\r\n\tAnimal food additives are products used in animal nutrition for purposes of improving the quality of feed or to improve the animal’s performance and health. Other additives can be used to enhance digestibility or even flavour of feed materials. In addition, feed additives are known which improve the quality of compound feed production; consequently e.g. they improve the quality of the granulated mixed diet.
\r\n
\r\n\tGenerally feed additives could be divided into five groups: \r\n\t1.Technological additives which influence the technological aspects of the diet to improve its handling or hygiene characteristics. \r\n\t2. Sensory additives which improve the palatability of a diet by stimulating appetite, usually through the effect these products have on the flavour or colour. \r\n\t3. Nutritional additives, such additives are specific nutrient(s) required by the animal for optimal production. \r\n\t4.Zootechnical additives which improve the nutrient status of the animal, not by providing specific nutrients, but by enabling more efficient use of the nutrients present in the diet, in other words, it increases the efficiency of production. \r\n\t5. In poultry nutrition: Coccidiostats and Histomonostats which widely used to control intestinal health of poultry through direct effects on the parasitic organism concerned.
\r\n
\r\n\tThe aim of the book is to present the impact of the most important feed additives on the animal production, to demonstrate their mode of action, to show their effect on intermediate metabolism and heath status of livestock and to suggest how to use the different feed additives in animal nutrition to produce high quality and safety animal origin foodstuffs for human consumer.
",isbn:"978-1-83969-404-2",printIsbn:"978-1-83969-403-5",pdfIsbn:"978-1-83969-405-9",doi:null,price:0,priceEur:0,priceUsd:0,slug:null,numberOfPages:0,isOpenForSubmission:!1,hash:"8ffe43a82ac48b309abc3632bbf3efd0",bookSignature:"Prof. László Babinszky",publishedDate:null,coverURL:"https://cdn.intechopen.com/books/images_new/10496.jpg",keywords:"Technological Feed Additives, Feed Industry, Quality of Compound Feed, Non-Antibiotic Growth Promoter, Product Quality, Additive Enzymes, Digestibility of Nutrients, NSP Enzymes, Farm Animals, Livestock, Immunity, Microbiome",numberOfDownloads:null,numberOfWosCitations:0,numberOfCrossrefCitations:null,numberOfDimensionsCitations:null,numberOfTotalCitations:null,isAvailableForWebshopOrdering:!0,dateEndFirstStepPublish:"November 24th 2020",dateEndSecondStepPublish:"December 22nd 2020",dateEndThirdStepPublish:"February 20th 2021",dateEndFourthStepPublish:"May 11th 2021",dateEndFifthStepPublish:"July 10th 2021",remainingDaysToSecondStep:"2 months",secondStepPassed:!0,currentStepOfPublishingProcess:4,editedByType:null,kuFlag:!1,biosketch:"Professor Emeritus from the University of Debrecen, Hungary who authored 297 publications (papers, book chapters) and edited 3 books. Member of various committees and chairman of the World Conference of Innovative Animal Nutrition and Feeding (WIANF).",coeditorOneBiosketch:null,coeditorTwoBiosketch:null,coeditorThreeBiosketch:null,coeditorFourBiosketch:null,coeditorFiveBiosketch:null,editors:[{id:"53998",title:"Prof.",name:"László",middleName:null,surname:"Babinszky",slug:"laszlo-babinszky",fullName:"László Babinszky",profilePictureURL:"https://mts.intechopen.com/storage/users/53998/images/system/53998.jpg",biography:"László Babinszky is Professor Emeritus of animal nutrition at the University of Debrecen, Hungary. From 1984 to 1985 he worked at the Agricultural University in Wageningen and in the Institute for Livestock Feeding and Nutrition in Lelystad (the Netherlands). He also worked at the Agricultural University of Vienna in the Institute for Animal Breeding and Nutrition (Austria) and in the Oscar Kellner Research Institute in Rostock (Germany). 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1. Introduction
In the last years, a variety of biopolymers have been investigated as soft matrices to accommodate inorganic nanoparticles (Darder et al., 2007; Dias et al., 2011). Innovation in Nanomedicine has been a major driving force to create new bionanocomposites because these materials bring together the intrinsic functionalities of inorganic nanoparticles and the biointerfaces offered by polymers of natural origin. On one hand, this type of hybrid materials can be designed to perform a specific function, depending on the characteristics of the loaded inorganic nanoparticles and, on the other hand, the composite can be easily adapted to biosystems due to the potential biocompatibility and low-toxicity of the biopolymer matrix.
In view of the large number of available polymers to produce such bionanocomposites this chapter has focus on the use of polysaccharides derived from natural sources, i.e. polymeric carbohydrate structures, that have been intensely investigated in the context of bio-applications. As such, cellulose, that together with lignin forms the ubiquitous composite wood, will be only briefly mentioned in specific contexts. Since synthesis conditions play a determinant role in the performance of the final materials, the chemical strategies for the production of bulk and nanodispersed bionanocomposites will be reviewed. Depending on the type of envisaged bioapplication, aspects related to the performance of the polysaccharide will be highlighted. These include relevant biochemical interactions with the surroundings and, the biofunctionality of the nanocomposite that results from the conjugated action of both the biopolymer and the inorganic nanofillers.
Recent years have witnessed the implementation of new therapeutics, clinical diagnostic techniques and disease preventive strategies that directly emerge from Nanotechnology (Sakamoto et al., 2010; Seigneuric et al., 2010). Therefore this chapter concludes with illustrative examples of bionanocomposites whose properties are of great interest in bio-applications such as magnetic nanocarriers for drug delivery and antimicrobial composites based on nanometals. As a final note, the challenging field comprising the development of multifunctional bionanocomposites will be put in perspective.
2. Relevant properties of polysaccharides for bio-applications
The polysaccharides most commonly used for preparing bionanocomposites are summarized in Table 1 and Fig. 1. They can be classified according to their ionic character (neutral, anionic, cationic) and they bring different properties and chemical functionalities to the nanocomposites. The polysaccharides indicated in Table 1 derive from natural sources, hence presenting advantages in terms of biodegradability, low-toxicity and low cost. An exhaustive description of the properties of the polysaccharides is out of the scope of this chapter and can be found in the references included in Table 1.
Table1.
Polysaccharides commonly used in the preparation of bionanocomposites.
Polysaccharides have been used as composite matrices due to several characteristics of relevance for biological and medical applications, namely:
Biocompatibility
Polysaccharides are very often incorporated into nanocomposites aiming to improve their biocompatibility, namely because they are hydrophilic, and administered in approved conditions, are non-toxic. For example, the intravenous administration of less biocompatible nanoparticles may elicit a response from the immune system that results in their uptake by macrophages, rendering them useless. Heparin, a polysaccharide with anticoagulant properties, has shown to be effective as a coating agent to increase the biocompatibility of several materials (Kemp & Linhardt, 2010) including carbon nanotubes (Murugesan et al., 2006) and metal nanoparticles (Kemp et al., 2010). Also dextran and carboxydextran coated magnetite nanoparticles have been commercialized as contrast agents for magnetic resonance imaging of liver tumors. Other nanocomposite systems are currently under clinical investigations (Corot et al., 2006).
Biofunctionalization
Polysaccharides have specific functional chemical groups in their structure (Table 1) and as such they can serve as a springboard for the creation of multimodal and multifunctional systems through the addition of reactive and bioactive groups at the composites surface,
Figure 1.
Chemical structures of polysaccharides commonly employed in the preparation of nanocomposites for biomedical applications.
which further augments the range of applications. For example, hydrogels of κ-carrageenan containing magnetic nanoparticles were chemically modified by carboxymethylation of the polymer chains and further coupled to an antibody envisaging applications as targeted local nanodelivery system (Daniel-da-Silva et al., 2009).
Sensitivity to external stimuli
Overall polysaccharides form gels that respond to physiological changes in temperature and pH or even to mechanical stress. This property has been explored in the preparation of composite systems for remotely triggered applications including bioadhesives and drug delivery, amongst others. Chitosan for instance, due to its excellent biocompatibility and mechanical properties (it forms films with high mechanical strength and elasticity) is a very attractive polysaccharide for applications such as wound dressing and tissue repair. Very recently it was found out that nanocomposite films of chitosan with gold nanorods can bound to biological tissues by activation of the embedded nanoparticles with a near-infrared (NIR) laser device (Matteini et al., 2010). This outcome represents an opportunity for the development of remotely activated bioadhesives useful for applications where suturing may be hardly feasible such as for poorly accessible or delicate body regions. Alginate (Brulé et al., 2011) and chitosan (Hu et al., 2007) were used in the preparation of magnetic composite hydrogels for magnetically triggered drug release. The application of a high-frequency magnetic field caused a local increase of the temperature of the embedded magnetic nanoparticles that induced structural changes in the polysaccharide matrix, thus leading to a controlled and enhanced release of an encapsulated drug.
3. Inorganic nanoparticles
This section summarizes relevant properties of inorganic nanoparticles (magnetic, metal and luminescent nanoparticles) employed as dispersed phases in the preparation of functional bionanocomposites.
3.1. Magnetic nanoparticles
Iron oxide nanoparticles are by far the most extensively investigated magnetic nanoparticles for biomedical (in vivo and in vitro) applications due to their particular magnetic properties and low toxicity. Most commonly are magnetite (Fe3O4) and maghemite (γ-Fe2O3), the latter results from the topotactic oxidation of magnetite, and both phases exhibit the inverse spinel crystal structure. Other magnetic nanoparticles include metal alloy nanoparticles (e.g. FePt, FeCo, and CoPt3) (Behrens et al., 2006; Gu et al., 2003; Martins et al., 2007) and metallic nanoparticles (e.g. Co and Ni) (D. Guo et al., 2008; Zeisberger et al 2007). However at the present stage these nanoparticles are limited to in vitro applications due to toxicological concerns.
Unlike bulk magnetite (a ferrimagnetic material composed by multiple magnetic domains and that exhibits a permanent magnetization in the absence of a magnetic field) Fe3O4 nanoparticles smaller than ca. 30 nm contain a single magnetic domain and exhibit superparamagnetic behavior (Fig. 2a). The magnetization curve of superparamagnetic nanoparticles does not exhibit hysteresis loop (Fig. 2b) which means that in the absence of an external magnetic field these particles have zero magnetization and less tendency to agglomerate. This is a key feature for some bio-applications as the magnetic properties and the particles bio-distribution depends strongly on the aggregation of the nanoparticles. Another important feature of superparamagnetic nanoparticles for Nanomedicine is their ability to dissipate heat when exposed to an external ac field (magnetic hyperthermia) a property that is currently being explored for the treatment of cancer. More detailed description of the physical phenomena subjacent to bio-applications of iron oxide nanoparticles can be found elsewhere (Daniel-da-Silva et al., 2011; Laurent et al., 2008).
The biomedical and biotechnological applications of magnetic nanoparticles and their composites include magnetic separation, medical imaging, drug delivery and cancer hyperthermia (Dias et al., 2011; Laurent et al., 2008; Tartaj, 2011) and will be described in section 5 of this chapter. The properties required for the magnetic nanoparticles differ according to the application envisaged and are strongly dependent on the particle size and shape. Thus, a number of synthetic strategies have been developed for the synthesis of magnetic nanoparticles with uniform morphology, narrow size distribution and tailored properties, as extensively reviewed elsewhere (Dave & Gao, 2009; Jeong et al., 2007; Laurent et al., 2008; Lu et al., 2007).
Figure 2.
a) Under a magnetic field, the magnetic moment of the domains of a ferromagnetic particle and single-domain superparamagnetic particles are aligned. After removal of the magnetic field, ferromagnetic particles maintain a net magnetization (adapted and reproduced from Dave & Gao, 2009, with permission of John Wiley & Sons, Inc., Copyright 2009, John Wiley & Sons, Inc.). (b) Typical magnetization curves of ferromagnetic (black line) and superparamagnetic (blue line) particles. Superparamagnetic nanoparticles show no remanent magnetization (Mr). (c) TEM image of magnetic Fe3O4 nanoparticles prepared by co-precipitation method (scale bar 100nm).
3.2. Metal nanoparticles
Silver nanoparticles and composites have been extensively studied for biotechnological and biomedical applications (e.g. wound dressing, water treatment) mostly due to the well-known antimicrobial activity of silver (Pradeep & Anshup, 2009; Rai et al., 2009). In addition, silver nanoparticles exhibit a size and shape-dependent surface plasmon resonance band (Cobley et al., 2009) that is sensitive to the surrounding conditions, a property that is being explored for applications as biosensors (Fan et al., 2010; Le Guével et al., 2009). Silver nanoparticles also find application in analytical tools such as surface enhanced Raman scattering (SERS) and metal enhanced fluorescence (Nair & Laurencin, 2007; X. S. Shen et al 2009).
Typically Ag nanoparticles are prepared by chemical methods that involve the reduction of silver ions in the presence of sodium borohydride (Nair & Laurencin, 2007) or citric acid, among others. Further chemical treatments can be employed to modify the surface of the nanoparticles in order to promote colloidal stability and/or make the particles compatible with specific environments. Although these methods are simple and effective, the presence of residual amounts of the reducing (or stabilizers) agents may raise toxicological and environmental concerns, limiting the application of these nanoparticles. In this context, some polysaccharides with reducing action are being currently investigated for the development of more friendly strategies of synthesis and surface modification of metal nanoparticles (V. K. Sharma et al., 2009), as detailed in section 4 of this chapter.
Colloidal gold has been used as a therapeutic since remote times, for example it is reported that Paracelsus (15th century) used to prescribe a purple Au colloid, known as Aurum Potable, to rejuvenate, as was believed, the human body (Pradeep et al., 2009). The recent interest in Au nanoparticles for biomedical applications relies mostly on their tunable and environment sensitive optical properties. Gold nanospheres exhibit an absorption band (surface plasmon resonance (SPR) band) that is sensitive to the composition, size, shape, inter-particle distance and environment of the nanoparticles (V. Sharma et al., 2009). The sensitivity of the SPR band is in the basis of the application of gold nanoparticles for biological labeling, imaging, sensing and diagnostic (Boisselier & Astruc, 2009; Sperling et al., 2008). When gold nanoparticles absorb light at the wavelength of the SPR band, the dissipation of the energy originates a local increase of the temperature, an effect that is being explored in several applications, including photothermally triggered drug release (Timko et al., 2010) and cancer hyperthermia (Jain et al., 2007). In addition gold nanoparticles have anti-angiogenic properties (i.e. they inhibit the formation and growth of new blood vessels from existing ones) and their application as anti-angiogenic agents in the treatment of cancer is under investigation (Bhattacharya & Mukherjee, 2008).
The most common synthetic method of gold nanoparticles involves the reduction of Au(III) to Au(0), usually starting from HAuCl4 complexes and using citrate or borohydride as reducing agent (Daniel & Astruc, 2004). Making use of the strong affinity of sulfur donor ligands to gold, capping agents such as alkanethiols are frequently employed to modify the Au nanoparticles’ surfaces. Besides spherical nanoparticles, it is possible to vary the size and shape of gold nanoparticles using appropriate synthetic techniques (Busbee et al., 2003; Grzelczak et al., 2008; V. Sharma et al., 2009). The control of the morphology of gold nanoparticles is an important feature because the surface plasmon resonance (SPR) band is shape dependent. For important therapeutic applications it is convenient to shift the maximum of the SPR band into the biological near-infrared (NIR) window (650-1100 nm) where the absorption and scattering of body tissues is minimal and therefore the penetration into living tissues is much deeper than that of visible light. The shift of the plasmon band to NIR region can be achieved with gold nanoshells or by increasing the morphological anisotropy of NPs as in the case of gold nanorods (Fig. 3).
3.3. Luminescent inorganic nanoparticles
A variety of photoluminescent inorganic nanoparticles have been investigated for several bio-applications including as optical biomarkers and biosensors (Burns et al., 2006; Jorge et al. 2007). In this context, nanoparticles of semiconductors (quantum dots: QDs), nanosized lanthanide compounds and doped amorphous particles, namely of SiO2, are of special relevance. Luminescent nanoparticles appear as an alternative to conventional organic dyes in bioanalysis by photoluminescence (Fig. 4), as the latter have limitations, such as a narrow range of absorption wavelengths, broad emission bands and reduced photostability. However, all these systems have advantages and limitations, relative to each other, depending on the context of application. In fact a number of fluorophores of distinct chemical nature, including a variety of surface functionalized QDs, are already available commercially for biolabeling.
Figure 3.
Top: Photographs of aqueous solutions of gold nanorods with variable aspect ratio and corresponding TEM images (scale bar 100 nm). Aspect ratio varies from 1.3 to 5 for short rods (TEMs a-e) and 20 (TEM f) for long rods. Bottom: Optical spectra of gold spherical nanoparticles (8 nm size), short and long rods (aspect ratio of 3 and 20 respectively). Reprinted adapted with permission from (Murphy et al., 2008). Copyright 2008 American Chemical Society.
Figure 4.
Upper panel, left to right: Photoluminescence emission spectra (intensity in a.u.) for: i) K11[Tb2(α- P2W17O61)(picOH)7] 20H2O polyoxometalate powders (excitation at 320 nm) showing the emission bands due to the intra-f transitions of the lanthanide; ii) fluorescein isothiocyanate (ethanolic solution), an organic fluorophore commonly used in flow cytometry (excitation at 350 nm); iii) Organically capped quantum dots of CdSe overlayered by ZnS (dcore 2.8 nm, toluene solution), showing the corresponding excitonic emission band. The middle panel shows photographs of UV light irradiated (325 nm) k-carrageenan gels containing the fluorophores that are schematically represented in the bottom panel.
Quantum dots are nanosized particles of semiconductors that exhibit quantum size effects due to three dimensional confinement of the charge carriers (Steigerwald & Brus, 1990). As a consequence, the electronic structure of the semiconductor develops from bands of energy into discrete energy levels as the particle size decreases and approaches the molecular dimensions, increasing the band gap of the semiconductor. Noteworthy, the particle size dependent absorption and emission of light observed for a number of materials have been exploited in several applications with great emphasis in nanobiotechnology. Quantum dots of CdSe and InP (typical dimensions 1.5-6 nm) have been of special interest as fluorescent biolabels because their size dependent and bright emission can be precisely tuned across the visible spectrum or, by using narrow band gap materials such as PbS or PbSe, light emission can be extended to NIR. These materials are prepared as colloidal core-shell nanoparticles whose cores (e.g. CdSe, InP) have the surfaces coated with shells of a wide band gap semiconductor, normally ZnS (Dabbousi et al., 1997). An outer layer of organic ligands confers colloidal stability to these particulate systems and also allows surface exchange reactions for specific purposes such as biofunctionalized tags. In comparison to conventional dyes, QDs are remarkable stable against photobleaching and because they absorb in a wider wavelength region, distinct sized QDs can be excited simultaneously to originate emission bands that depend on the particles size. This interesting feature allows multicolor optical coding using QDs as biotags and in biotracking procedures for several clinical applications. However, toxicity concerns associated to QDs limit their use in a number of applications.
Luminescence of lanthanide ions, in particular for those in the centre of the series, is an iconic feature that has developed intense research in their compounds. The fluorescence observed in these materials, for example when excited in the UV region, arises from ff transitions that occur in the lanthanide ion, whose chemical environment can vary from coordinating ligands in solution to solid networks (Granadeiro et al., 2009). Efficient emission requires that non-radiate mechanisms in the material are less relevant as compared to the lanthanide emission. The luminescence observed in these compounds, namely of Eu(III) and Tb(III), prompted the development of a number of photoactive devices, which include some appliances of general use such as fluorescent tubes and color monitors. Luminescent nanoparticles of lanthanide compounds can be also useful fluorophores in clinical applications that benefit from long fluorescence lifetimes. Additionally, these systems exhibit sharp emission bands strongly shifted from the excitation line wavelength (large Stokes shifts).
Encapsulation of fluorescent NPs serve multipurposes and can be performed using diverse matrices. Silica encapsulation and polymer encapsulation have been extensively used. Silica encapsulation normally involves the growth of SiO2 shells, very often following the hydrolysis of tetraethylortosilicate precursor, in the presence of the above mentioned fluorophores. The literature offers a number of examples of nanoparticles comprising amorphous silica encapsulating fluorophores, these include organic dyes (Ow et al., 2005), lanthanide complexes (Granadeiro et al., 2010; Soares-Santos et al., 2003), gold clusters (Guével et al., 2011) and quantum dots (Darbandi et al., 2005), among other luminescent systems (Burns et al., 2006). Silica coating of fluorophores provides a large surface area for which a number of functionalization procedures that are well known in chemistry can be directly applied. In this way, versatile chemical strategies for silica derivatization can be adapted according to the envisaged bioapplication. Additionally, photobleaching of the fluorophore can be limited by the protective silica shells which is of special relevance for bioanalysis in physiological medium. Earlier reports on the adsorption of organic dyes at silica surfaces point to other possibilities among the immense field of silica nanocomposites (G. Wu et al., 1997).
As it happens with a silica coating, several fluorophores can be encapsulated in a variety of polymers though in these cases, and depending on the type of polymer, biocompatibility issues need to be considered. Synthetic polymers have been investigated aiming to produce fluorescent nanocomposite particles that form the basis to produce multifunctional systems (e.g. fluorescent and magnetic). Hydrophobic colloidal nanoparticles have been frequently used as fillers for in situ polymerization in miniemulsions that depending on the synthetic route led to nanocomposites as stable aqueous emulsions (Esteves et al., 2005) or homogeneous spin-coated films (Esteves et al., 2007). A number of polymers have been investigated in this context. For example, polyacrylates and derived co-polymers were used to produce fluorescent nanocomposite particles with great interest for cancer imaging and targeting (X. Gao et al., 2004).
The development of bionanocomposites comprising a natural polymer matrix incorporating inorganic fluorophores has been less exploited. Examples include the synthesis of chitosan beads incorporating CdSe/ZnS QDs that have been previously surface modified with 3-mercaptopropionic acid; the free carboxylic groups of this acid were then cross-linked to the amino groups of chitosan forming a composite with 11.8% quantum yield (Nie et al., 2006). Biodegradable nanocomposites comprising QDs in poly(D,L- lactide-co-glycolide) nanospheres have been investigated as fluorophores with improved efficiency for intracellular delivery, which remains a strong limitation on the use of naked QDs for cell labeling and imaging of cytoplasmic targets (Kim et al., 2008). Multifunctional polysaccharide based microspheres have been prepared using a fluorescent/magnetic poly(styrene-maleic anhydride) composite (0.15-0.7 m) that could be conjugated via surface anhydride groups to heparin. The composite contained an Eu(III) phthalate complex as the fluorophore and nanosized magnetite as the magnetic driver (Qiu et al., 2005). The development of multifunctional nanocomposite particles is currently an active research field that calls for a variety of chemical strategies that includes the design of innovative nanocomposites (Corr et al., 2008).
4. Preparative chemical strategies for polysaccharide based nanocomposites
Herein we will draw our attention on the synthetic approaches for the production of bionanocomposites comprising a matrix of a polysaccharide and inorganic nanoparticles as dispersed phases. Overall the strategies for the preparation of polysaccharide based nanocomposites include the encapsulation of the preformed inorganic nanoparticles in the biopolymer (ex situ) or the in situ synthesis of the nanoparticles in the presence of the biopolymers. The synthesis in situ allows a more intimate dispersion of the nanoparticles within the polymer matrix. However the control over size and shape of nanoparticles synthesized in the presence of polymers still remains a challenge. In situ synthesized nanoparticles are generally size polydispersed which may limit the application of the composites since most of the properties of the inorganic nanoparticles are size and shape dependent (section 3). To overcome these limitations, the biopolymer encapsulation of preformed nanoparticles is an interesting alternative.
Polysaccharide nanocomposites can be in the form of macroscopic networks (“bulk nanocomposites”) or confined to smaller dimensions in the micron and submicron range. Due to their reduced dimensions, nanoparticulate systems may offer unique advantages for biomedical applications such as cellular internalization. In this section, we will briefly describe relevant preparative strategies to obtain polysaccharide composite nanoparticles with controlled size and narrow size distribution.
4.1. Bulk nanocomposites
Ex situ strategies for the preparation of functional polysaccharide nanocomposites consist generally in the encapsulation of preformed inorganic nanoparticles by the biopolymer. Due to the hydrophilic nature of polysaccharides, firstly the nanoparticles are dispersed in water and then, the encapsulation can be performed by the homogeneous mixing of the nanoparticles hydrosol with an aqueous solution of the biopolymer. This route has been extensively used for the preparation of functional nanocomposites of chitosan (Liu & Huang, 2010; Matteini et al., 2010), alginate (Brulé et al., 2011; Marsich et al., 2011), dextran (Hong et al., 2009) and gum arabic (Banerjee & Chen, 2007) amongst other polymers, containing dispersed inorganic phases, such as magnetic (e.g. iron oxides) and optical active (e.g. gold) nanoparticles. The development of bionanocomposites using this strategy relies, as expected, on the ability to produce nanoparticles with the required functionality (optical, magnetic or biological) and with the required chemical moieties at their surfaces. This aspect is not only relevant to enable chemical compatibility between the composite components but can be crucial to guarantee the aimed performance of the material.
In situ strategies for the preparation of the polysaccharide nanocomposites described here consist on the synthesis of the inorganic nanofillers in the presence of the polysaccharide. In aqueous solutions, most of the polysaccharides, due to their specific functional groups (Table 1), have the ability to interact with positive metal ions via electron rich oxygen atoms. In some of the cases, metal ions act as crosslinkers of the polysaccharide chains and promote the formation of a hydrogel network. For example, carrageenans form gels in the presence of monovalent and divalent cations due to the formation of a double helical configuration and helix aggregation (Stephen, 1995). The guluronic acid units of the polysaccharide alginate can pack forming a network with cavities simulating “egg box” in the presence of divalent cations (Braccini & Perez, 2001). The polymer network can be used as a template for the growth of diverse nanostructures, including magnetic and metal nanoparticles. Each cavity of the network is used for the nucleation of the nanoparticles and acts as a constrained environment that limits the growth of the in situ generated particles. The functional groups of the biopolymer will define the affinity towards specific metallic ions and may determine the morphology and the chemical properties of the resulting inorganic phase.
4.1.1. Magnetic nanoparticles
Amongst the several experimental routes developed for the synthesis of magnetic iron oxide nanoparticles (Dave & Gao, 2009; Jeong et al., 2007; Laurent et al., 2008; Lu et al., 2007), some require organic solvents and high temperature, conditions which are incompatible with the hydrophilic nature and thermal properties of most of natural polysaccharides. Thus, the polysaccharide-assisted growth of magnetic iron oxide nanoparticles has been mostly performed using chemical routes that require mild conditions such as the co-precipitation process. This method consists basically in the co-precipitation of a stoichiometric mixture of ferrous and ferric salts in aqueous media under basic conditions and in the absence of oxygen. It is a simple method that yields large amount of nanoparticles, although it does not allow for a fine control over the particle size.
Carrageenan was successfully employed as a colloidal stabilizer in the synthesis of superparamagnetic Fe3O4 nanoparticles via the co-precipitation method (Daniel-da-Silva et al., 2007; Jones et al., 2000). Besides preventing the spontaneous agglomeration of the nanoparticles, carrageenan induced the formation of smaller particles, when compared to conventional co-precipitation synthesis and allowed to control the chemical stability of the Fe3O4 towards oxidation, by careful choice of carrageenan type and concentration (Daniel-da-Silva et al., 2007). This is an important outcome since maghemite, the product that results in this case from the oxidation of magnetite, has lower saturation magnetization than magnetite.
Magnetic iron oxide nanoparticles have been also synthesized in the presence of other polysaccharides such as starch (D. K. Kim et al., 2003), alginate (Morales et al., 2008; Naik et al., 2005), dextran (Dou et al., 2008) and chitosan (Hernandez et al., 2009), using the co-precipitation method. The presence of starch molecules limited the size of the Fe3O4 nanoparticles to 6 nm and the agglomeration of the coated nanoparticles was controlled upon the cleavage of the glycosidic bonds of the polymer, which allowed preparing magnetic composite particles with average size smaller than commercially available dextran-coated magnetic nanoparticles. The starch coated Fe3O4 nanoparticles were biocompatible and tested for in vivo monitoring of the brain of rats using MRI (D. K. Kim et al., 2003). The formation of Fe3O4 nanoparticles within preformed dextran hydrogel beads (Dou et al., 2008) resulted in superparamagnetic composite particles with magnetization saturation values comparable to those of Fe3O4 nanoparticles prepared via typical co-precipitation routes, which renders these materials interesting for applications in the biomedical field. The formation of magnetite nanoparticles within chitosan using the co-precipitation route was found to be dependent on the concentration of this polysaccharide (Hernandez et al., 2009). Above a chitosan content of 3 wt%, a non magnetic iron hydroxide was formed instead of magnetite. The slow diffusion of OH-species through the viscous polymer medium was pointed out as a possible explanation for the observed effect.
4.1.2. Metal nanoparticles
Silver and gold nanoparticles are usually synthesized following chemical routes that involve the reduction of metal ions in the presence of a stabilizing agent to prevent the aggregation of the nanoparticles. Polysaccharides, due to their ability to coordinate to metal ions can act as stabilizing agents. The polymer-metal ion complex can then be reduced under mild conditions, resulting in the formation of particles with smaller size and narrower size distribution than those obtained in the absence of polymer. Once the reduction occurred, the polysaccharide chains impair the aggregation of the nanoparticles. Chitosan (Božanić et al., 2010; Travan et al., 2009), starch (Raveendran et al., 2006), gum arabic (Gils et al., 2010) and alginate (Jaouen et al., 2010) are some examples of polysaccharides that were reported as stabilizing agents for the synthesis of metal nanoparticles.
In addition to their ability to complex metal ions, polysaccharides may also exhibit reducing properties and thus can play the role of reducing and stabilizing agent in the synthesis of metal nanoparticles. This dual function of the polysaccharide can be an advantage in the clean synthesis of metal nanoparticles since it avoids the incorporation of interfering and, eventually harmful, chemicals that limit the use of metal composites for bio-applications. Following this strategy, Au and Ag nanoparticles were successfully prepared using chitosan (Huang & Yang, 2004; Laudenslager et al., 2008), heparin (Y. Guo & Yan, 2008; Huang & Yang, 2004; Kemp et al., 2009b) and hyaluronan (Kemp et al., 2009b).
Gold and silver nanoparticles prepared using carboxylmethyl chitosan (CMC) exhibited similar particle size distribution than those prepared using chitosan (Laudenslager et al., 2008) despite CMC has a higher reported metal chelation capacity than chitosan. However the ability of the two polymers to stabilize the particles varied and particles prepared using CMC evidenced more aggregation. The reduced cross-linking ability of CMC compared to chitosan was pointed out as a possible explanation for the reported differences.
The use of heparin as reducing/stabilizing agent was found to control the size distribution of gold nanoparticles, and the particle size decreased with increasing heparin concentration (Y. Guo & Yan, 2008). Silver and gold nanoparticles prepared using hyaluronan showed wider particle size distribution than those prepared in heparin (Kemp et al., 2009b). The resulting heparin based metal nanocomposites retained its anticoagulant activity and anti-inflammatory properties as confirmed by in vitro and in vivo tests (Kemp et al., 2009a). The use of the polysaccharide heparin as simultaneously reducing and stabilizing agent avoided the need of intermediate purification steps to remove any traces of harmful reagents.
4.2. Composite nanoparticles
The use of polysaccharide nanoparticles has its roots in drug delivery research as nanocarriers for local targeted drug delivery applications (Liu et al., 2008). The application of polysaccharides nanoparticles was further extended to other biomedical contexts such as medical imaging and hyperthermia. This can be achieved upon the inclusion of inorganic nanoparticles that confer new functionalities to the resulting composite nanoparticles.
Polysaccharide composite nanoparticles from tens to hundreds of nanometers in diameter can be prepared using emulsification techniques. For example, chitosan nanoparticles carrying CdTe quantum dots and magnetite nanoparticles, with an average size of 100 nm, were prepared using water-in-oil (w/o) microemulsions (Li et al., 2007). The composite particles showed superparamagnetic and fluorescent properties favourable for multimodal imaging and were tested for pH controlled drug release for in vitro conditions. Thermo-sensitive magnetite/κ-carrageenan nanogels with an average size of 50 nm and narrow size distribution were also prepared using w/o microemulsions (Fig. 5) (Daniel-da-Silva et al., 2009). The magnetic nanogels exhibited superparamagnetic properties at room temperature and have shown thermo-sensitive behavior in the temperature range 37-45ºC which is necessary for thermal controlled delivery applications. The nanogels were successfully conjugated to an antibody via a carbodiimide mediated reaction, and after surface carboxymethylation, showing the potential of these nanocomposites for local targeting drug delivery.
Figure 5.
Scheme of the synthetic steps involved in the preparation and bioconjugation of magnetic κ-carrageenan composite hydrogel nanoparticles. Magnetic bulk nanocomposite is first prepared (a) and then confined to nano-reactors using microemulsions (b). Composite nanoparticles are conjugated to an antibody after surface carboxymethylation (c). TEM image of composite nanoparticles shows an inner darker core that indicates the presence of magnetic nanoparticles (Reprinted adapted with permission from (Daniel-da-Silva et al., 2009). Copyright 2009 IOP Publishing Ltd).
5. Bio-applications of polysaccharide based nanocomposites
The most representative bio-applications of polysaccharide based nanocomposites and some illustrative examples of bionanocomposite systems from literature are listed in table 2.
Table 2.
Examples of bio-applications of polysaccharide based nanocomposites.
5.1. Biotechnological applications
5.1.1. Bioseparation
Several polysaccharides have been explored for the surface coating or encapsulation of magnetic nanoparticles envisaging applications in bioseparation processes (Dias et al., 2011). The polysaccharides protect the inner magnetic core and provide functional moieties for further modification with other specific ligands. For example dextran coated magnetic nanoparticles functionalized with different ligands were tested for the separation of lectins from legume extracts, using high-gradient magnetic separation technique (Heebøll-Nielsen et al., 2004). Gum Arabic coated iron oxide nanoparticles were functionalized with triazine ligands with specificity towards antibodies and successfully used for the antibody immobilization (Batalha et al., 2010).
Due to the intrinsic ability of the polysaccharides to coordinate to metal ions, polysaccharide based magnetic nanocomposites have been explored in magnetically assisted water purification (Ambashta & Sillanpää, 2010; Liu et al., 2009). Polysaccharides offer the advantage of being low-cost biosorbents capable of removing trace levels of heavy metal ions. Their combination with magnetic nanoparticles delivers materials with large surface and that can be conveniently separated from wastewater by magnetic separation.
5.1.2. Biolabeling and biosensing
Luminescent inorganic nanoparticles such as quantum dots are promising for the ex vivo detection of biomarkers (Jaiswal & Simon, 2003; Wu & Bruchez, 2003). However their use in in vivo conditions raises toxicological concerns. The encapsulation of quantum dots in polysaccharides such as alginate, chitosan and dextran sulfate was found to prevent the leakage of the nanocrystals from the microcapsules (Gaponik et al., 2003). More recently it has been confirmed by in vitro cell tests that the use of chitosan for the encapsulation of CdSe/ZnS quantum dots improves considerably the biocompatibility of these nanoparticles (Tan & Zhang, 2005), rendering materials with potential application in in vivo optical biodetection.
SERS spectroscopy is a well-established analytical technique that permits detection of molecular adsorbates at the surface of silver and gold surfaces. With the development of new instrumental tools and materials platforms, this vibrational spectroscopic method appeared as a powerful method for single molecule detection. It is gaining attention as bioanalytical tool as it can be used to extract information from complex samples such as biological fluids, living tissues and cells (Abalde-Cela et al., 2010). Gold and silver chitosan and alginate nanocomposites were successfully used as substrates in trace analysis using SERS (Saha et al., 2009; Santos Jr. et al., 2004; Wei et al., 2009). Also cellulose of vegetable and bacterial origin were investigated as matrices to fabricate composites containing Ag nanoparticles that allowed the development of handy and sensitive SERS substrates (Marques et al., 2008). The use of the polysaccharides confers flexibility and portability to the substrate which is essential for extending the applications of this technique.
Hydrogel composites containing nanometals have been also reported for the construction of optical biosensors. For example, gold chitosan and alginate nanocomposites have shown good results as glucose sensing platforms (Du et al., 2007; Lim et al., 2010). Alginate hydrogel has shown to provide a protective medium for the bioreceptor glucose oxidaze (Lim et al., 2010).
5.1.3. Antimicrobials
The use of silver and silver salts in commercial products for antimicrobial purposes is relatively widespread. However studies from the last decade have revealed that silver nanoparticles have improved antibacterial properties than bulk silver and that even nanomolar concentrations of silver nanoparticles can be more effective than micromolar concentrations of silver ions (Kong & Jang, 2008), thus leading to an increased interest on materials comprising nano-silver. In this context, a number of polysaccharide based silver nanocomposites have been reported (Liu & Huang, 2010; Kemp et al., 2009a; Travan et al., 2009; Vimala et al., 2010). These materials exhibit antimicrobial activity and may be considered for applications in wound dressings and for water purification purposes. In this context bacterial cellulose offers several possibilities and the antimicrobial activity of the derived silver nanocomposites has been reported (Pinto et al., 2009).The polysaccharide plays an important role in these materials as stabilizer, preventing the aggregation of the nanoparticles. Moreover, polysaccharide nanocomposites may show a synergistic antibacterial activity and exhibit higher antibacterial activity than their separated components as recently observed for chitosan-silver nanocomposites (Potara et al., 2011). Also, despite the growing use of silver nanomaterials, the potential implications for human health and the environment are not completely clarified (Marambio-Jones & Hoek, 2010). The immobilization of silver nanoparticles in polysaccharide gels might be a promising strategy to respond to these toxicity concerns, by preventing the cell internalization of silver nanoparticles without affecting the antimicrobial activity (Travan et al., 2009).
5.2. Biomedical applications
5.2.1. Clinical imaging
Magnetic iron oxides are currently used as contrast agents in magnetic resonance imaging (MRI) (Corot et al., 2006). The commercially available compositions include dextran and carboxymethyldextran coated iron oxide nanoparticles (Endorem® and Resovist®, respectively) and other polysaccharide based compositions are under evaluation (Shen et al., 2003). The polysaccharide coating increases the blood circulation time and improves the efficiency of the detection of cancer cells. Moreover, the functional groups of the polysaccharide allow for further bioconjugation for specific cell targeting.
5.2.2. Drug delivery
Magnetic polysaccharide nanocomposites are useful nanocarriers for magnetically driven drug delivery. The polysaccharide matrix stabilizes the encapsulated bioactive molecules, preventing their lost or degradation during the delivery, while the magnetism of the carrier makes possible to target drug to specific sites upon the application of a magnetic field, minimizing any side-effects. Alginate, heparin and gum arabic are some examples of polysaccharides that were investigated in the preparation of magnetic composites for drug delivery (Dias et al., 2011).
Polysaccharides that form networks sensitive to environment changes (e.g. temperature, mechanical stress) when combined with inorganic nanophases with magnetic and/or optical functionalities afford composite materials of interest for remotely triggered drug delivery (Timko et al., 2010). The local increase of the temperature promoted by magnetic nanoparticles, if activated by an alternating magnetic field, or by gold nanoparticles, if activated by adequate optical radiation, originates structural changes in a thermosensitive polysaccharide and the modulated release of an encapsulated drug. This triggering approach has been investigated in alginate (Brulé et al., 2011) and chitosan (Hu et al., 2007) magnetic nanocomposites and in gold nanocomposites comprising thermosensitive synthetic polymers (Shiotani et al., 2007). The advantage of this strategy is that it can provide on demand drug release profiles, according to the needs of each patient.
5.2.3. Cancer hyperthermia
Hyperthermia is a type of cancer treatment in which specific areas of the body undergo a local increase of the temperature to damage and kill cancer cells, or to make cancer cells more sensitive to the effects of other therapies (radiotherapy or chemotherapy). The local increase of the temperature can be achieved exposing magnetic nanoparticles to an alternating magnetic field (magnetic hyperthermia). Alternatively thermal ablation can be obtained exposing gold nanoparticles or nanoshells to near-infrared light. (Cherukuri et al., 2010; Sakamoto et al., 2010).
The challenge of hyperthermia is heating locally, at the tumor site, without affecting the surrounding healthy tissue (Cherukuri et al., 2010). If the nanoparticles possess a specific targeting agent the efficiency of the treatment can be increased. The encapsulation of the nanoparticles using polysaccharides appears as a useful strategy for the biofunctionalization of the nanoparticles with adequate targeting moieties. Chitosan (Zhao et al., 2009) and pullulan acetate (Gao et al., 2010) coated magnetic nanoparticles were investigated for magnetic hyperthermia.
6. Concluding remarks and future trends
In the last decades increasing attention has been devoted to the combination of inorganic nanoparticles with polysaccharides, to benefit from the advantages of both composite components. A number of formulations of such bionanocomposites exhibit magnetic, optical and antimicrobial functionalities of interest for biotechnological and biomedical applications that have been investigated to the present. The performance of those materials strongly relies on earlier steps of the chain production, which emphasises the relevance of preparative strategies that take in consideration the envisaged applications. Although ex situ preparations are still of great interest, namely due to their simplicity in terms of composite preparation, other more elaborate strategies that bring together concepts from materials design and chemical synthesis have proved to add great value in new biofunctional composites. In this respect, it will never be over emphasized that the use of polysaccharides in composite synthesis that mimic natural processes is currently a big challenge but that points to unprecedented consequences in terms of high performance materials fabrication. Additionally, it is an approach that in some aspects may help to overcome limitations on the use of nanocomposites due to toxicological concerns. From the recent attempts to find new methods of early-diagnosis of diseases and more effective therapies a new generation of multifunctional nanostructured materials is emerging. Bionanocomposites specifically designed to incorporate multiple functional nanoparticles are attractive materials for the development of integrated platforms merging functions such as targeting, imaging and therapy in one system. It is expectable that medicine platforms based on multifunctional bionanocomposites will enable better detection of the disease across a number of diagnosis techniques and simultaneous treat and monitoring the response to the therapy.
Acknowledgments
A. L. Daniel-da-Silva acknowledges FCT, FSE and POPH for funding. The authors thank FCT/FEDER: PTDC/QUI/67712/2006 and NANO/NMED-SD/0140/2007, that provided opportunities to develop some topics discussed in this work.
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Introduction",level:"1"},{id:"sec_2",title:"2. Relevant properties of polysaccharides for bio-applications",level:"1"},{id:"sec_3",title:"3. Inorganic nanoparticles",level:"1"},{id:"sec_3_2",title:"3.1. Magnetic nanoparticles",level:"2"},{id:"sec_4_2",title:"3.2. Metal nanoparticles",level:"2"},{id:"sec_5_2",title:"3.3. Luminescent inorganic nanoparticles",level:"2"},{id:"sec_7",title:"4. Preparative chemical strategies for polysaccharide based nanocomposites",level:"1"},{id:"sec_7_2",title:"4.1. Bulk nanocomposites",level:"2"},{id:"sec_7_3",title:"4.1.1. Magnetic nanoparticles",level:"3"},{id:"sec_8_3",title:"4.1.2. Metal nanoparticles",level:"3"},{id:"sec_10_2",title:"4.2. Composite nanoparticles",level:"2"},{id:"sec_12",title:"5. Bio-applications of polysaccharide based nanocomposites",level:"1"},{id:"sec_12_2",title:"5.1. Biotechnological applications",level:"2"},{id:"sec_12_3",title:"5.1.1. Bioseparation",level:"3"},{id:"sec_13_3",title:"5.1.2. Biolabeling and biosensing",level:"3"},{id:"sec_14_3",title:"5.1.3. Antimicrobials",level:"3"},{id:"sec_16_2",title:"5.2. Biomedical applications",level:"2"},{id:"sec_16_3",title:"5.2.1. Clinical imaging",level:"3"},{id:"sec_17_3",title:"5.2.2. Drug delivery",level:"3"},{id:"sec_18_3",title:"5.2.3. Cancer hyperthermia",level:"3"},{id:"sec_21",title:"6. Concluding remarks and future trends",level:"1"},{id:"sec_22",title:"Acknowledgments",level:"1"}],chapterReferences:[{id:"B1",body:'Abalde-CelaS.Aldeanueva-PotelP.Mateo-MateoC.Rodríguez-LorenzoL.Alvarez-PueblaR. A.Liz-MarzánL. M.\n\t\t\t\t\t2010 Surface-enhanced Raman scattering biomedical applications of plasmonic colloidal particles. Journal of the Royal Society Interface, 7, S435S450 .'},{id:"B2",body:'AliB. H.ZiadaA.BlundenG.\n\t\t\t\t\t2009 Biological effects of gum arabic: a review of some recent research. Food and Chemical Toxicology, 47, 18 .'},{id:"B3",body:'AmbashtaR. 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Sudhölter",authors:[{id:"54126",title:"Dr.",name:"Louis",middleName:null,surname:"De Smet",fullName:"Louis De Smet",slug:"louis-de-smet"},{id:"54130",title:"MSc.",name:"Daniela",middleName:null,surname:"Uliien",fullName:"Daniela Uliien",slug:"daniela-uliien"},{id:"54131",title:"MSc.",name:"Marleen",middleName:null,surname:"Mescher",fullName:"Marleen Mescher",slug:"marleen-mescher"},{id:"54132",title:"Prof.",name:"Ernst",middleName:null,surname:"Sudholter",fullName:"Ernst Sudholter",slug:"ernst-sudholter"}]},{id:"16373",title:"Characterization and Application of Thermoelectric Nanowires",slug:"characterization-and-application-of-thermoelectric-nanowires",signatures:"Friedemann Voelklein, Matthias C Schmitt, Heiko Reith and Daniel Huzel",authors:[{id:"35718",title:"Prof.",name:"Friedemann",middleName:null,surname:"Voelklein",fullName:"Friedemann Voelklein",slug:"friedemann-voelklein"},{id:"35985",title:"MSc.",name:"Matthias C",middleName:null,surname:"Schmitt",fullName:"Matthias C Schmitt",slug:"matthias-c-schmitt"},{id:"35986",title:"MSc.",name:"Heiko",middleName:null,surname:"Reith",fullName:"Heiko Reith",slug:"heiko-reith"},{id:"35987",title:"MSc.",name:"Daniel",middleName:null,surname:"Huzel",fullName:"Daniel Huzel",slug:"daniel-huzel"},{id:"128647",title:"Prof.",name:"M.E.",middleName:null,surname:"Toimil-Molares",fullName:"M.E. Toimil-Molares",slug:"m.e.-toimil-molares"},{id:"128648",title:"Prof.",name:"O",middleName:null,surname:"Picht",fullName:"O Picht",slug:"o-picht"},{id:"128649",title:"Prof.",name:"S",middleName:null,surname:"Müller",fullName:"S Müller",slug:"s-muller"}]},{id:"16556",title:"Silicon-Based Nanowire MOSFETs: From Process and Device Physics to Simulation and Modeling",slug:"silicon-based-nanowire-mosfets-from-process-and-device-physics-to-simulation-and-modeling",signatures:"Jin He, Haijun Lou, Lining Zhang and Mansun Chan",authors:[{id:"24792",title:"Prof.",name:"Jin",middleName:null,surname:"He",fullName:"Jin He",slug:"jin-he"}]},{id:"16375",title:"Obtaining of Nanowires under Conditions of Electrodischarge Treatment",slug:"obtaining-of-nanowires-under-conditions-of-electrodischarge-treatment",signatures:"Dikusar Alexandr",authors:[{id:"26733",title:"Dr.",name:"Dikusar",middleName:null,surname:"Dikusar",fullName:"Dikusar Dikusar",slug:"dikusar-dikusar"}]},{id:"16376",title:"The Selective Growth of Silicon Nanowires and Their Optical Activation",slug:"the-selective-growth-of-silicon-nanowires-and-their-optical-activation",signatures:"Lingling Ren, Hongmei Li and Liandi Ma",authors:[{id:"26814",title:"Dr.",name:"Lingling",middleName:null,surname:"Ren",fullName:"Lingling Ren",slug:"lingling-ren"},{id:"128651",title:"Prof.",name:"Lingling",middleName:null,surname:"Ren",fullName:"Lingling Ren",slug:"lingling-ren"},{id:"128652",title:"Prof.",name:"Hongmei",middleName:null,surname:"Li",fullName:"Hongmei Li",slug:"hongmei-li"},{id:"128653",title:"Prof.",name:"Liandi",middleName:null,surname:"Ma",fullName:"Liandi Ma",slug:"liandi-ma"}]},{id:"16377",title:"Nano-Scale Measurements of Dopants and Electronic Impurities in Individual Silicon Nanowires Using Kelvin Probe Force Microscopy",slug:"nano-scale-measurements-of-dopants-and-electronic-impurities-in-individual-silicon-nanowires-using-k",signatures:"Elad Koren, Jonathan E. Allen, Uri Givan, Noel Berkovitch, Eric R. Hemesath, Lincoln J. Lauhon and Yossi Rosenwaks",authors:[{id:"24926",title:"Mr",name:"Elad",middleName:null,surname:"Koren",fullName:"Elad Koren",slug:"elad-koren"},{id:"39292",title:"Prof.",name:"Yossi",middleName:null,surname:"Rosenwaks",fullName:"Yossi Rosenwaks",slug:"yossi-rosenwaks"}]},{id:"16378",title:"Fabrication of Conducting Polymer Nanowires",slug:"fabrication-of-conducting-polymer-nanowires",signatures:"WooSeok Choi, Taechang An and Geunbae Lim",authors:[{id:"26248",title:"BSc",name:"WooSeok",middleName:null,surname:"Choi",fullName:"WooSeok Choi",slug:"wooseok-choi"},{id:"43654",title:"Mr",name:"Taechang",middleName:null,surname:"An",fullName:"Taechang An",slug:"taechang-an"},{id:"43655",title:"Prof.",name:"Geunbae",middleName:null,surname:"Lim",fullName:"Geunbae Lim",slug:"geunbae-lim"}]},{id:"16379",title:"Fabrication and Characterization of Copper Nanowires",slug:"fabrication-and-characterization-of-copper-nanowires",signatures:"Hardev Singh Virk",authors:[{id:"24912",title:"Dr.",name:"Hardev",middleName:"Singh",surname:"Virk",fullName:"Hardev Virk",slug:"hardev-virk"}]},{id:"16380",title:"Laser Interference Lithography and Shadow Lithography for Fabricating Nanowires and Nanoribbons",slug:"laser-interference-lithography-and-shadow-lithography-for-fabricating-nanowires-and-nanoribbons",signatures:"Park Joong Mok, Wai Leung, Kristen Constant, Tae-Geun Kim and Kai-Ming Ho",authors:[{id:"39789",title:"Dr",name:"Park",middleName:null,surname:"Joong Mok",fullName:"Park Joong Mok",slug:"park-joong-mok"},{id:"57926",title:"Dr.",name:"Wai",middleName:null,surname:"Leung",fullName:"Wai Leung",slug:"wai-leung"},{id:"57927",title:"Prof.",name:"Kristen",middleName:null,surname:"Constant",fullName:"Kristen Constant",slug:"kristen-constant"},{id:"57928",title:"Prof.",name:"Tae-Geun",middleName:null,surname:"Kim",fullName:"Tae-Geun Kim",slug:"tae-geun-kim"},{id:"57929",title:"Prof.",name:"Kai-Ming",middleName:null,surname:"Ho",fullName:"Kai-Ming Ho",slug:"kai-ming-ho"}]},{id:"16388",title:"Growth and characterisation of Ge Nanowires by chemical vapour deposition",slug:"growth-and-characterisation-of-ge-nanowires-by-chemical-vapour-deposition",signatures:"Chuanbo Li, Hiroshi Mizuta and Shunri Oda",authors:[{id:"33255",title:"Dr.",name:"Chuanbo",middleName:null,surname:"Li",fullName:"Chuanbo Li",slug:"chuanbo-li"}]},{id:"16389",title:"Niobates Nanowires: Synthesis, Characterization and Applications",slug:"niobates-nanowires-synthesis-characterization-and-applications",signatures:"Rachel Grange, Fabrizia Dutto and Aleksandra Radenovic",authors:[{id:"35728",title:"Dr.",name:"Rachel",middleName:null,surname:"Grange",fullName:"Rachel Grange",slug:"rachel-grange"},{id:"67067",title:"MSc",name:"Fabrizia",middleName:null,surname:"Dutto",fullName:"Fabrizia Dutto",slug:"fabrizia-dutto"},{id:"67068",title:"Prof.",name:"Aleksandra",middleName:null,surname:"Radenovic",fullName:"Aleksandra Radenovic",slug:"aleksandra-radenovic"}]},{id:"16390",title:"Field Emission from Nanowires",slug:"field-emission-from-nanowires",signatures:"Dilip S. Joag1, Mahendra A. More1 and Farid Jamali Sheini",authors:[{id:"43868",title:"Dr.",name:"Dilip",middleName:null,surname:"Joag",fullName:"Dilip Joag",slug:"dilip-joag"}]}]}]},onlineFirst:{chapter:{type:"chapter",id:"71401",title:"Budget Deficit and the Federal Government Debt in Malaysia",doi:"10.5772/intechopen.91457",slug:"budget-deficit-and-the-federal-government-debt-in-malaysia",body:'
1. Introduction
In general, a persistent deficit in the government budgets would be a paramount issue to macroeconomic stability to any countries. Theory suggests that persistent and large budget deficits lead to a harmful effect on major macroeconomic fundamentals. In particular, massive budget deficits result in high interest rates as the government’s demand for funds and this consequently conflicting with private sector demand for investment financing, thereby discouraging private investment expansion. The implications of high interest rates would affect severely residential construction, business investment in plant and equipment and consumer spending on durable goods by such a fiscal policy and along with non-accommodative monetary policy. Moreover, the budget deficits may affect interest rates via the channel of reduction in savings or deposits in the banking system.
Federal government debt relates to how much a country owes and is owed by a central government which acts as the liability of the nation. Changes in the government debt over time reflect the outcome of government deficits, for example when government spending exceeds its tax collections. When its tax collections are exceeded, it has a budget deficit, which it then finances by borrowing from the private sector or from foreign governments. In other words, budget deficit occurs when government spending exceeds its revenue; meanwhile, federal government debt is the accumulation of the deficits. Budget deficit and federal government debt are interrelated as they affect each other, for example deficit affects the debt by selling bonds. When the bonds are sold, it increases the money; this transaction is defined as public debt because these bonds are sold to the public. Another example is the way debt affects the deficit; in the long-run, debt that is owed by the federal government reduces tax revenues and increases the deficit further.
The budget deficits run by the government around the world particularly since 2008 which tackle the effect of global economic crisis had accelerated the growth of government debt and accumulated the debt which had reached critical level. As there is a continuous growth of debt, creditors may become concerned about the government’s initiative to repay it. Over time, these creditors will expect higher interest payments to provide a greater return for their increased perceived risk as it is widely known that higher interest costs dampen economic growth. As interest rates rise, it becomes more expensive for a country to refinance its existing debt. The management of debt by way of service payment is the sum of the principal payments and interest actually paid in foreign currency, especially as foreign currency tends to affect exchange rates.
There has been a strong interest in the behaviour of public debt, particularly since the impact of Asian financial crisis and the global financial crisis. During those periods Malaysia budgets deficits financed by increasing debts, i.e., issuing of bonds. The issue of Malaysia’s government debt became significant in the public interest especially after the dramatic increase of government debt in the year onwards of 2009. The government gross debt has climbed up from 41.2% of GDP in 2007 to 52.8% in 2009 and further increased to 54.5% in 2015. The large increase in government debt, especially during the recent years, might be related to the Vision 2020 in which it envisioned to make Malaysia as a developed and high-income country by the year 2020. The main objective of this research is to review the Malaysian federal government’s debt and budget deficit during the period of 1985–2018.
2. Budget deficits and government debt
External markets have been the major factor influencing Malaysia’s economic growth and development since the early 1900s. There were two sources of growth, foreign capital and major trade partners’ commodity markets. The Malaysian economy grew rapidly with real GDP posting average annual growth rates of 6% during the period of 1956–2018. In 2009, the Malaysian economy contracted by 1.6% due to the world financial crisis that swept the US economy in late 2008. In 2010, the Malaysian economy bounced back to 7.2% and declined to 4.5% in 2018. In general, the country has grown rapidly by international standards. Its GDP growth averaged close to 6% from 1971 to 2018 (Figure 1). Within three decades from the 1970s to the 1990s, Malaysia’s economy experienced an annual GDP growth of 6.0 and close to a 3.7 growth in per capita income. External markets have been the major factor influencing for economic growth. The impressive growth of the economy had accelerated demand for labour and reduced unemployment level. Since 1997 as shown in Figures 1 and 2, the economy performance is much affected by external shocks. To tackle the economic mass, the government implemented budget deficits 4% of GDP constantly from 1998 to 2018. As shown in Figure 2, budget deficits declined from 1989 to 1997 but increased subsequently until today. Furthermore to stimulate further the economy, the interests reduced onward since 1998. However, both the traditional macroeconomic policies failed producing outstanding economic performance. The budget deficits implemented had increased the government debt thereafter.
Figure 1.
Malaysia: real economic growth rate, unemployment rate and inflation rate (%).
Figure 2.
Malaysia: budget deficits, economic growth dan interest rate (%).
In the 1990s, the Malaysian total outstanding government debt reached an all-time high of 80.7% and a record low of 31.8% in 1997. Malaysia’s government debt to GDP averaged 50.2% from 1990 until 2018. Since the debt approaching to 55%, therefore, the government should control her spending before the debt affecting the government fiscal position. The government self-imposed debt ceiling has been raised multiple times from 40% in 2003 to 45% in 2008. In 2009 it rose to 55%, and currently the limit still stands at this figure. It seems that Malaysia federal government debt level has been increasing much faster than the GDP growth; the statutory borrowing ceiling has been raised by 15% of GDP within 6 years, 2009–2017. Malaysia has breached its own self-imposed debt limit. However, even though the ratio of debt to GDP approached the limit, the Ministry of Finance claims that the debt is still manageable. The high level of debt may limit the development and objective of Malaysia’s economic transformation plan.
Uncertainties of the national debt service payment create discouragement, and ultimately, they form difficulties in the pursuit of economic reform [1]. The government spending must be paid by running the government in deficit and borrowing the money from the public or by raising today’s taxes. However, if the government chooses to run in the budget deficit, the government must eventually raise their taxes to make interest payments in the future. In other words, the more spending made by the government, the higher the taxes will become; no matter if it is today or in the future.
In 2016 the World Bank downgraded GDP growth of Malaysia of 4.2% from the previous year, 2015, 4.4%. This is due to a weak global demand for manufactured exports and oil. When the demand for our crude oil is going down, the government revenue experiences a shortfall and fiscal deficit occurs. According to Foon [2], the Malaysian government will have a tough time lowering the deficit position caused by the shortfall in government revenue from crude oil. He added that the government set a limit for the budget deficit that year of 3.1%. But in the first half of 2016, the deficit rose to 5.6%.
Clearly, this is a very disturbing situation. What implications do large deficits have in store for our future as taxpayers? To determine the answers to the question, we must first determine whether or not federal borrowing drives up interest rates. If it does, we run a risk of crowding out private investment, thus leaving a smaller capital stock from which future tax collectors can draw to pay back the debt. There are many possible outcomes regarding the implication of budget deficit and federal government debt. Various economists predict that something detrimental will happen in the future based on the large deficits of the past, but a few also inform us not to worry so much about this matter.
2.1 Domestic loans
The federal government sector accounts are always in a state of deficit, except in 1960 and 1993–2018 (Figures 2 and 3). The deficit of the federal government was quite high in 1981, 1982 and 1986, where the deficit to GDP was 15.6, 16.7 and 10.5%, respectively. This deficit is due to the expansionary fiscal policy implemented from 1980 to 1987 to address the recession problem. In the early 1990s, the federal government deficit began to decline and has become excessive due to the government’s public policies reducing spending and relaxing its role in the economy. At the same time, the government has encouraged large private sector participation in economic growth.
Figure 3.
Malaysia: federal government budget and deficits (% of GDP).
The federal government deficit can be said to be funded entirely by debt whether domestic or foreign borrowing or both. The size of the federal government debt as a percentage of GDP has increased from 29% in 1965 to 44% in 1980, 83% in 1990 and 53% in 1994. The highest increase was recorded in 1986 by 103%, in 1987 by 104% and in 1988 by 98%. The high debt ratio is largely related to the heavy industrial development program which was embarked in the early 1980s. The financing of various development programs in 1980s entirely by foreign borrowing. Most foreign loans made during this period were from the Japanese government (project loan) and Japanese financial institutions (market loans).
The structure of foreign loans is divided into two, namely project loans and market loans. Domestic borrowings are as attractive as borrowing sources come from noninflationary sources. However, foreign loans have risen as interest rates are lower than those offered locally.
Domestic borrowing is the main source of funding the federal government budget deficits. More than 60% of the federal government debt was from domestic borrowing. In 1965, the total domestic debt to total debt amounted to 82% (RM2134 million), the amount decreased to 79% (RM18.6 billions) in 1980, 74% (RM70 billions) in 1990 before it rose to 82% (RM78 billion) in 1995 and 97% (RM704 billion) in 2018. In terms of percentages to GDP, the amount of domestic debt was more than 50% in average from 1965 to 2018. The total domestic debt to GDP in 1965 was 24% and has increased to 35% in 1980, 61% in 1990 before declining to 35% in 2000 and increased to 50% in 2018 (Table 1).
Year
Federal govt. debt
Domestic loan
External loan
Total
% of GDP
Subtotal
% total debt
% of GDP
Subtotal
% total debt
% of GDP
1965
2598
29
2134
82
24
464
18
5
1970
5028
40
4283
85
34
745
15
6
1975
11,387
51
8963
79
40
2424
22
10
1980
23,439
44
18,578
79
35
4861
21
9
1985
63,882
82
40,812
64
53
23,070
36
30
1990
94,713
83
69,987
74
61
24,726
26
22
1995
91,368
41
78,037
85
52
13,331
15
10
2000
12,560
37
10,680
85
35
1880
15
5
2005
22,870
44
19,870
87
35
3000
13
6
2010
408,178
53
390,724
99
38
13,786
10
9
2015
630,540
55
609,063
97
53
21,477
3
2
2016
648,475
53
624,822
96
51
23,653
4
2
2017
686,837
51
665,572
97
49
21,265
3
2
2018
725,241
52
704,101
97
50
21,140
3
2
Table 1.
Malaysia: composition federal government borrowing (RM’ millions).
Source: Ministry of Finance, Economic Report [3, 4, 5, 6, 7, 8, 9, 10, 11], various issue 2.
Domestic borrowings are made through the sale of treasury bills, investment certificates, government guarantees and other credit instruments. Short-term loans are usually treasury bills, while long-term borrowings are usually a government guarantee letter. The government issued treasury bills with maturities of 3 months, 6 months and 12 months with interest rates ranging from 6.4 to 7.9%. This short-term loan is somewhat useful because the government’s revenue is insufficient to meet the government obligations, i.e. the expenditure is more than the amount of revenue received. Generally, treasury bills are held by commercial banks and discount companies. This government debt papers are the main liquid assets in the banking systems. The central bank may influence the liquidity of these assets by buying or selling such bills through open market operation.
Government borrowing through by issuing treasury bills is around 6–23% of the total domestic borrowings. In the 1960s, the federal government debt in the form of treasury bills was more than 20%, dropped to 15% in the 1970s and about 6.8% from 1980 to 1995 and less than 10% from 1996 to 2018. In the future, borrowing by issuing treasury bills will become imperative, as the policy of deregulation or consolidation public debt with the reduction of government intervention will result in surplus budget. The surplus or government saving can be brought forward for later use.
The main domestic government medium-term and long-term loans are Malaysia government securities (MGS). MGS are usually issued on maturities of 2–3, 4–5, 6–9, 10–11, 12–15 and over 15 years with interest rates ranging from 8 to 8.5%. In the 1990s the government issued MGS with a fairly short maturity period to meet the needs of investors, but since 1998 the issuance of MGS in general is in medium and long terms. The total amount for MGS issued from 1980 to 2018 ranges from 70 to 80%.
Most of the MGS was held by the Employees’ Provident Fund (EPF) Organisation, which holds more than 50%. In the early 1960s to 1970s, the MGS that held by EPF ranged from 60 to 70%. But in the late 1980s and early 1990s and in 2000s, the amount of holding dropped between 50 and 60%. The rest of the MGS were held by other financial institutions. In addition, investment certificates are also issued for additional funds. Generally, these investment certificates were issued to meet investors’ demands and for OMO purpose rather than for financing budget deficits.
MGSs have become a major instrument in raising fund for the government. Since 1997, the federal government heavily relies on MGS for budget deficit financing. Based on Figure 4, the new government debt papers issued are substantial. The gap between the gross and net public fund raised was getting bigger. This also means that part of the budget deficits was financed by creating or printing new currency notes. Also part of the debt papers was monetized; therefore, money supply and currency in circulation increased sharply since 1999 (Figure 5).
Figure 4.
Malaysia: new government debt papers issued and net fund raised (RM’ millions).
Figure 5.
Malaysia: currency in circulation (RM’ millions).
2.2 External debt
In the case of Malaysia, relatively, external debt is regarded are not critical except during the period 1982–1990. During this period the percentage of external debt has exceeded 30% of GDP (Table 2). Before the 1980s, foreign debt was between 5 and 11% of GDP. External debt has increased significantly in the 1980s, as domestic savings were inadequate at that time to cover federal government spending. The main purpose of the external borrowing during the period is (i) to overcome the economic downturn in the early 1980s, (ii) to finance heavy industrial development that was launched in the early 1980s, and (iii) to finance various mega infrastructure projects. The ratio of external debt to GDP since 1997 is lingering from 5 to 9% of GDP. However, the debt ratio of the total federal government debt from 1997 to 2018 is about 20%. As mentioned above for financing budget deficits, the government relies on domestic capital market.
Variables
Level
First difference
Order of integration
Constant
Constant and trend
Constant
Constant and trend
IR
−0.536653
8.841934
−0.077147***
−0.429776***
I(1)
LGD
−0.047514
0.715289
0.067136***
0.048809**
I(1)
LBD
1.093009
−1.230514
0.453952***
0.826004***
I(1)
LMB
0.336665
1.119646
0.111029***
0.155957***
I(1)
INF
1.899940
2.124994
0.144081***
0.794811***
I(1)
LT
0.218716
4.052012
0.098875***
0.161472***
I(1)
LM1
0.268771
4.094348
0.150441***
0.186857***
I(1)
LGDP
4.755439
6.600148
0.159194***
1.195720***
I(1)
LI
3.324182
7.170082
−0.072566***
0.056349***
I(1)
LCON
5.408854
0.739641
0.033803***
−1.488369***
I(1)
Table 2.
Augmented dickey-fuller (ADF) test for unit root.
Notes: (i) ***, ** and * denote the rejection of null hypothesis at 1, 5 and 10% levels of significance, respectively. (ii) MacKinnon [12] one-sided P-values.
External debt is divided into two, namely market loans and project loans. Market loans are loans where the government borrows from foreign financial institutions or foreign governments or borrows from foreigners by issuing government bonds. While project loans are loans made to finance major infrastructure projects, which are financed either from the World Bank, Asian Development Bank or from the foreign government.
Both forms of external debt above are important in government spending. The importance of both loans is similar except for the period before 1980 and from 2000 to 2005. During the period the government borrowed in large amount from overseas in the form of market loans to cover the government spending from 1980 to 1990 and to overcome economic recession. The total market borrowing from the total external debt was high in 1986 which was 36 and 30% of GDP.
The main sources of federal government external borrowing were the United States, Japan, and the World Bank. In the 1980s, the government borrowed in huge amount from Japan. However, the United States remains a major source of borrowing, but the volume of loans from the country has declined. External debt from the United States was in the form of market loans, while market loans from Japan were less. The project loans were mostly financed by the Japanese government as well as the World Bank. Japan was a major contributor to Malaysia’s external debt and most of the debt for financing development projects, i.e. infrastructure.
The increase in federal government borrowing either from domestic or external capital markets has led to the increment of the amount of interest payments of the debt. The amount of interest payments of domestic debt from 1970 to 1995 was on average about 74% of the total interest payment. Interest payment on external debt was much lower, and this indicated that the government favours borrowing from domestic money or capital market because the cost of borrowing is cheaper than the external debt.
The main critical issue of external borrowing is linked to the fluctuations of exchange rate, in which the fluctuation had cost of government loans, particularly in terms of principal and interest payments. Since the Plaza Accord of 1985, the appreciation of Japanese yen against USD had increased the federal government debt burden, i.e. loan payment to Japanese government. The total interest payment of debt has increased from RM262 million in 1970 to RM1444 million in 1980 and RM7125 million in 1995 and RM20 billion in 2018. The total interest payment on domestic debt in 1970 was RM223 million, has increased to RM1070 million in 1980 and about RM6049 million in 1995 and in 2018 amounted to RM18 billion (Table 2). Interest payments on external debt have increased from RM11 million in 1980 to RM32 million in 1987 before it declined to RM16 million in 1995 and in 2018 about RM2 billion.
3. Literature review
Budget deficits can be viewed as the sum of structural and cyclical components. The cyclical component reflects the response of receipts and expenditures of the government to fluctuations in the business cycle, whereas the structural component is the result of discretionary fiscal policy [13]. De Leeuw and Holloway [14] stated that the structural component is an important indicator of the macroeconomic effects of fiscal policy. They argue that over the complete business cycle, the cyclical component has a tendency to negate its own effects; therefore, only the structural component is meaningful for long-run fiscal policy.
Eisner and Pieper [15] use an aggregate demand approach to determine the relationship between the federal deficit and the growth rate of GNP. They found that the coefficient on the deficit variable was positive and significant when the growth rate of GNP was regressed upon it. Kormendi [16] investigated the impact on consumption of government purchases, taxes, transfers, interest payments and the market value of government debt. His study was not limited to federal government activities as all his variables (where applicable) were the sum of the federal state and local governments. He found that the government purchases had a negative and significant impact on consumption. He also found that the government purchases were less than perfect substitutes for private consumption. Furthermore he discovered that the coefficient for the market value of government debt was negative and significant. This results a bit surprised as theory suggests that people view bonds as net wealth and would increase their consumption; therefore, yielding should be a positive sign.
Based on traditional view, Blinder and Solow [17] argue that a given level of government expenditures and a substitution of public debt for tax financing have a positive effect on aggregate demand. Their argument assumes that, through an increase in government bonds, there would be a perceived increase in the private sector wealth, resulting in an increase of current and future consumption at the expense of saving. Additionally, when private saving goes up by less than the debt issue, the real interest rate rises, and some form of crowding out of private investment will take place. Abderrezak [18] explains that, given the level of government expenditures, increases in government debt will stimulate consumption demand, which in turn provokes a rise in interest rates, and the latter will eventually crowd out some private investment expenditures. In other words, he suggested that even though the current deficits are expansionary, the anticipation of growing future deficits may well reduce economic activity in the future.
Most of the economists believe that current and expected government budget deficits will lead to higher interest rates. Penner [19] agreed on the conventional view that deficits/debts have a significant positive relationship with interest rates. According to the Ricardian equivalence theorem, higher future taxes, as implied by enlarged government debt, will cancel out the wealth effect that is credited by the conventional paradigm for increasing consumption at the expense of investment [18]. Blanchard [20] had analysed the relation between real interest rates, budget deficits and government debt. He argued that even if deficits are sustainable, they will still affect interest rates. Abderrezak also concludes that the short-term interest rate depends on the current level of debt but does not depend on the current level of deficits.
Blinder and Solow [17] describe how bond financed deficits increase competition for funds in credit markets and put upward pressure on interest rates. Accordingly, when the government issues new bonds to finance deficits, competition for funds increases interest rates to convince agents to hold more government bonds. That is, the price of bonds should decrease and interest rates should increase. The real interest rate is a common-sense idea because those lending funds are sensitive to the inflation rate expected over the period they lend the funds so that the return on the funds is sufficient to cover the deterioration in the value of money due to inflation [21]. The real interest rate is the nominal interest rate after subtracting expected inflation.
Hoelscher [22] examines the effects of the federal government borrowing on short-term interest rates in the case of the United States. His regressions test to see whether or not the level of federal borrowing is a statistically significant determinant of the 3-month treasury bill rate. He obtained very low t-statistics on the relevant variables and concluded that federal borrowing is not an important determinant of short-term interest rates. He also states that “to the extent that private expenditures are sensitive only to short-term rates, then Federal borrowing does not have financial crowding out effects”. Meanwhile, de Leeuw and Holloway [14] found slightly different results. Their study covered 1955:1 to 1983:3 and regressed the interest rate on the deficit and a cyclically adjusted federal debt variable. They found the coefficient of the deficit variable to be insignificant and the coefficient of the debt variable to be both significant and positive. Barth et al. [23] found the coefficient of the federal debt variable to be positive and significant; therefore, this result supports the view that federal debt raises the interest rate through its impact on money demand.
The other method that would influence money demand is the purchase of government securities on the open market by the central banks. This activities by the central bank will result not only in an increase in net public financial assets but also in an increase in the reserves of the commercial banks and depository institutions as well as the amount of cash held by the public [24, 25]. This implies an increase in the monetary base which results in an overall increase in the money supply. Deficits financed in this fashion are said to be monetized or money financed. Wood [26] asserts if an increase in new money creation is used to finance part or all of a budget deficit, and, if necessary, a quantum of money is withdrawn from the economy via bond sales undertaken by the central bank, and then inflation would not increase, and a fiscal stimulus could be delivered in order to lift overall economic activity. Deravi et al. [27] prove that there is a relationship between government debt and interest rates via the demand for money. This relationship is examined through the wealth effect of government debt on money demand. They found evidence on government debt affecting the demand for money positively, implying that federal government debt is net wealth. Meanwhile, Giannaros and Kolluri [28] stated that the government budget deficit is not a determinant of money supply growth or of inflation (directly or indirectly). Friedman and Schwartz [29] explained, when interest rates are initially excessive, these lower interest rates may increase aggregate demand. When aggregate demand expands at a rate so fast that production and imports cannot satisfy the demand, then inflation develops.
Abizadeh and Yousefi [30] state that the influence of the foreign sector may or may not have a material effect on the deficits/debt-interest rate relationship, that is the deficit and debt do not have a significant positive relationship with interest rates. There is a large debate about the relationship between the budget deficit reduction and exchange rates. Greenspan [31] argued that deficit reduction could lead to currency appreciation, whereas Krugman [32] stressed that deficit reduction would lead to currency depreciation. Based on the debate over the relationship between deficit reduction and exchange rates, currency appreciation arises because the theory is ambiguous. Deficit reduction has sometimes been associated with stronger exchange rates, and sometimes it has been associated with weaker exchange rates. This difference in association commonly depends on certain factors or effects which tend to increase or decrease the exchange rates, such as the condition of the country or economy. To sort out the ambiguity on the budget deficits and the exchange rate relationship, Hakkio [33] states that deficit reduction through tax increases tends to weaken the exchange rate of countries with good records on inflation and debt. Whereas deficit reduction through spending cuts tends to strengthen the exchange rate of countries with poor records on inflation and debt.
3.1 Econometric models
To examine the effects of the debt on macroeconomy, we introduced few models which are explained below.
3.1.1 Model 1: the federal government debt and interest rate
IR=fLBDLGDLMBINFLTE1
where:
IR = the interest rate.
LBD = the budget deficit.
LGD = the government federal debt.
LMB = the monetary base.
INF = the inflation rate.
LT = the federal tax receipt.
The coefficient of the deficit term will be tested for crowding out. If the coefficient is found to be positive and significant, then crowding out is the case. If the term is statistically insignificant from zero, then neither crowding out nor crowding in is the case, but if it is negative and significant, then crowding in is the case. The coefficient of the debt variable can be positive and significant if we assume that the larger is the stock of publicly held government debt, the smaller is the supply of loanable funds available. The coefficient of the monetary base variable is assumed to be negative because as the monetary base grows so does the money supply. The coefficient of the inflationary expectations variable is assumed to be negative as the interest rate lowered; people are able to borrow money, and the consumer has more money to spend, causing the economy to grow and inflation to increase.
3.1.2 Model 2: money demand model
Ms is the money supply and measured by M1; W is variable for wealth and measured by federal government debt (bonds). For simplicity, we rewrite Model 1, as shown below:
LM1=fLGDPIRLGDINFE2
where LM1 = M1 money supply and LGDP = GDP.
The money supply is assumed to be positively related to income or GDP and inversely related to the opportunity cost of money which is measured by the interest rate. The wealth term, W, is partly measured by privately held government debt. The coefficient of the wealth variable (publicly held government debt) could have different signs depending upon which theory of government debt is assumed. If the sign is positive, then government debt is being treated as net wealth by the public, and the Ricardian theorem is disproved. If the coefficient is zero, then government debt is not being treated as net wealth, and one of the assumptions of the Ricardian theorem is verified. The expected inflation term is included as an explanatory variable in the money demand equation. A negative coefficient for the price expectations variable is assumed because if the public expects a higher inflation rate which will result in some erosion of the purchasing power of money, then rational consumers will lower their demand for money holdings.
3.1.3 Model 3: investment and budget deficit
Crowding out is a negative consequence of budget deficits in which higher interest rates lead to less private investment. The increase in the interest rate reduces the quantity of private investment demanded (crowding out private investment). The higher interest rate increases the demand for and reduces the supply of ringgit in the foreign exchange market. Below are the potential variables and their hypothesised signs of the selected variables.
Thus, investment model can be written as
LI=fLBDIRGDPE3
where LI = private investment.
The coefficient of budget deficit is expected to be negative, as well as interest rate, while the coefficient of GDP is expected to be positive. As the budget deficit increases, private investment will decline, because the rise in government borrowing will “crowd out’ some of the funds that would otherwise have gone to the private sector.
3.1.4 Model 4: inflation and budget deficit
If monetary policy is accommodative to a budget deficit, money supply continues to rise for a long time. Aggregate demand increases as a result of this deficit financing, causing output to increase above the natural level of output. When prices rise for energy, food, commodities and other goods and services, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate and government bond yields and every other facet of the economy. Therefore, there is a negative relationship between inflation and consumption. Budget deficit and money supply both have positive relationship with inflation. Below are the potential variables and their hypothesised signs of the selected variables.
Hence, the inflation model can be figured as follows:
INF=FBDLM1CONE4
where CON = the consumption.
Federal government debt data is collected from the Economic Planning Unit (EPU). Data such as GDP, budget deficits, M1 money supply, M2 money supply, money base and federal tax collection were extracted from the Asian Development Bank (ADB), while the data of inflation, investment, federal government debt and real interest rate are obtained from the World Bank.
4. Findings
For estimation this paper applies vector error correction model (VECM). The VECM method is a useful approach and able to provide an analytical estimate of the relationship among variables over short-run and long-run period, besides provides an evaluation of interaction among the variables.
Unit root testing will be conducted to determine the time series data whether consist nonstationarity. Most of the economic theory suggests that an existence of long-run relationships exist among the nonstationary time series variables. In both ADF and PP tests, the null hypothesis of the presence of a unit root in the time series is tested. The null hypothesis needs to be rejected either at the level form or at any level of differenced form for a variable to be stationary. The time series may, however, be stationary at the level, that is, I(0) or at the first difference, that is, I(1). The results will be summarised in Tables 2 and 3.
Variables
Level
First difference
Order of integration
Constant
Constant and trend
Constant
Constant and trend
IR
4.377255
9.596283
−0.077147***
−0.645455***
I(1)
LGD
−0.043946
0.718857
0.070704***
0.052377**
I(1)
LBD
1.216466
−1.107057
0.577409***
0.949461***
I(1)
LMB
1.335435
2.118416
1.109799***
1.154727***
I(1)
INF
0.812287
1.037341
−0.943572***
−0.292842***
I(1)
LT
1.987622
5.820918
1.867781***
1.930378***
I(1)
LM1
1.181116
5.006693
1.062786***
1.099202***
I(1)
LGDP
5.283645
7.128354
0.687400***
1.723926***
I(1)
LI
3.324182
7.170082
−0.072566***
0.056349***
I(1)
LCON
−0.113303
−0.041706
−0.897091***
0.094191***
I(1)
Table 3.
Phillips-Perron (PP) test for unit root.
Notes: (i) ***, ** and * denote the rejection of null hypothesis at 1, 5 and 10% levels of significance, respectively. (ii) MacKinnon [12] one-sided P-values.
Table 2 shows the results of ADF unit root test that include all the variables used in this study. The null hypothesis of the unit root can only be rejected if the probability is statistically significant at 1, 5 and 10% significant level. ADF test above portrays that all series are stationary at first difference. Hence, the results demonstrate that the variables are integrated at order I(1). This is supported by PP test that shows all the variables are at the stationary state, as can be seen below.
Table 3 shows the PP unit root test results. The PP test uses the model similar to ADF test. The null hypothesis of the unit root can only be rejected if the probability is statistically significant at 1, 5 and 10% significant level. Like the ADF test, the null hypothesis of the presence of a unit root in the time series against the alternative hypothesis states that there is no unit root in the time series, or in other words, the time series is stationary. The results above indicate that all series are integrated at order I(1), which means all variables are stationary at first difference.
Therefore, the results of both ADF and PP unit root tests shown in Tables 2 and 3 prove that the null hypotheses of the presence of a unit root in the time series are not rejected at the level, whereas test statistics of all the variables significantly reject the null hypotheses in favour of the alternative hypotheses of no unit root in the time series at the first difference. It can be inferred that all the time series variables are nonstationary at their level forms while they are stationary at their first difference forms.
The Johansen and Juselius [34] test and estimation strategy, which is maximum likelihood, makes it possible to estimate all cointegrating vectors when there are more than two variables. If there are three variables each with unit roots, there are at most two cointegrating vectors. Cointegration test will be used to determine the existence long-run relationship between the variables. JJ cointegration test is used in this study, mainly to seek whether the variables are bound by any relationships in the long-run. The result of JJ test for determining the existence of cointegration vectors will be presented in Table 4 for two models of this study.
Hypothesised no. of cointegrating equations (Ces).
Johansen-Juselius (JJ) cointegration test results.
The rejection of null hypothesis of the presence of no cointegrating equations (r = 0) between the variables at 5% significance level in favour of the alternative hypothesis that there exists at least one cointegrating equation between the variables.
Based on the JJ cointegration tests above, the null hypothesis for all models has no cointegration vectors against the alternative hypothesis which indicated that one or more cointegrating vectors exist. Null hypothesis will be rejected if the analysis shows that there is cointegration among variables.
The results in Table 4 confirm that cointegration exists for all models with regard to the federal government debt and budget deficits analysis. Model 1 exhibits that there are three cointegrating vectors among the variables in both trace statistics and Max-eigenvalue statistics tests. Meanwhile, Model 2 shows that trace statistics and Max-eigenvalue statistics are cointegrated at two cointegrating vectors among the variables. Models 3 and 4 both show that the test statistics and Max-eigenvalue statistics are cointegrated at two and one cointegrating vectors among the variables, respectively.
The trace test and the maximum eigenvalue test for all models reject the null hypothesis in favour of the alternative hypothesis if the critical value provided by JJ’s table is exceeded by the test statistic found from the equation. Therefore, it can be inferred from Johansen-Juselius cointegration test results shown in Table 4 that there exists at least one cointegrating vector between the variables that are certainly bound by a relationship in the long-run.
As Johansen-Juselius cointegration test results show the existence of long-run relationship of federal government debt and budget deficits; this implies that debt and deficit can be one of the effective instruments to explain the Malaysian economy in the long-term period. For example, each debt and deficit measure says something about public finances. Also, debt and deficit are subject to a binding fiscal rule or target. Debt and deficit encourage operations involving off-balance-sheet assets and liabilities. Overall, the Malaysian government should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships.
The test results made from Johansen-Juselius test clearly showed interest rate and money demand do have a long-run relationship in regard to debt and deficits. A study by Correia-Nunes and Stemitsiotis [36], over the long period, high real interest rates induced by large budget deficits have a negative impact on potential growth, shifting the economy to a low-level growth path and may therefore reduce future living standards. Meanwhile, Deravi et al. [27] proved that there is relationship between the wealth effect of government debt on money demand. In their study, they found that, over the long period, government debt is affecting the demand for money positively, implying that federal government debt is net wealth. Thus, the existence of cointegration relationships among the economic variables can be a good indication to the policymakers in their decision-making for the benefit of their countries.
5. Vector error correction model
The above Johansen-Juselius test informed that all four models have at least one cointegrating vectors which suggests the existence of error correction term (ECT) in these models under the VECM analysis (Table 5). The absolute value of ECT indicates the speed of adjustment from the short-run to the long-run equilibrium. The sign of ECT is expected to be negative.
Notes: (i) IR, LM1, I and INF are held dependent variables. (ii) t values are in parentheses. (iii) ECT = error correction term.
In Model 1, ECT shows a negative and significant sign indicating that the interest rate adjusts to bring about the long-run equilibrium by closing 71% of the gap. In this analysis, it shows that government debt, budget deficit, money supply, inflation, and tax revenue do have significant impact on interest rate whether in the short-run or long-run. Model 2 results illustrate the coefficient of ECT is negative and significant, indicating that the money demand adjusts to bring about the long-run equilibrium by closing 9% of the gap.
Based on the results of Model 3, the coefficient ECT shows that the investment will adjust to bring about the long-run equilibrium by closing 67% of the gap. The last model, which is Model 4, the negative and significant ECT tells the inflation will adjust to clear the disequilibrium to the long-run disequilibrium through 14% speed adjustment.
6. Discussion
The results of VECM suggest that there exists a short-run disequilibrium in all models and the error correction coefficient indicates the deviation of the adjusted percentage from equilibrium in the short-run. Therefore, VECM test testifies that there is a short-run and long-run relationship in all four models.
In view of the findings that the debt deficit exerts adverse impact on interest rate, it is imperative for the government to take account of policy responses that reduce deficit on its budget. The analysis depicts the budget deficit influencing the investment level in Malaysia. Government deficits crowd out private investments. In general fund for investment capital is scarce. Any government bonds issued to pay for a deficit are purchased with investment funds that might have otherwise gone towards private investment. If the government decides to raise taxes to finance a deficit, those additional taxes will further discourage private investment. Should the government decide to monetize the debt, the cost-of-living increases will also eat at savings and investment. According to Kato [37], a cut in future deficits must be followed by a decrease in public investment. Also Fatima et al. [38] stressed that there is the impact of government fiscal deficit on investment.
In addition, the VECM analysis exhibits that budget deficit has short-run and long-run relationship towards inflation in Malaysia. Solomon and De Wet [39] stated that due to the monetization of the budget deficit, significant inflationary effects are found for increases in the budget deficit. The budget deficit recorded for the remaining years was as a result of many factors that made the proposed expenditure to exceed the expected revenue. Inflation is one of the variables affected by budget deficit operation over the years in Malaysia. The government has continuously pursued an expansionary fiscal policy to improve economic growth and economic development. However, the major impact of the increase in budget deficit was felt in 1997, with high rate of inflation, which shows an evidence of a positive relationship between budget deficit and inflation in Malaysia, although other macroeconomic factors could have accounted for this. This scenario happened during the Asian financial crisis in the Malaysian market. Hondroyiannis and Papapetrou [40] show that in developing countries, there is evidence that there exists a positive relationship between budget deficit and inflation.
7. Conclusion
The VECM showed that the macroeconomic variables have an impact on dependent variables which are interest rate, money demand, investment and inflation, whether in the short-run and long-run as well. Based on VECM results, inflation plays a dominant role in determining the interest rate; GDP gives major impact on money demand; budget deficits effect the most on both investment and inflation level in Malaysia. This results in the economic impact of government debt and deficits on selected variables which leads one to accept the traditional view. Although different researchers have used different statistical techniques, economic variables and time periods, no conclusive results have appeared to prove or disprove either the Ricardian theorem or the crowding out hypothesis. The tests in this study have demonstrated an evidence on crowding out. Although the money demand model was not as convincing in its rejection of the Ricardian theorem as was the interest rate model acceptance of crowding out, at least it threw some doubt on the validity of the assumption that people do not treat government bonds as net wealth.
Another notable issue is the impact of budget deficits on balance of payments. The past 15 years have witnessed an increasing concern over Malaysia’s trade position as the country fell into a net debtor nation in which imports level approached the exports. If a debt creation leads to an increase domestic interest rate, then this results in a net inflow of foreign capital, and this will increase demand for the Malaysian ringgit (RM) and thus an appreciation of the RM, and this certainly will reduce exports and will put a stress on GDP growth. When the ringgit is appreciated, Malaysia’s goods for export become more expensive to consumers in other countries, and at the same time, the goods for import from other countries will become less expensive for domestic consumers. This situation would compound an already bad balance of trade position for Malaysia if indeed the debt creation has this effect. Thus, an empirical investigation into this apparent dilemma is critical to the understanding of Malaysia’s current and future trade positions.
\n',keywords:"budget deficits, federal government debt, VECM, Malaysia",chapterPDFUrl:"https://cdn.intechopen.com/pdfs/71401.pdf",chapterXML:"https://mts.intechopen.com/source/xml/71401.xml",downloadPdfUrl:"/chapter/pdf-download/71401",previewPdfUrl:"/chapter/pdf-preview/71401",totalDownloads:419,totalViews:0,totalCrossrefCites:1,dateSubmitted:"May 15th 2019",dateReviewed:"January 31st 2020",datePrePublished:"May 11th 2020",datePublished:null,dateFinished:null,readingETA:"0",abstract:"In general, most countries in the world, particularly developing countries, are facing significant budget constraints, in which the collection of tax and nontax revenues is less than the government’s total expenditure. Therefore, borrowing either from the local capital or international capital markets is made. Borrowing increases government debts. The budget deficits and the growth of the government debt are the major factors that determine the health of macroeconomics. There is a solid consensus among economists mainly on the effect of budget deficits on macroeconomics in terms of crowding out private investment, increasing interest rates, expanding money supply and escalating consumer price and in certain extent affect exchange rate. Government bonds issued to finance budget deficits are also in question as part of the net wealth of private sectors. On the other side, there is an agreement that the budget deficits financed by the issuance of bonds will crowd out private investment through increasing interest rate. This paper plans to investigate the impact of budget deficits on Malaysia’s economy. Cointegration test and vector error correction models are used to examine the impact of budget deficits on certain macroeconomic variables.",reviewType:"peer-reviewed",bibtexUrl:"/chapter/bibtex/71401",risUrl:"/chapter/ris/71401",signatures:"Mohamed Aslam and Raihan Jaafar",book:{id:"9030",title:"Perspectives on Economic Development",subtitle:"Public Policy, Culture, and Economic Development",fullTitle:"Perspectives on Economic Development - Public Policy, Culture, and Economic Development",slug:"perspectives-on-economic-development-public-policy-culture-and-economic-development",publishedDate:"June 3rd 2020",bookSignature:"Ryan Merlin Yonk and Vito Bobek",coverURL:"https://cdn.intechopen.com/books/images_new/9030.jpg",licenceType:"CC BY 3.0",editedByType:"Edited by",editors:[{id:"196259",title:"Dr.",name:"Ryan Merlin",middleName:null,surname:"Yonk",slug:"ryan-merlin-yonk",fullName:"Ryan Merlin Yonk"}],productType:{id:"1",title:"Edited Volume",chapterContentType:"chapter",authoredCaption:"Edited by"}},authors:null,sections:[{id:"sec_1",title:"1. Introduction",level:"1"},{id:"sec_2",title:"2. Budget deficits and government debt",level:"1"},{id:"sec_2_2",title:"2.1 Domestic loans",level:"2"},{id:"sec_3_2",title:"2.2 External debt",level:"2"},{id:"sec_5",title:"3. Literature review",level:"1"},{id:"sec_5_2",title:"3.1 Econometric models",level:"2"},{id:"sec_5_3",title:"3.1.1 Model 1: the federal government debt and interest rate",level:"3"},{id:"sec_6_3",title:"3.1.2 Model 2: money demand model",level:"3"},{id:"sec_7_3",title:"3.1.3 Model 3: investment and budget deficit",level:"3"},{id:"sec_8_3",title:"3.1.4 Model 4: inflation and budget deficit",level:"3"},{id:"sec_11",title:"4. Findings",level:"1"},{id:"sec_12",title:"5. Vector error correction model",level:"1"},{id:"sec_13",title:"6. Discussion",level:"1"},{id:"sec_14",title:"7. Conclusion",level:"1"}],chapterReferences:[{id:"B1",body:'Clements B, Bhattacharya R, Nguyen T. External debt, public investment, and growth in low income countries. IMF working paper No. WP/03/249. 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In: Budget Deficits and Debt: Issues and Options. A Symposium by the Federal Reserve Bank of Kansas City, August 31–September 2, Federal Reserve Bank of Kansas City, Kansas City, Missouri, USA. 1995'},{id:"B32",body:'Krugman P. Why higher savings may hit the dollar. Financial Times. 1995 (24 May, London, UK)'},{id:"B33",body:'Hakkio CS. The effects of budget deficit reduction on the exchange rate. Economic Review, (Third Quarter, Federal Reserve Bank of Kansas City). 1996:21-38'},{id:"B34",body:'Johansen S, Juselius K. Maximum likelihood estimation and inference on cointegration—With applications to the demand for money. Oxford Bulletin of Economics and Statistics. 1990;52(2):169-210'},{id:"B35",body:'MacKinnon J, Haug A, Michelis L. Numerical distribution functions of likelihood ratio tests for cointegration. Journal of Applied Econometrics. 1999;14(5):563-577'},{id:"B36",body:'Correia-Nunes J, Stemitsiotis L. Budget deficit and interest rates: Is there a link? International evidence. Oxford Bulletin of Economics and Statistics. 1995;57(4):425-449'},{id:"B37",body:'Kato RR. Government deficit, public investment, and public capital in the transition to an aging Japan. Journal of the Japanese and International Economies. 2002;16(4):462-491'},{id:"B38",body:'Fatima G, Ahmed AM, Rehman WU. Fiscal deficit and economic growth: An analysis of Pakistan’s economy. International Journal of Trade, Economics and Finance. 2011;2(6)'},{id:"B39",body:'Solomon M, De Wet DA. The effect of a budget deficit on inflation: the case of Tanzania. South African Journal of Economic and Management Sciences. 2004;7(1):100-116'},{id:"B40",body:'Hondroyiannis G, Papapetrou E. Are budget deficit inflationary? Applied Economics Letters. 1997;4(8):493-496'}],footnotes:[],contributors:[{corresp:"yes",contributorFullName:"Mohamed Aslam",address:"maslam@um.edu.my",affiliation:'
Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia
Faculty of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia
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IntechOpen’s Academic Editors and Authors have received funding for their work through many well-known funders, including: the European Commission, Bill and Melinda Gates Foundation, Wellcome Trust, Chinese Academy of Sciences, Natural Science Foundation of China (NSFC), CGIAR Consortium of International Agricultural Research Centers, National Institute of Health (NIH), National Science Foundation (NSF), National Aeronautics and Space Administration (NASA), National Institute of Standards and Technology (NIST), German Research Foundation (DFG), Research Councils United Kingdom (RCUK), Oswaldo Cruz Foundation, Austrian Science Fund (FWF), Foundation for Science and Technology (FCT), Australian Research Council (ARC).
Open Access publication costs can often be designated directly in the grants or in specific budgets allocated for that purpose. Many of the most important funding organisations encourage, and even request, that the projects they fund are made available at no cost to the wider public. IntechOpen strives to maintain excellent relationships with these funders and ensures compliance with mandates.
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In order to help Authors identify appropriate funding agencies and institutions, we have created a list, based on extensive research on various OA resources (including ROARMAP and SHERPA/JULIET) of organizations that have funds available. Before consulting our list we encourage you to petition your own institution or organization for Open Access funds or check the specifications of your grant with your funder to ascertain if publication costs are included. Where you are in receipt of a grant you should clarify:
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Please note that this list is not a definitive one and is updated regularly. To suggest possible modifications or the inclusion of your institution/funder, please contact us at oapf@intechopen.com
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Please be aware that you must be a member, or grantee, of the institutions/funders listed in order to apply for their Open Access publication funds.
Open Access publication costs can often be designated directly in the grants or in specific budgets allocated for that purpose. Many of the most important funding organisations encourage, and even request, that the projects they fund are made available at no cost to the wider public. IntechOpen strives to maintain excellent relationships with these funders and ensures compliance with mandates.
\n\n
In order to help Authors identify appropriate funding agencies and institutions, we have created a list, based on extensive research on various OA resources (including ROARMAP and SHERPA/JULIET) of organizations that have funds available. Before consulting our list we encourage you to petition your own institution or organization for Open Access funds or check the specifications of your grant with your funder to ascertain if publication costs are included. Where you are in receipt of a grant you should clarify:
\n\n
\n\t
Does your institution already have a budget for covering Open Access publication costs?
\n\t
Does your grant list Open Access publication fees as legitimate direct/indirect costs?
\n
\n\n
If you are associated with any of the institutions in our list below, you can apply to receive OA publication funds by following the instructions provided in the links. Please consult the Open Access policies or grant Terms and Conditions of any institution with which you are linked to explore ways to cover your publication costs (also accessible by clicking on the link in their title).
\n\n
Please note that this list is not a definitive one and is updated regularly. To suggest possible modifications or the inclusion of your institution/funder, please contact us at oapf@intechopen.com
\n\n
Please be aware that you must be a member, or grantee, of the institutions/funders listed in order to apply for their Open Access publication funds.
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