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Motivated by the heavy government reliance on domestic banks credit over the last couple of years in Ethiopia, the current paper attempted to empirically test its longrun impact on private sector credit employing the tools of cointegrated VAR model. The paper used quarterly data ranging from QI 1999 to QIV 2013 E.F.Y. to chiefly explore the longrun impact of both bank credit financed government deficit and bank credit directed to the public sector on private sector credit. Arguing against the classical "interest rate transmission channel" for the Ethiopian case, and hence introducing the channel of credit i.e. availability of credit, the paper generated some important findings. Bank credit directed to the public sector reports a significant and positive longrun effect on private sector credit over the period of study. As such a 1 birr permanent increase in bank credit to the public sector is associated with a 0.40 cents growth in bank credit to the private sector supporting the crowding in effect hypothesis. The effect is stronger when we account for endogeneity of gross domestic product and bank credit financed government deficit (about 0.47 cents growth in bank credit to the private sector). Gross domestic product and bank credit financed government fiscal deficit coefficients, on the other hand, reports a positive but insignificant longrun effect on private sector credit.

There has been a long standing debate on the effect of government domestic borrowing from commercial banks by increasing average lending rates, suggesting that increasing government spending financed by the banking sector crowds out private sector credit through price channel. However, empirical studies affirm that the price channel is not observed in developing economies due to financial frictions and financial repression as suggested by McKinnon (1973) and Shaw (1973). This paper aims to contribute to this debate by establishing the relationship between government domestic borrowing from commercial banks and private sector credit, identifying the channel of the crowding-in or crowding-out effect, estimating the magnitude and persistence of the crowding-in or crowding-out effect on private sector credit. The paper uses quarterly and monthly data to capture the dynamics of government borrowing and private sector credit from 1997- 2016, applying the Autoregressive Distributed Lag model (ARDL) and impulse response functions. The estimated model confirms that government domestic borrowing from the banking sector crowds out investment as every shilling lend to the government from the banking sector reduces private sector credit by 15 cents. Evidence affirms that crowding out is prevalent via the quantity channel where government borrowing competes with loanable funds that would otherwise be lend to the private sector. Consistent with popular empirical findings, the price channel though present is muted and impulse response functions confirm that crowding out via the quantity channel dissipates within two years. In addition, private sector credit is more stimulative of growth than government borrowing from the banking sector, though transient.

For the past few years, the government of Pakistan has increased its domestic borrowing to a record level. This increased government borrowing could have reduced funds for investment by the non-financial corporate sector. In this study, we empirically investigate the influence of state domestic debt on corporate leverage in Pakistan. This study examines data of 07 non-financial sectors listed at PSX for a period of 2009-2018. The firm-level panel data was analyzed through the fixed-effect method. Results reveal that government domestic borrowings have a negative influence on corporate borrowings. Commercial banks in Pakistan have heavily invested in government debt securities which are the substitute for corporate debts due to the high rate of return and low risk of default. This study recommends that the government of Pakistan should strengthen the Fiscal Responsibility & Debt Limitation Act 2005 to safeguard against the adverse effects of govt. internal borrowing on the financing of the corporate sector. Further, the government should prepare effective fiscal and monetary policies to promote the growth of the corporate sector.

For the past few years, the government of Pakistan has increased its domestic borrowing to a record level. This increased government borrowing could have reduced funds for investment by the non-financial corporate sector. In this study, we empirically investigate the influence of state domestic debt on corporate leverage in Pakistan. This study examines data of 07 non-financial sectors listed at PSX for a period of 2009-2018. The firm-level panel data was analyzed through the fixed-effect method. Results reveal that government domestic borrowings have a negative influence on corporate borrowings. Commercial banks in Pakistan have heavily invested in government debt securities which are the substitute for corporate debts due to the high rate of return and low risk of default. This study recommends that the government of Pakistan should strengthen the Fiscal Responsibility & Debt Limitation Act 2005 to safeguard against the adverse effects of govt. internal borrowing on the financing of the corporate sector. Further, the government should prepare effective fiscal and monetary policies to promote the growth of the corporate sector.

This paper analyses the effect of government domestic borrowing on private investment using an Auto Regressive Distributed Lag (ARDL) model to test for long-run and shortrun co-integration relationship between the independent variables and Gross fixed capital formation. The findings show that Domestic Debt has a negative and significant relationship with Gross fixed capital formation even though this relationship diminishes in the long run. The findings confirm that excessive domestic borrowing by the government can negatively affect investment and eventually hurt economic growth. The paper recommends the need for the government to come up with policies to govern domestic borrowing and interest rates in addition to policies that encourage financial development through boosting Small and Micro enterprises lending to encourage local investment.

ABSTRACT: The Nigerian government has borrowed for more than three decades to fund the growing fiscal deficit based on a weak tax revenue base. After the repayment of the country's foreign loans in 2006, the borrowing structure has been dominated by domestic loans. Between 2006 and 2020, domestic borrowing has grown by more than 800 per cent. This study examines the effect of domestic borrowing on Nigeria's macroeconomic variables from 1975 to 1980. The variables examined against the effect of domestic borrowing include economic growth, financial development (broad money supply and credit to private sector), external borrowing, interest rate, inflation, industrial production, private investment, trade openness and population growth rate. The study utilised the Bayesian Vector Autoregressive (BVAR) model. The BVAR approach gives more realistic estimations than other VAR models as it considers prior information steady states during analysis. The study also adopts the Cholesky impulse response function and variance decomposition approach in the investigation. The study found a long-run equilibrium relationship between domestic borrowing and other macroeconomic variables. Also, domestic borrowing positively and significantly affected economic growth, industrial production and inflation. However, domestic borrowing negatively and significantly affects trade openness. Although the effect of domestic borrowing on the financial development variables (broad money supply and credit to the private sector) is negative, it is insignificant. The Bayesian VAR impulse response simulation demonstrates that the fiscal policy shock from domestic borrowing impacts the macroeconomic variables in line with the estimated regression results. As a follow-up, the variance decomposition results show that the decomposition of the shocks from government domestic borrowing is borne more by external borrowing, broad money supply and interest rate in the order of magnitude. The study recommends a restriction in monetary policy to benchmark and closely checkmate the aggressive spending from domestic borrowing. Also, the Nigerian government should improve investment in infrastructure to enhance private sector productivity and expand taxes revenue base to mitigate the reliance on borrowing as a source of funding for fiscal deficit. Furthermore, the country's productivity must be coordinated by the government to expand the sources of foreign exchange earnings to enhance stability in the country's external sector.

Government borrowing is desirable when it propels economic growth. Banks are the key players in Nigeria financial environments mobilising funds for the government via domestic and external debts. This study examined how government borrowings have impacted on the Nigerian financial environment. The study is archival, utilising data from the Central bank of Nigeria (CBN) and Nigeria Bureau for Statistics (NBS) bulletins. A Time Series data of 36 years-period (1981-2016), were collected. Multiple regression tool with Ordinary Least Squares (OLS) method of estimation of parameters was used to analyse the data. The results showed a linear relationship between money supply and foreign and domestic debts ( R2=0.984) with foreign and domestic debts explaining 98% of the variation in money supply; and correlation value indicating a very strong positive significant relationship between the interest rate and domestic and foreign debts (r=0.992; p<0.05).Thus the study among others recommended servicing of debts on a persistent basis, so as to avoid recapitalization of arrears which may mount pressure on the nation's debt stock.

Examining the cases of Canada, Germany, and Spain, the role played by fiscal equalization schemes in determining subnational borrowing was analyzed, and the link between regional governments' primary fiscal balances and gross domestic product per capita was tested econometrically. The study results show that either poor or rich regions can display higher regional public borrowing on average, and these results can be linked to the institutional design of regional equalization systems in place. Particular elements, such as tax efforts and fiscal capacities, also play relevant roles in this regard. Reforms of these schemes can therefore prove instrumental in reducing regional heterogeneity in public borrowing.

We find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985–2010. We apply a variety of propensity score matching methods to address the self-selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets. The results are robust to changes in country sample and alternative estimation methodology, and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the "risk premium" on government debt that compensates lenders for this possibility.

ABSTRACT: Private sector of any economy plays an important role in the economic development of the country. It not only provides employment to the people of the country but also offers goods and services according to the taste of the people. Private investment mainly depends on private borrowing which works as blood for private sector. Private borrowing or credit to private sector is important part of the financial system which measures the depth of financial development. This paper aims to investigate the impact of government borrowing from the central and commercial banks on financial development. In this paper, government borrowing is measured by public domestic debt while credit to private sector (private borrowing) is used as proxy of financial development. Usually, it is observed that when a government borrows more money from banks it creates a shortage for private borrowers. So in this way, the volume of private investment declines. Some other factors also affect private borrowing like taxes, savings and inflation. This study has used yearly time-series data of Pakistan from 1972 to 2015. ARDL bounds-testing approach to cointegration has been used to investigate the relationship of variables. The data is taken from WDI, the reports of the state bank of Pakistan and different issues of economic survey of Pakistan.