An examination of the effects of government spending on interest rates and trade balance in Namibia
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Date
2020
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Publisher
University of Namibia
Abstract
This paper aims to examine the effects of government expenditure on interest rates and trade balance in Namibia for the period, 1980 to 2018. An ARDL bounds cointegration technique and Vector Error Correction Model (VECM) were employed for the analysis. As a precondition, the time series data used in the study were tested for stationarity using ADF, PP, and KPSS unit roots tests. The assessment found government spending and trade balance data with integrated of order zero I(0). However, interest rates data found with integrated of order one I(1). The ARDL cointegration technique confirmed a long-run relationship among government spending, interest rates, and trade balance in Namibia. The outcomes generated by VECM discovered a negative and significant influence of government spending on both trade balance and interest rates. The results confirmed the presence of both twin deficits and the crowd-out hypothesis in Namibia. A further outcome generated by Granger causality establishes that government expenditure, interest rates, and net exports Granger cause each other. Except that trade balance does not Granger cause government expenditure in Namibia. In conclusion, the study warned that Namibia may face an economic crisis soon if the implementation of fiscal policy continues to be applied in an uncontrolled and unsustainable manner. Moreover, the study advised the Namibian government to enforce financial integrity in both public and private sectors to create a sustainable government expenditure with a significant positive government multiplier that creates sustainable domestic economic growth and economic development to ultimately cause an improvement in Namibia’s trade balance.
Description
A thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science in Economics
Keywords
Trade balance, Interest rate, Government expenditure