IDEAS home Printed from https://ideas.repec.org/a/aic/saebjn/v69y2022i1p133-144n6.html
   My bibliography  Save this article

The Effect of Government Debt on Private Investment in Advanced Economies: Does Institutional Quality Matter?

Author

Listed:
  • Van Bon Nguyen

    (University of Finance Marketing (UFM))

Abstract

Unlike developing economies, advanced economies easily borrow debt to finance budget deficits. Government debt is one of the active measures of fiscal policy in these economies to run the economy and overcome its cyclicality. Most related studies note that government debt reduces private investment. Does it hold for advanced economies? Does institutional quality significantly affect the government debt – private investment relationship in these economies? For the answer, the study applies the PMG estimator (PMG) and the two-step difference GMM Arellano & Bond estimator (D-GMM) to investigate the impacts of government debt, institutional quality, and their interaction on private investment in 36 advanced economies from 2002 through 2019. The estimated results report that government debt crowds out private investment, while institutional quality enhances it. However, their interaction crowds out it. It seems counter-intuitive. Besides, economic growth and trade openness increase private investment while inflation decreases it. These results indicate the crucial implications for central governments in advanced countries in using and managing government debt.

Suggested Citation

  • Van Bon Nguyen, 2022. "The Effect of Government Debt on Private Investment in Advanced Economies: Does Institutional Quality Matter?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(1), pages 133-144, March.
    • Handle: RePEc:aic:saebjn:v:69:y:2022:i:1:p:133-144:n:6
    as

    Download full text from publisher

    File URL: http://saeb.feaa.uaic.ro/index.php/saeb/article/view/1417
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    2. Willem Vanlaer & Mattia Picarelli & Wim Marneffe, 2021. "Correction to: Debt and Private Investment: Does the EU Suffer from a Debt Overhang?," Open Economies Review, Springer, vol. 32(4), pages 821-821, September.
    3. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    4. Willem Vanlaer & Mattia Picarelli & Wim Marneffe, 2021. "Debt and Private Investment: Does the EU Suffer from a Debt Overhang?," Open Economies Review, Springer, vol. 32(4), pages 789-820, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alfonso Mendoza-Velázquez & Luis Carlos Ortuño-Barba & Luis David Conde-Cortés, 2022. "Corporate governance and firm performance in hybrid model countries," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 21(1), pages 32-58, February.
    2. Sergi Jiménez-Martín & José M. Labeaga & Majid al Sadoon, 2020. "Consistent estimation of panel data sample selection models," Working Papers 2020-06, FEDEA.
    3. Ilona Babenko & Benjamin Bennett & John M Bizjak & Jeffrey L Coles & Jason J Sandvik, 2023. "Clawback Provisions and Firm Risk," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(2), pages 191-239.
    4. Kitazawa, Yoshitsugu, 2001. "Exponential regression of dynamic panel data models," Economics Letters, Elsevier, vol. 73(1), pages 7-13, October.
    5. Kate Hynes & Yum K. Kwan & Anthony Foley, 2017. "Local linkages: The interdependence of foreign and domestic firms," GRU Working Paper Series GRU_2017_006, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    6. Mizanur Rahman, 2009. "The Impact of Real Exchange Rate Flexibility on East Asian Exports," The World Economy, Wiley Blackwell, vol. 32(7), pages 1075-1090, July.
    7. Jessica M. Mc Lay & Roy Lay-Yee & Barry J. Milne & Peter Davis, 2015. "Regression-Style Models for Parameter Estimation in Dynamic Microsimulation: An Empirical Performance Assessment," International Journal of Microsimulation, International Microsimulation Association, vol. 8(2), pages 83-127.
    8. Samuel Kwaku Agyei, 2017. "Explaining public investment dynamics in Sub-Saharan Africa: The role of country governance structures," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1323987-132, January.
    9. Jörg Breitung & Philipp Hansen, 2021. "Alternative estimation approaches for the factor augmented panel data model with small T," Empirical Economics, Springer, vol. 60(1), pages 327-351, January.
    10. Jonathan Meer & Jeremy West, 2016. "Effects of the Minimum Wage on Employment Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 51(2), pages 500-522.
    11. Morris A. Davis & Jonas D. M. Fisher & Toni M. Whited, 2014. "Macroeconomic Implications of Agglomeration," Econometrica, Econometric Society, vol. 82(2), pages 731-764, March.
    12. Heng, Dyna, 2011. "Capital flows and real exchange rate: does financial development matter?," MPRA Paper 48553, University Library of Munich, Germany, revised May 2012.
    13. Kristina Nyström, 2007. "Interdependencies in the Dynamics of Firm Entry and Exit," Journal of Industry, Competition and Trade, Springer, vol. 7(2), pages 113-130, June.
    14. Brewer, Mike & Crossley, Thomas F. & Zilio, Federico, 2019. "What Do We Really Know about the Employment Effects of the UK's National Minimum Wage?," IZA Discussion Papers 12369, Institute of Labor Economics (IZA).
    15. Massimiliano Cerciello & Francesco Busato & Simone Taddeo, 2023. "The effect of sustainable business practices on profitability. Accounting for strategic disclosure," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 802-819, March.
    16. O'Connor, Matthew L. & Rafferty, Matthew, 2010. "Incentive effects of executive compensation and the valuation of firm assets," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 431-442, September.
    17. Olney, William W., 2013. "A race to the bottom? Employment protection and foreign direct investment," Journal of International Economics, Elsevier, vol. 91(2), pages 191-203.
    18. Biørn, Erik, 2012. "The Measurement Error Problem in Dynamic Panel Data Analysis: Modeling and GMM Estimation," Memorandum 02/2012, Oslo University, Department of Economics.
    19. Fernando Mayoral & Carlos Garcimartín, 2013. "The impact of population on the reduction of steady-state disparities across Spanish regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(1), pages 49-69, February.
    20. Dalila Nicet-Chenaf & Eric Rougier, 2009. "Human capital and structural change: how do they interact with each others in growth," Post-Print hal-00798441, HAL.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aic:saebjn:v:69:y:2022:i:1:p:133-144:n:6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sireteanu Napoleon-Alexandru (email available below). General contact details of provider: https://edirc.repec.org/data/feaicro.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.