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Crowding Out Effect of Public Borrowing: The Case of Jordan

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  • Ahmad A. Al-Majali

    (Mutah University, Jordan.)

Abstract

This study aims to investigate the effect of government borrowing (Net claim no government) from Jordanian banks on Credit Facilities Extended by Licensed Banks to Private Sector. A Vector error correction model (VECM) is used to investigate the relationship between public borrowing and private credit. The paper concludes that government borrowing from the domestic banks leads to a more than one to one crowding out of private credit. This effect implies that government borrow from banks is not the only reason behind crowding out private credit. The increase in banks' treasury bills and bonds also reflects banks’ preference to invest excess liquidity in a low risk high return investment. This is a case where the banking sector is colonized by "lazy banks".

Suggested Citation

  • Ahmad A. Al-Majali, 2018. "Crowding Out Effect of Public Borrowing: The Case of Jordan," International Review of Management and Marketing, Econjournals, vol. 8(1), pages 119-125.
    • Handle: RePEc:eco:journ3:2018-01-19
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    References listed on IDEAS

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    3. Hassan Alamro, 2017. "The Effect of Trade Liberalization on Economic Growth, Unemployment and Productivity: The Case of Jordan," International Review of Management and Marketing, Econjournals, vol. 7(5), pages 131-139.
    4. M. Shahe Emran & Subika Farazi, 2009. "Lazy Banks? Government Borrowing and Private Credit in Developing Countries," Working Papers 2009-09, The George Washington University, Institute for International Economic Policy.
    5. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    7. Erdal Atukeren, 2005. "Interactions Between Public and Private Investment: Evidence from Developing Countries," Kyklos, Wiley Blackwell, vol. 58(3), pages 307-330, July.
    8. Khan, Rana Ejaz Ali & Gill, Abid Rashid, 2009. "Crowding Out Effect of Public Borrowing: A Case of Pakistan," MPRA Paper 16292, University Library of Munich, Germany.
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    Cited by:

    1. Zakariae Belmkaddem, 2019. "The different forms of crowding-out effects in Morocco: an empirical study (1980-2018) [Les différentes formes des effets d’éviction au Maroc : une étude empirique (1980-2018)]," Post-Print hal-02867583, HAL.
    2. Dinci J. Penzin & Afees Salisu & Benedict N.Akanegbu, 2022. "A Note On Public Debt-Private Investment Nexus In Emerging Economies," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(1), pages 25-36, June.
    3. Enock Mwakalila, 2020. "Crowding Out of Private Sector in Tanzania: Government Expenditure, Domestic Borrowing, and Lending Rates," Emerging Economy Studies, International Management Institute, vol. 6(1), pages 123-135, May.

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    More about this item

    Keywords

    Credit Facilities to Private Sector; Net claim no government; Banking Sector; and Crowding Out effect.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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