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Impact of Domestic Public Borrowing on Financial Development: Evidence from EU Transition Economies

Author

Listed:
  • Bayar, Yilmaz

    (Department of Public Finance, Bandirma Onyedi Eylul University, Turkey)

  • Sakar, Emre

    (Department of Public Finance, Usak University, Turkey)

Abstract

Improvements inthefinancial sector have been suggested as a significant factor of economic growth. For that reason, it is crucial to reveal the determinants of financial sector development to ensure appropriatepolicymaking. In this regard, this paper explores the influence of public borrowing from domestic money banks together with FDI inflows and remittances on the development ofthefinancial sector over the period 1996–2017 in 11 EU transition economies with second-generation cointegration and causality analysis. The causality analysis disclosesthat domestic public borrowing had a significant influence on financial development. On the other side, the cointegration analysis revealed findings supporting both the safe asset view andthelazy bank view. Furthermore, a positive weak influence of FDI inflows and remittances on financial sector development was revealed in the long run.

Suggested Citation

  • Bayar, Yilmaz & Sakar, Emre, 2021. "Impact of Domestic Public Borrowing on Financial Development: Evidence from EU Transition Economies," Asian Journal of Applied Economics/ Applied Economics Journal, Kasetsart University, Faculty of Economics, Center for Applied Economic Research, vol. 28(1), pages 18-42, June.
    • Handle: RePEc:ris:apecjn:0051
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    Cited by:

    1. Zhao, Xin & Samour, Ahmed & AlGhazali, Abdullah & Wang, Wenjing & Chen, Guannan, 2023. "Exploring the impacts of natural resources, and financial development on green energy: Novel findings from top natural resources abundant economies," Resources Policy, Elsevier, vol. 83(C).

    More about this item

    Keywords

    domestic public borrowing; FDI inflows; remittances; financial development; panel cointegration and causality analyses;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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