Does Government Borrowing Crowd Out Private Sector Credit in Bangladesh?

Abstract

This paper explores the link between Government borrowing from domestic sources, and private sector credit in Bangladesh.  Government borrowing facilitates financing the deficit budget, distortionary debt and to meet demand for development expenditure  without increasing taxes. It investigates whether the government borrows crowds out or crowds in private sector investment. The  ARDL bounds testing model is used to estimate short-run and long-run effects. This study finds that increasing government borrowing  crowds out private sector credit, and suggests for an efficient administration of financial strategy, which has a central role  in regulating domestic government borrowing.