The Effects of Government Borrowing to Investment Growth of the Country

Abstract

Government borrowing has emerged as one significant method that helps in mobilization of resources for economic growth especially in emerging economics. Most governments in developing economies resort to borrowing as a way of financing budget deficit. This paper identifies the effects of government borrowing to investment growth in the Philippines. Specifically, it presented the trend of gross domestic product, internal debt, and external debt from 1990-2020. The study used Johansen Co-integration, Granger Causality, and Vector Autoregression (VAR) models to analyze this study. Johansen’s Co-integration analysis revealed that the gross domestic product (GDP), internal debt (ID), and external debt (ED) are rejected at a 5% significant level and showing that all relevant variables have a long-term relationship and the data are co-integrated. On the other hand, unrestricted VAR model, there exist a relationship between gross domestic product (GDP), internal debt (ID), and external debt (ED). The Granger Causality test result revealed the direction of the causal relationship between independent and dependent variables; gross domestic product, internal debt, and external debt at the 5% significant level.