Causality between Public Debt and Real Growth in the <scp>OECD</scp>: A Country‐by‐country Analysis

Donayre, Luiggi; Taivan, Ariuna

doi:10.1111/1759-3441.12175

Cited by 21 publications

(18 citation statements)

References 32 publications

(84 reference statements)

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“…This assertion is underscored by the work of Donayre and Taivan (2017) which established that the causal relationship between public debt and real GDP growth is intrinsic to each country. They further disclosed that in highly market-driven economies, the direction of causality is from low GDP growth to public debt; however, in more socialist states, causality runs either from low GDP growth to public debt accumulation or is bi-directional (Donayre and Taivan, 2017).…”

Section: Literature Reviewmentioning

confidence: 99%

“…To respond to the global economic recessions after the Second World War, many economies (including developed and developing) resorted to borrowing either domestically or externally to fund budget deficits. These strives had led to the accumulation of public debt for many countries, resulting in the economic recession and debt crises experienced in the early 2000s by many developed and developing countries (Donayre and Taivan, 2017). As a result, academic and policy debate on the causal relationship between public debt and economic growth had been renewed (G omez-Puig and Sosvilla-Rivero, 2018).…”

Section: Introductionmentioning

confidence: 99%

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Public debt and economic growth: contemporary evidence from a developing economy

Hilton

2021

AJEB

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Purpose Considering the continuous rise in the public debt stock of developing countries (particularly Ghana) with the unstable economic growth rate for the past decades and the recent borrowing because of the impact of COVID 19, this paper aims to examine the causal relationships between public debt and economic growth over time. Design/methodology/approach The paper uses a dynamic multivariate autoregressive-distributed lag (ARDL)-based Granger-causality model to test the causal relationships between public debt and economic growth [gross domestic product (GDP)]. Annual time-series data that spanned 1978–2018 were sourced from the World Bank Development Indicator database and the IMF fiscal Affairs Department Database and WEO. Findings The results reveal that public debt has no causal relationship with GDP in the short-run but there is unidirectional Granger causality running from public debt to GDP in the long run. Again, investment spending has a negative bi-directional causal relationship with GDP in the short-run but they have a positive bi-directional causal relationship in the long run. Conversely, no short-run causal relationship exists between government consumption expenditure and GDP but long-run Granger causality runs from government consumption expenditure to GDP. Finally, public debt has a positive impact on the inflation rate in the short run. Practical implications The findings imply that government(s) must ensure high fiscal discipline to serve as a precursor for the effective and efficient use of recent borrowing, that is, the loans should be used for highly prioritized projects (preferably investment spending) that are well evaluated and self-sustained to add positively to the GDP. Originality/value This paper provides contemporary findings to augment extant literature on public debt and economic growth by using variables and empirical models, which prior studies could not sufficiently cover in a developing country perspective and affirms that public debt contributes to GDP only in the long run.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Public debt and economic growth: contemporary evidence from a developing economy

Hilton

2021

AJEB

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“…Therefore, to our knowledge, no strong case has yet been made for analysing the effect of debt accumulation on economic growth taking into account the particular characteristics of each EA economy and examining whether the effects differ depending on the time horizon, in spite of the fact that this potential heterogeneity has been stressed by the literature. For instance, Eberhardt and Presbitero (2015) and Égert (2015) support the existence of nonlinearity in the debt-growth nexus, but state that there is no evidence at all for a threshold level common to all countries over time; while Gómez-Puig and Sosvilla-Rivero (2015) and Donayre and Taivan (2017), who analyse the causal relationship between public debt and economic growth, also suggest that the causal link is intrinsic to each country.…”

Section: Literature Reviewmentioning

confidence: 99%

Public debt and economic growth: Further evidence for the euro area

Gómez‐Puig

Sosvilla‐Rivero

2018

Acta Oeconomica

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This paper empirically investigates the short and the long run impact of public debt on economic growth. We use annual data from both the central and the peripheral countries of the euro area (EA) for the 1961–2013 period and estimate a production function augmented with a debt stock term by applying the Autoregressive Distributed Lag (ARDL) bounds testing approach. Our results suggest different patterns across the EA countries and tend to support the view that public debt always has a negative impact on the long-run performance of EA member states, whilst its short-run effect may be positive depending on the country.

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“…Other researchers added some more light on the problem and found that for developed OECD countries increases in public debt is often followed by low real growth and there exist bidirectional causality from low growth to debt accumulation (Donayre & Taivan, 2017).…”

Section: Public Debtmentioning

confidence: 99%

Panel Data Analysis of Public and Private Debt and House Price Influence on GDP in the European Union Countries

Snieška

Burksaitiene

2018

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The panel data analysis of the influence of change in real public debt, real private debt, and deflated house prices on the GDP in selected European countries is performed. Least squares and autoregressive AR(p) model were used with crosssection and period both fixed by dummy variables. The research has confirmed strong negative influence of public debt with zero, one and two year's lags as an independent variable on the GDP as the dependent variable. This is not surprising having in mind limited functionality of the European central bank as a lender of the last resort for the countries of the monetary union, that is, for the most of the analysed countries. This finding also confirms the necessity of the transformation of the European Monetary Union to the European Financial Union. Private debt has definite positive influence on the GDP as the dependent variable. It was confirmed by measuring this influence with zero, one and two and three years lags, but this positive influence was 2-3 times lower than the negative influence of public debt on the GDP. House prices unlagged have similar absolute value of positive influence on the GDP coefficient as the absolute value of the negative influence of lagged public debt, according to the regression coefficients received. However, house prices, leading by 2 years, have negative influence on the GDP, but this influence is almost 5 times weaker than the negative influence of unlagged public debt.

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Causality between Public Debt and Real Growth in the OECD: A Country‐by‐country Analysis

Cited by 21 publications

References 32 publications

Public debt and economic growth: contemporary evidence from a developing economy

Public debt and economic growth: contemporary evidence from a developing economy

Public debt and economic growth: Further evidence for the euro area

Panel Data Analysis of Public and Private Debt and House Price Influence on GDP in the European Union Countries

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