The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets

June 1, 2007

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S. M. Ali Abbas, and Jakob E Christensen. The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets, (USA: International Monetary Fund, 2007) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We develop a new public domestic debt (DD) database covering 93 low-income countries and emerging markets over the 1975-2004 period to estimate the growth impact of DD. Moderate levels of non-inflationary DD, as a share of GDP and bank deposits, are found to exert a positive overall impact on economic growth. Granger-causality regressions suggest support for a variety of channels: improved monetary policy; broader financial market development; strengthened domestic institutions/accountability; and enhanced private savings and financial intermediation. There is some evidence that, above a ratio of 35% percent of bank deposits, DD begins to undermine growth, lending credence to traditional crowding out and bank efficiency concerns. Importantly, the growth contribution of DD is higher if it is marketable, bears positive real interest rates and is held outside the banking system. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Subject: Banking, Domestic debt, Econometric analysis, Estimation techniques, Government debt management, Income, National accounts, Private savings, Public debt, Public financial management (PFM)

Keywords: Africa, Banking system, Central bank, Composite index, Crowding out, DD issuance, DD market, Domestic Debt, Emerging Markets, Estimation techniques, Financial Development, Fiscal Policy, Government debt management, Growth, Income, Institutions, Issuance capacity, Low-Income Countries, Monetary policy, Panel Estimations, Per capita income, Private savings, Saving, Sterilization, Sub-Saharan Africa, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/127
Stock No:

WPIEA2007127
ISBN:

9781451866919
ISSN:

1018-5941

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