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How does public debt affect economic growth? A systematic review

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  • Nur Hayati Abd Rahman
  • Shafinar Ismail
  • Abdul Rahim Ridzuan

Abstract

The controversial findings by Reinhart and Rogoff have continuously generated debates on the threshold of debt towards GDP. Hence, the aim of this study is to examine whether there exists mutual consensus on the effects of public debt on the economic growth of a country or group of economies. A systematic review on related articles from SCOPUS database was conducted by adopting a standard procedure in the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA), namely identification, screening and eligibility. Thirty-three articles were chosen as the main articles to be reviewed. It was found that there is no mutual consensus on the relationship between public debt and economic growth. The relationship can be positive, negative or even non-linear. Besides, the 90% threshold as argued in the Reinhart-Rogoff hypothesis is also not applied across all countries. The findings may help governments and policymakers to design their fiscal policy by investigating how existing debts affect the growth level. Future studies should investigate the effects of public debt on the economic growth in the upper-middle-income economies. These economies were least studied in this context.

Suggested Citation

  • Nur Hayati Abd Rahman & Shafinar Ismail & Abdul Rahim Ridzuan, 2019. "How does public debt affect economic growth? A systematic review," Cogent Business & Management, Taylor & Francis Journals, vol. 6(1), pages 1701339-170, January.
    • Handle: RePEc:taf:oabmxx:v:6:y:2019:i:1:p:1701339
    DOI: 10.1080/23311975.2019.1701339
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    Cited by:

    1. Talant Kaliyeva & Lyazzat Sembiyeva & Aida Zhagyparova & Azyk Orozonova & Gulzhan Tazhbenova & Zhanat Tulegenova, 2020. "Debt and investments: analysis of selected countries," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 1267-1285, December.
    2. Zahir Mohamed Omar & Mohamed Isse Ibrahim, 2021. "Determinants of External Debt: The Case of Somalia," Asian Development Policy Review, Asian Economic and Social Society, vol. 9(1), pages 33-43, March.
    3. Samson Edo, 2024. "Comparative Performance of Trade Openness and Sovereign Debt Accumulation in Fostering Economic Growth of Sub-Saharan African Countries," Foreign Trade Review, , vol. 59(1), pages 98-116, February.
    4. Nokwanda Mqolombeni & Devi Datt Tewari & Kehinde Damilola Ilesanmi, 2023. "Exploring The Role of High Government Debt on Economic Growth: A Nonlinearity and Threshold Analysis for Africa’s Developing Countries," Economies, MDPI, vol. 11(2), pages 1-15, February.
    5. Altin Hoti & Aranit Shkurti & Scheherazade Rehman, 2022. "Impact of External Debt on Economic Growth in Western Balkan Countries," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, March.
    6. Mindaugas Butkus & Diana Cibulskiene & Lina Garsviene & Janina Seputiene, 2022. "Role of Uncertainty in Debt-Growth Nexus," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(1), pages 58-78.
    7. Gopal Prasad Bhatta, PhD & Anu Mishra, 2020. "Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 32(2), pages 1-28, October.
    8. Mindaugas Butkus & Diana Cibulskiene & Lina Garsviene & Janina Seputiene, 2021. "The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier," Sustainability, MDPI, vol. 13(9), pages 1-22, April.
    9. Mohd Shahidan Shaari & Faiz Masnan & Mohd Juraij Abd Rani & Zaharah Zainal Abidin & Abdul Rahim Ridzuan & Norreha Othman, 2023. "The Grim Cost of Economic Growth and Environmental Degradation: A Comprehensive Panel ARDL Study of Public Debt in the ASEAN-5 Countries," Sustainability, MDPI, vol. 15(14), pages 1-15, July.

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