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Assessing Growth Impact of Public Debt in Sri Lanka

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  • Suvra Prokash Mondal
  • Biswajit Maitra

Abstract

Whether public debt spurs economic growth is an unsettled issue in both theoretical and empirical grounds. The issue has attracted lots of attention to economists and policymakers in recent times. This article addresses the debt–growth issue in the case of a small emerging south Asian country—Sri Lanka. The impact of external, domestic debt, in association with a set of financial variables on income, is assessed for an extended period of 1965–2017, and also for the post-reform period of 1978–2017. The article finds some robust evidence that external debt is not beneficial; rather it depresses income. The impact of domestic debt and foreign aid on income is trivial. On the other hand, gross fixed capital formation and money supply spur income growth, whereas the impact of openness to trade is dismaying, and all these findings are invariant across the extended period and the post-reform periods. The results have policy implications for the long-term sustained economic growth of Sri Lanka. JEL: H63, F35, O40, C22

Suggested Citation

  • Suvra Prokash Mondal & Biswajit Maitra, 2021. "Assessing Growth Impact of Public Debt in Sri Lanka," Arthaniti: Journal of Economic Theory and Practice, , vol. 20(2), pages 201-226, December.
    • Handle: RePEc:sae:artjou:v:20:y:2021:i:2:p:201-226
    DOI: 10.1177/0976747920917478
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    1. Suvra Prokash Mondal & Biswajit Maitra, 2022. "Deficits, Debt and Interest Rates in Sri Lanka: Does the Spillover of Foreign Interest Rates Matter?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 16(1), pages 28-48, February.

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    More about this item

    Keywords

    External debt; domestic debt; gross fixed capital formation; income growth; trade openness; money supply;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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