Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria

Abiodun Akanbi

doi:doi:10.11648/j.jim.20200904.12

| Peer-Reviewed

Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria

Abiodun Akanbi

Published in Journal of Investment and Management (Volume 9, Issue 4)

Received: 13 July 2020 Accepted: 21 August 2020 Published: 31 December 2020

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks’ prime lending rates, private sector lending by the banks, the bank’s investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.

Published in	Journal of Investment and Management (Volume 9, Issue 4)
DOI	10.11648/j.jim.20200904.12
Page(s)	100-106
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Domestic Borrowing, Crowding Out, Private Sector Credit, Interest Rate, Government Securities

References

[1]	Abbas, S. M., & Christensen, J. E. (2007). The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-income Countries and Emerging Markets. Washington DC: International Monetary Fund.
[2]	Abubakar Ado, A., Adegoke Ibrahim, A., & Augustine, U. (2019). Government Borrowing Behaviour: Implications For Private Sector Growth In Nigeria. International Journal of Sustainable Development & World Policy, 8 (2), 68-82. doi: 10.18488/journal.26.2019.82.68.82.
[3]	Adegboye, A. A., & Alimi, R. S. (2017). Public – Private Investment Nexus in Developing Economies: Does Financial Sector Development Matter for Nigeria? Munich: Munich Personal RePEc Archive.
[4]	Aimola, A., & Odhiambo, N. (2018). A Review of Public and Private Debt Dynamics in Nigeria. The Scientific Journal for Theory and Practice of Socio-economic Development, 14, 1-18. doi: 10.5281/zenodo.3600248.
[5]	Akomolafe, K. J., Bosede, O., Emmanuel, O., & Mark, A. (2015). Public Debt and Private Investment in Nigeria. American Journal of Economics, 5 (5), 501-507.
[6]	Alesina, A., &Perotti, R. (1996). Fiscal discipline and the budget process. The American Economic Review, 86 (2), 401-407.
[7]	Al-Majali, A. A. (2018). Crowding Out Effect of Public Borrowing: The Case of Jordan. International Review of Management and Marketing, 8 (1), 119-125.
[8]	Anyanwu, A., Gan, C., & Hu, B. (2017). Government Domestic Debt, Private Sector Credit, and Crowding Out Effect in Oil-Dependent Countries. Journal of Economic Research, 22, 127-151.
[9]	Asaleye, A. J., Oladipo, A. O., & Obasaju, B. O. (2018). Domestic Debt Sustainability and Private Sector in Nigeria: Implications on Employment. The Journal of Social Sciences Research, 5, 842-848. doi: 10.32861/jssr.spi5.842.848.
[10]	Atabaev, N., Ganiev, J., & Alymkulova, N. (2018). Crowding-out (or -in) Effect in Transition Economies: Kyrgyzstan Case. International Journal of Development Issues, 17 (1), 102-113. doi:/10.1108/IJDI-09-2017-0144.
[11]	DMO. (2020, March 5). www.dmo.gov.ng/debt-profile. Retrieved 2020, from www.dmo.gov.ng.
[12]	Emran, M. S., & Farazi, S. (2009). Lazy banks? Government borrowing and private credit in developing countries. Institute for International Economic Policy Working Paper, 9.
[13]	Ewubare, D., Nteegah, A., & Okpoi, G. (2017). Public Borrowing and the Nigerian Economy: An Autoregressive Distributed Lag Model (ARDL) approach. The International Journal of Social Sciences and Humanities Invention, 4 (5), 3506-3514. doi: 10.18535/ijsshi/v4i5.07.
[14]	Funashima, Y., & Ohtsuka, Y. (2017). Spatial Crowding-out and Crowding-in Effects of Government Spending on the Private Sector in Japan. Tohoku Gakuin University, Faculty of Economics. Tohoku Gakuin: Tohoku Gakuin University.
[15]	Gbenga, O., James, S. O., & Adeyinka, d. J. (2019). Determinant of Private Sector Credit and Its Implication on Economic Growth in Nigeria: 2000-2017. American Economic & Social Review, 5 (1), 10-20.
[16]	Hasnat, T., & Ashraf, S. (2018). Is government borrowing crowding out long term debt resources: An empirical enquiry from India. International Journal of Emerging Markets, 13 (6), 1719-1731. doi:/10.1108/IJoEM-05-2017-0171.
[17]	Huang, Y., Pagano, M., & Panizza, U. (2019). Local Crowding Out in China. Goethe University Frankfurt. Frankfurt: The Center for Financial Studies.
[18]	Idowu, Sanni, H. T., Akpan, D. B., Ekeocha, P. E., Ikenna-Ononugbo, A. A., Penzin, D. J.,... Opiah, D. C. (2018). Government Borrowing: Implications for Macroeconomic Stability and Growth in Nigeria. Economic and Financial Review, 56 (1), 55-97.
[19]	Kharusi, S. A., & Ada, M. S. (2018). External Debt and Economic Growth: The Case of Emerging Economy. Journal of Economic Integration, 1, 1141~1157. doi: 10.11130/jei.2018.33.1.1141.
[20]	Lee, M.-w., & Goh, K.-l. (2019). Bond Market Development in Malaysia: Possible Crowding-Out from Persistent Fiscal Deficits? Economics Bulletin, 39 (3), 1798-1807.
[21]	Lidiema, C. (2018). Effects of Government Borrowing on Private Investments in Kenya. Journal of Finance and Economics, 6 (2), 49-59.
[22]	Manda, S. (2019). Does Government Borrowing Crowd Out Private Sector Investment in Zimbabwe? Asian Journal of Economics, Business and Accounting, 12 (1), 1-9. doi: 10.9734/AJEBA/2019/v12i130142.
[23]	Maric, Z. (2015). Crowding out vs crowding in effects in transitional countries. Perspectives of Innovations, Economics and Business, 15 (2), 136-146. doi: 10.15208/pieb.2015.13.
[24]	Murungi, S. M., & Okiro, K. (2018). Impact of Government Debt on Economic Growth in Kenya: A Critical Literature Review. European Scientific Journal, 14 (1). doi: 10.19044/esj.2018.v14n1p240.
[25]	Nwaeze, N. C. (2017). Public Borrowing And Private Investment in Nigeria: Any Crowding Out Effect ? Journal of Research In National Development, 24-34.
[26]	Oke-Bello, A. M., & Toriola, A. K. (2019). The Nexus between Fiscal Deficit and Domestic Credit in Nigeria (1981-2017). KIU Journal of Social Sciences, 5 (3), 35-46.
[27]	Okon, E. O., & Osinimu, O. J. (2017). Interest Rate and Private Sector Investment Relationship in Nigeria: Crowding-In or Crowding-Out Effect (A Look at Small and Medium Enterprises. International Journal of Investment Management and Financial Innovations, 3 (2), 10-23.
[28]	Omodero, C. O. (2019). Domestic Debt and Private Sector Credit in Nigeria: An Empirical Investigation. ŒCONOMICA, 15 (6), 188-207.
[29]	Omojolaibi, J. A., Okenesi, T.-N. P., & Mesagan, E. P. (2016). Fiscal policy and private investment in selected West African countries. CBN Journal of Applied Statistics, 7 (1), 277-309.
[30]	Paul, N. (2017). Analysis of the Impact of External Debt on Economic Growth in an Emerging Economy: Evidence from Nigeria. African Research Review, 14 (4), 156-173. doi:/10.4314/afrrev.v11i4.13.
[31]	Shanmugam, M. (2017). Does public investment crowd-out private investment in India. Journal of Financial Economic Policy, 9 (1), 50-69. doi:/10.1108/JFEP-02-2016-0016.
[32]	Shetta, S., & Kamaly, A. (2014). Does the Budget Deficit Crowd-Out Private Credit From the Banking Sector? The Case of Egypt. Topics in Middle Eastern and North African Economies, 2, 251-268.
[33]	Zaheer, S., Khaliq, F., & Raﬁq, M. (2019). Does Government Borrowing Crowd out Private Sector Credit in Pakistan. Journal of Finance & Economics Research, 4 (2), 30-42. doi: 10.20547/jfer1904203.

Cite This Article

Plain Text BibTeX RIS

APA Style

Abiodun Akanbi. (2020). Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. Journal of Investment and Management, 9(4), 100-106. https://doi.org/10.11648/j.jim.20200904.12

Copy | Download

ACS Style

Abiodun Akanbi. Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. J. Invest. Manag. 2020, 9(4), 100-106. doi: 10.11648/j.jim.20200904.12

Copy | Download

AMA Style

Abiodun Akanbi. Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. J Invest Manag. 2020;9(4):100-106. doi: 10.11648/j.jim.20200904.12

Copy | Download

@article{10.11648/j.jim.20200904.12,
  author = {Abiodun Akanbi},
  title = {Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria},
  journal = {Journal of Investment and Management},
  volume = {9},
  number = {4},
  pages = {100-106},
  doi = {10.11648/j.jim.20200904.12},
  url = {https://doi.org/10.11648/j.jim.20200904.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20200904.12},
  abstract = {The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks’ prime lending rates, private sector lending by the banks, the bank’s investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria
AU  - Abiodun Akanbi
Y1  - 2020/12/31
PY  - 2020
N1  - https://doi.org/10.11648/j.jim.20200904.12
DO  - 10.11648/j.jim.20200904.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 100
EP  - 106
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20200904.12
AB  - The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks’ prime lending rates, private sector lending by the banks, the bank’s investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.
VL  - 9
IS  - 4
ER  -

Copy | Download

Author Information

Abiodun Akanbi

Department of Business Administration, Nile University of Nigeria, Abuja, Nigeria

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Abiodun Akanbi. (2020). Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. Journal of Investment and Management, 9(4), 100-106. https://doi.org/10.11648/j.jim.20200904.12

Copy | Download

ACS Style

Abiodun Akanbi. Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. J. Invest. Manag. 2020, 9(4), 100-106. doi: 10.11648/j.jim.20200904.12

Copy | Download

AMA Style

Abiodun Akanbi. Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria. J Invest Manag. 2020;9(4):100-106. doi: 10.11648/j.jim.20200904.12

Copy | Download

@article{10.11648/j.jim.20200904.12,
  author = {Abiodun Akanbi},
  title = {Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria},
  journal = {Journal of Investment and Management},
  volume = {9},
  number = {4},
  pages = {100-106},
  doi = {10.11648/j.jim.20200904.12},
  url = {https://doi.org/10.11648/j.jim.20200904.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20200904.12},
  abstract = {The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks’ prime lending rates, private sector lending by the banks, the bank’s investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Government Domestic Borrowing and Private Sector Credit Crowding out: Empirical Evidence from Nigeria
AU  - Abiodun Akanbi
Y1  - 2020/12/31
PY  - 2020
N1  - https://doi.org/10.11648/j.jim.20200904.12
DO  - 10.11648/j.jim.20200904.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 100
EP  - 106
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20200904.12
AB  - The impact of government domestic borrowing on the private sector credit has been a subject of great interest to researchers in finance. This study looked at the impact of government domestic borrowing on private sector credit in Nigeria. Government domestic borrowing can affect the private sector by crowding out private sector credit directly or indirectly through rising interest rates. The study employed an ex-post research methodology. Secondary data was collected from the Debt Management Office Nigeria and the Central Bank of Nigeria. The study covered a 10-year period from 2009 to 2018. An OLS multiple regression model was used. Government domestic borrowing was proxied by federal government bond issuances as the dependent variable. The deposit money banks’ prime lending rates, private sector lending by the banks, the bank’s investment in treasury bills and government bonds were the independent variables. The data was tested for heteroscedasticity, stationarity, normality, multicollinearity and serial correlation to examine the robustness of the model. The results showed that prime lending rate has a positive effect on government bond issuance although not significant. The findings also indicated that there is a negative relationship between government domestic bond issuance and the banks credit to private sector. However, this relationship is not statistically significant implying that government borrowing may not have crowded-out private sector. The relationship between government bond issuances and bank investment in treasury bills and government bond is negative although not significant. The findings of this study suggest that government domestic borrowing in Nigeria may have resulted in the reduction of private credit and this works through the credit channel and the interest rate channel.
VL  - 9
IS  - 4
ER  -

Copy | Download