Public Debt and Growth

By Jaejoon Woo, Manmohan S. Kumar. Social Science Research Network, 2010

963 citations recorded by the source corpus.

This paper explores the impact of high public debt on long-run economic growth. The analysis, based on a panel of advanced and emerging economies over almost four decades, takes into account a broad range of determinants of growth as well as various estimation issues including reverse causality and endogeneity. In addition, threshold effects, nonlinearities, and differences between advanced and emerging market economies are examined. The empirical results suggest an inverse relationship between initial debt and subsequent growth, controlling for other determinants of growth: on average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated with a slowdown in annual real per capita GDP growth of around 0.2 percentage points per year, with the impact being somewhat smaller in advanced economies. There is some evidence of nonlinearity with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Analysis of the components of growth suggests that the adverse effect largely reflects a slowdown in labor productivity growth mainly due to reduced investment and slower growth of capital stock.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bc369c1bc590bb042ac461754a6392d5c5a158f8

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Citations in the corpus

Public Debt, Economic Growth and Nonlinear Effects: Myth or Reality? (2015, background): “Third, public authorities, especially in countries with weak institutions, may decide to inflate away debt, and high inflation has a notoriously detrimental effect on growth (Kumar and Woo, 2010). Many recent empirical papers sought to pin down and explain the possibly nonlinear negative relationshi”
Debt and Growth: Is There a Magic Threshold? (2014, background): “Kumar and Woo (2010), for example, claim to have found “some evidence of nonlinearity with higher levels of initial debt having a proportionately larger negative effect on subsequent growth”.3 Similarly, Cecchetti et al (2011) find that beyond 96 percent of GDP, public debt becomes a drag on…”
The Impact of Growing Public Debt on Economic Growth in the European Union (2014, background): “All the coefficients of explanatory variables are in line with expectations according to economic theory (Clements, Bhattacharya and Nguyen, 2003; Checherita and Rother, 2010; Kumar and Woo, 2010; Dragos and Dragos, 2012).”
The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area (2010, positive): “A similar change in the behaviour of GDP growth in relation to the debt ratio is also found by Kumar and Woo (2010).”
Cecchetti , Mohanty and Zampolli The real effects of debt The real effects of debt (2011, neutral): “2 Recent empirical studies of the effect of public debt on growth using panel data include Checherita and Rother (2010) and Kumar and Woo (2010).”
How Costly are Debt Crises? (2011, positive): “This finding is consistent with the evidence provided in recent studies (Kumar and Woo, 2010; Checherita and Rother, 2010; and Carner et al. 2010).”