What expenditure does Anglosphere foreign borrowing fund?

• Published in: Journal of international money and finance Vol. 40; pp. 63 - 78
• Main Authors: Makin, Anthony J., Narayan, Paresh Kumar, Narayan, Seema
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.02.2014; Elsevier Science Ltd
• Subjects: Anglosphere economies; Borrowing; Business cycles; Consumption; Current account deficits; Economic models; Economic theory; Expenditure; Expenditures; Foreign borrowing; Government spending; Investment analysis; Investments; Macroeconomics; Personal finance; Public expenditure; Regression analysis; Studies; U.S.A; Western Europe; New Zealand; United Kingdom > UK; Australia; United States > US; Current account deficits; F41; F32; Expenditure; Anglosphere economies; Foreign borrowing; F47
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2013.08.020

This paper examines the extent to which foreign borrowing funds private investment, consumption and government expenditure in the United States, the United Kingdom, Australia, and New Zealand (the Anglosphere), advanced economies which have been the world's largest international borrowers since 1990. Using a bivariate predictive regression model, we estimate the relative importance of these expenditure aggregates as predictors of their external deficits, and hence foreign borrowing. Overall, based on quarterly macroeconomic data for the period 1990–2011, the evidence suggests that foreign borrowing has not financed higher household consumption in these economies over recent decades, with the possible exception of the United States. While results concerning government spending are mixed due to policy reaction, business cycle and public-private saving offset effects, strong results for private investment augur well for the sustainability of this grouping's foreign borrowing. •Examines expenditure that foreign borrowing by the United States, United Kingdom, Australia and New Zealand finances.•Investigates key predictors of foreign borrowing using a bivariate predictive regression approach.•Anglosphere foreign borrowing has mainly funded investment rather than consumption except for the United States.