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

Abstract

PurposeThe 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/approachThe methodology is based on five simultaneous equations which have been estimated through panel least square.FindingsThe 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/implicationsThis study supports the enhancement in credit financing to private sector for creation of new business activities in the economy.Practical implicationsThe 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 implicationsThe 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/valueUsually 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.