Public Debt and Economic Growth: The Case of Asian Countries
Date Issued
2012
Date
2012
Author(s)
Liu, Chia-Hui
Abstract
The impact of government debt on growth depends on the reason and the purpose it issues. At moderate level, debt can improve welfare and enhance growth, but beyond a certain level, debt can be damaging. This research applies dynamic panel data model to investigate the link between government debt-to-GDP ratio and real per capita GDP in ten Asian countries over the period from 1985 to 2007. It finds a non-linear impact of debt on growth with a turning point in different time periods and different sample countries we choose.
In 1985 to 2007, for all countries (sample), the threshold is around 100% to 125% of GDP, and the confidence intervals for the debt turning point is around 70% of GDP which suggests the negative relationship between debt and growth may start from this level; for developing country, it lies between 75% to 85% of GDP; but advanced country doesn’t show significant results. In 1985 to 1996, for all countries, the concave relationship (inverted U-shape) exists; however, for developing and advanced country, no significant results exist. In 2002 to 2007, for all countries, the threshold is around 120% of GDP, and the confidence intervals for the debt turning point is around 110% of GDP; for developing and advanced country, the concave relationship also exists. The channels through which government debt(level or change) is found to have an impact on economic growth rate are: (i) private saving; (ii) total investment; (iii) interest rate.
Subjects
Government debt ratio
economic growth
debt-ratio thresholds
dynamic panel data
SDGs
Type
thesis
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