Access Statistics for this article

More articles in International Journal of Business and Social Research from LAR Center Press
Bibliographic data for series maintained by Al Hossain ().