Impact of China’s Provincial Government Debt on Economic Growth and Sustainable Development

Abstract

Macroeconomic stability is the core concept of sustainable development. However, the coronavirus disease (COVID-19) pandemic has caused government debt problems worldwide. In this context, it is of practical significance to study the impact of government debt on economic growth and fluctuations. Based on panel data of 30 provinces in China from 2012 to 2019, we used the Mann–Kendall method and Kernel Density estimation to analyze the temporal and spatial evolution of China’s provincial government debt ratio and adopted a panel model and HP filtering method to study the impact of provincial government debt on economic growth and fluctuation. Our findings indicate that, during the sample period, China’s provincial government debt promoted economic growth and the regression coefficient (0.024) was significant. From different regional perspectives, the promotion effect of the central region (0.027) is higher than that of the eastern (0.020) and western regions (0.023). There is a nonlinear relationship between China’s provincial government debt and economic growth, showing an inverted “U-shaped” curve. Fluctuations in government debt aggravate economic volatility, with a coefficient of 0.009; tax burden fluctuation and population growth rate aggravate economic changes. In contrast, the optimization of the province’s industrial structure and the improvement of the opening level of provinces slow down economic fluctuations.

The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

“…Their results indicated a positive relationship between government debt and economic growth. The study by Makhoba et al (2022aMakhoba et al ( , 2022b) contradicts the study by Yang et al (2022) in the case of China. The work documented by Makhoba et al (2022aMakhoba et al ( , 2022b selected emerging and frontier SADC countries using the symmetric transition regression model and found an inverted-shape relationship between debt and growth in the case of South Africa.…”

“…The first strand is those studies that believed in the neoclassical theory, arguing that government debt is detrimental to growth (Checherita-Westphal and Rother, 2012;Alves, 2014;Swamy, 2015;Pegkas, 2018;Asteriou et al, 2021). While the second strand believed in the endogenous growth model, claiming that government debt promotes economic growth (Spilioti and Vamvoukas, 2015;Burhanudin et al, 2017;Jacobo and Jalile, 2017;Yang et al, 2022;Ale et al, 2023;Abille and Kiliç, 2023), The last strand believed in those studies that believe that government debt and economic growth are characterized by a nonlinear relationship in nature (Elbadawi et al, 1997;Pattillo et al, 2004;Perlo-Freeman and Webber, 2009;Kremer et al, 2013;Seletenget et al, 2013;Akhanolu et al, 2018;Seletenget et al, 2013;Alam et al, 2019;Murungi and Okiro, 2018;Mensah et al, 2019;Ndoricimpa, 2020;Makhoba et al, 2022aMakhoba et al, , 2022bMqolombeni et al, 2023;Augustine and Rafi, 2023); even among those studies on NRN, there are contradicting results, as some studies find the invented U-shape (Perlo-Freeman and Webber, 2009;Kremer et al, 2013;Seletenget et al, 2013;Ndoricimpa, 2020;Makhoba et al, 2022aMakhoba et al, , 2022bAugustine and Rafi, 2023;Mqolombeni et al, 2023), while others find the U-shape relationship. While others Public debt and economic growth believed that there is no clear relationship between government debt and economic growth (Ferreira, 2009;…”

“…In the same year, a contradiction emerged from the study by Asteriou et al (2021), confirmed by those studies that documented that public debt is detrimental to growth in a panel of selected Asian countries over the time span of 1980 to 2012. Yang et al (2022) studied the impact of China's provincial government debt on economic growth and sustainable development during the period 2012-2019. Their results indicated a positive relationship between government debt and economic growth.…”

Nexus between government debt, economic policy uncertainty, government spending, and governmental effectiveness in BRIC nations: Evidence for linear and nonlinear assessments

“…A growing number of studies have assessed the critical role of government debt on economic growth (Baidoo et al, 2021;Yusuf and Mohd, 2021;Khan et al, 2022;Yang et al, 2022), fiscal policy, urban pollution (Qi et al, 2022), interest rates (Smith et al, 2022), and foreign direct investment (Zainuddin et al, 2021). Government debt may promote aggregate demand, resulting in near-term positive growth.…”

Leverage of Local State-Owned Enterprises, Implicit Contingent Liabilities of Government and Economic Growth

“…There is no consensus on the economic impact of local governments' explicit debts, including inverted U-shaped influence, U-shaped influence and negative influence, etc. [33][34][35][36]. Explicit debts generally affect economic growth through fiscal and monetary channels, such as fiscal deficit, tax rate, and changes in long-term interest rate and inflation [37][38][39][40].…”