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Volume 8 - Number 2 | July 2024

Global financial connectivity and ineffectiveness of sovereign debt: implications for business activities in South Asia

Muhammad Ayub Mehar

25/08/2024 13 11 0
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Covid-19 Domestic credit to private sector Market capitalization Non-financial assets Sovereign bonds Panel least square.

Abstract:

Purpose
The study examines the impacts of debt financing on infrastructure development, investment, creation of new business entities, subsidies to private sector and GDP growth.

Design/methodology/approach
The methodology is based on five simultaneous equations which have been estimated through panel least square.

Findings
The most important conclusion of this study is the significant role of sovereign bonds in determination of subsidies to private sector. The role of domestic credit is important in South Asian context because of its significant role in creation of new businesses.

Research limitations/implications
This study supports the enhancement in credit financing to private sector for creation of new business activities in the economy.

Practical implications
The improvement in liquidity position by enhancing domestic credit facilities may ensure the sustainability and continuity of business activities. Such activities may improve GDP growth in future.

Social implications
The most important aspect of the study is to identify the role of debt financing in subsidies and creation of new businesses which are important elements of social economics.

Originality/value
Usually the impacts of sovereign bonds and external debts on infrastructure development and GDP growth are examined. But, to relate these debts to creation of business entities and subsidies is a new dimension.

References:

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Further reading

  1. Asian Development Bank (2021), “Covid-19 policy measures”, available at: https://covid19policy.adb.org/policy-measures
  2. Bhattacharyay, B.N. (2012), “Estimating demand for infrastructure 2010-2020”, in Bhattacharyay, B.N., Kawai, M. and Nag, R. (Eds), Infrastructure for Asian Connectivity, Asian Development Bank Institute (ADBI)/ADB and Edward Elgar, Cheltenham, pp. 19-79.
  3. Budina, N., Brixi, H. and Irwin, T. (2007), “Managing fiscal risks: public-private partnerships in the new EU member states”, World Bank Occasional Paper.
  4. Card, D. and Krueger, A.B. (1994), “Minimum wages and employment: a case study of the fast-food industry in New Jersey and Pennsylvania”, American Economic Review, Vol. 84 No. 4, pp. 772-793.
  5. European Centre for Disease Prevention and Control, Johns Hopkins University, and World Meter (2021).
  6. Felipe, J. and Scott, F. (2020), “ADB COVID-19 policy database: a guide”, Asian Development Review, Vol. 37 No. 2, pp. 1-20.
  7. Financial Times (2020), “Prospering in the pandemic”, Friday 19th June, 2020.
  8. IMF (2021a), “World economic outlook”, Washington: January 2021.
  9. IMF (2021b), “Policy reforms to COVID-19”, available at: https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19
  10. International Monetary Fund (2005), “Government guarantees and fiscal risk”, IMF: 2005.
  11. Kraus, A. and Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, Journal of Finance, Vol. 28 No. 4, pp. 911-922.
  12. Mehar, A. (2002), “Macroeconomic determinants of market capitalization and valuation ratio: the case of the karachi stock exchange”, Pakistan Business Review, Vol. 3 No. 3, pp. 1-14.
  13. Mehar, A. (2019), Infrastructure Development and PPP: Measuring Impacts of Urban Transport Infrastructure in Pakistan, Asian Development Bank Institute (ADBI WP: 1149), Tokyo.
  14. Paul, K. (2020), Notes on the Coronavirus: The Economic Equivalent of a Medically Induced Coma, The New York Times.
  15. Serageldin, I. (1996), Sustainability and the Wealth of Nations First Steps in an Ongoing Journey, The World Bank: Environmentally Sustainable Development Studies and Monographs Series No. 5, Washington.
  16. Shirai, S. (2020), Growing Central Bank Challenges in the World and Japan: Low Inflation, Monetary Policy, and Digital Currency, ADBI, Tokyo.
  17. UNU-IHDP and UNEP (2012), Inclusive Wealth Report 2012; Measuring Progress toward Sustainability, Cambridge University Press, Cambridge.
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  19. World Bank (2007), Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects, Timothy C Irwin.
  20. World Bank (2017), Private Participation in Infrastructure (PPI)- Annual Report 2017, The World Bank Group, Washington.
  21. World Bank (2018a), Global Financial Development Report: Bankers without Boarders, The World Bank Groups.
  22. World Bank (2018b), International Debt Statistics, The World Bank Group (2018), Washington.
  23. World Bank (2018c), Public-Private Partnership, World Bank Legal Resource Center, available at: https://ppp.worldbank.org/public-private-partnership/financing
  24. World Economic Forum (2018), World Competitiveness Report: 2016, World Economic Forum, Geneva.
  25. Yoshino, N., Helble, M. and Abidhadjaev, U. (2018a), Financing Infrastructure in Asia and the Pacific Capturing Impacts and New Sources, Asian Development Bank Institute, Tokyo.
  26. Yoshino, N., Morgan, P.J. and Rana, P.B. (2018b), Global Shocks and the New Global and Regional Financial Architecture, Asian Perspectives’ Asian Development Bank Institute and S. Rajaratnam School of International Studies, Tokyo.
  27. Yoshino, N., Paul, S., Sarma, V. and Lakhia, S. (2018c), Land Trust Laws as a Solution to the Land Acquisition Dilemma for Infrastructure Development in Asia, Asia Pathways, Tokyo.

JEL classification: E51,F34,H25,M21.

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