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Total Public Debt and Growth in Developing Countries

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  • Andrea F Presbitero

    ()
    (Universit� Politecnica delle Marche, MoFiR, Ancona, Italy.
    Centre for Macroeconomic and Finance Research (CeMaFiR), Milan, Italy.)

Abstract

The global crisis and the expansionary government reaction in many countries have revamped the attention of policymakers and academics on the growth effects of large public debts. Recent empirical studies investigate the impact of public debt on growth in advanced and emerging countries. This article aims at complementing the existing evidence focusing on developing countries, where the increase in domestic borrowing, already started before the crisis, requires a more comprehensive analysis, based not only on external debt, but also on total public debt. Results on a panel of low- and middle-income countries over the period 1990–2007 show that public debt has a negative impact on output growth until it reaches 90 per cent of GDP. Beyond this threshold, the debt effect on growth becomes irrelevant. This nonlinear effect can be explained by country-specific factors, as debt overhang is a growth constraint only in countries with sound macroeconomic policies and stable institutions.La crise mondiale et les conséquent politiques expansive des gouvernements de plusieurs pays ont amené les décideurs politiques à s′intéresser à nouveau aux effets d′une forte dette publique sur la croissance. Etudes empiriques récents examinent l′impact de la dette publique sur la croissance dans les pays développés aussi bien que dans le pays émergentes. Cet article cherche à apporter des éléments d′information supplémentaires en portant une attention particulière aux pays en développement où la montée de la dette intérieure, datant d′avant la récession, requiert une analyse plus complète qui prenne en compte non seulement la dette extérieure, mais l′ensemble de la dette publique. Les résultats obtenus à partir d′un panel de pays à revenus faibles ou intermédiaires pour la période allant de 1990 à 2007 montrent que la dette publique a un impact négatif sur la croissance au seuil de 90 per cent du PIB, au delà duquel l′effet n′est plus significatif. Cet effet non linéaire s’explique par des facteurs spécifiques à chaque pays puisque le sur-endettement ne constitue une contrainte de croissance que dans les pays pourvus de politiques macroéconomiques saines et d′institutions stables.

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Article provided by Palgrave Macmillan in its journal European Journal of Development Research.

Volume (Year): 24 (2012)
Issue (Month): 4 (September)
Pages: 606-626

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Handle: RePEc:pal:eurjdr:v:24:y:2012:i:4:p:606-626

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Citations

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Cited by:
  1. Markus Eberhardt & Andrea F. Presbitero, 2013. "This Time They’re Different: Heterogeneity and Nonlinearity in the Relationship between Debt and Growth," Discussion Papers 2013/10, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  2. Ion Lucian Catrina, 2011. "Long-Run Implications of Public Debt on Economic Growth," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 2(2), pages 83-91, June.
  3. Danny Cassimon & Marin Ferry & Marc Raffinot & Bjorn Van Campenhout, 2013. "Dynamic fiscal impact of the debt relief initiatives on african heavily indebted poor countries (HIPCs)," Working Papers DT/2013/01, DIAL (Développement, Institutions et Mondialisation).
  4. Giovanna Bua & Juan Pradelli & Andrea Filippo Presbitero, 2013. "Domestic public debt in low-income countries: trends and structure," Mo.Fi.R. Working Papers 85, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  5. Balatoni, András & Tóth G., Csaba, 2012. "Az új magyar adósságszabály értékelése
    [Assessment of the new regulations on debt]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1107-1137.
  6. Markus Eberhardt, 2013. "Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing," Discussion Papers 2013/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  7. Panizza, Ugo & Presbitero, Andrea F., 2012. "Public debt and economic growth: Is there a causal effect?," POLIS Working Papers 168, Institute of Public Policy and Public Choice - POLIS.
  8. Dell'Erba, Salvatore & Hausmann, Ricardo & Panizza, Ugo, 2013. "Debt Levels, Debt Composition, and Sovereign Spreads in Emerging and Advanced Economies," Working Paper Series rwp13-028, Harvard University, John F. Kennedy School of Government.
  9. Van Campenhout, Bjorn & Raffinot, Marc & Ferry, Marin & Cassimon, Danny, 2013. "Dynamic Fiscal Impact of The Debt Relief Initiatives on African Highly Indebted Poor Countries (HIPCs)," Economics Papers from University Paris Dauphine 123456789/10905, Paris Dauphine University.
  10. Megersa, kelbesa, 2014. "The laffer curve and the debt-growth link in low-income Sub-Saharan African economies," MPRA Paper 54362, University Library of Munich, Germany.
  11. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
  12. Hadhek Zouhaier & Mrad Fatma, 2014. "Debt and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 440-448.

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