ANALYSING THE EFFECT OF BUDGET DEFICIT DYNAMICS ON MACROECONOMIC VARIABLES IN NAMIBIA
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Date
2021-10-08
Authors
HANGO, ANNA LIISA
Journal Title
Journal ISSN
Volume Title
Publisher
University of Namibia
Abstract
This study analysed the effect of budget deficit dynamics on economic growth (gross
domestic product), unemployment and interest rate in Namibia. The study employed
the Autoregressive Distributed Lag Model (ARDL) and Bounds test for the
cointegration approach using time series annual data for the period 1990 – 2018. The
cointegration results confirm the presence of a long run relationship among variables
in all models. In order to capture the short run effects of the budget deficit, the study
employed the error correction model (ECM) and decisions were made based on a five
percent level of significance. Focusing on the core explanatory variable which is
budget deficit, the empirical results discovered a negative and significant relationship
between budget deficit and economic growth both in the short and long run period,
implying that high deficit deteriorates the growth rate of the economy. Moreover, the
results show a direct but insignificant relationship between deficit and unemployment
rate in short and long run period in Namibia. In addition, budget deficits show a
negative but insignificant relationship towards real interest rate in both the short and
long run period. As a result, the study resolved that the Neoclassical theory holds in
Namibia. Consequently, in order to contain this adverse effect, the government should
ensure that the exacerbated level of budget deficit is addressed.
Description
Keywords
budget deficit, , Autoregressive distribution lag, , macroeconomic variables