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Crowding-out and Crowding-in Effects of Government Bonds Market on Private Sector Investment (Japanese Case Study)

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  • Abdullatif Alani, Emad M.A.

Abstract

This paper reviews the relationship between public sector investment and private sector investment through government expenditures financed by government bonds in the Japanese economy. This study hypothesizes that deficit financing by bond issues does not crowd out private sector investment, and this finance method may crowd in. Thus the government increases bond issues and sells them in the domestic and international financial markets. This method does not affect interest rates because they are insensitive to government expenditures and they depend on interest rates levels in the international financial market more than in the domestic financial market because of globalization and integration among financial markets.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/314/3/ARRIDE_Discussion_No.74_emad.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 74.

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Date of creation: Oct 2006
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Publication status: Published in IDE Discussion Paper. No. 74. 2006.10
Handle: RePEc:jet:dpaper:dpaper74

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Related research

Keywords: Government debt; Budget deficit; Government bonds; Crowding out/crowding in; Japan; National debt; Private sector;

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  1. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio, 2003. "Government bonds in domestic and foreign currency: the role of macroeconomic and institutional factors," Policy Research Working Paper Series 2986, The World Bank.
  2. David Aschauer, 1988. "Does public capital crowd out private capital?," Staff Memoranda 88-10, Federal Reserve Bank of Chicago.
  3. Habib Ahmed & Stephen M. Miller, 1999. "Crowding-Out and Crowding-In Effects of the Components of Government Expenditure," Working papers 1999-02, University of Connecticut, Department of Economics.
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