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The Role of Budget Deficit and Government Debt in Financing-Economic Growth of Selected Developing Countries

Author

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  • Seyed Valiallah Mirhoseyni
  • Mohammd Reza Montazeri
  • Marzeya ShahVali

Abstract

Investigation of budget deficit and government debt relationship with economic growth is one of the important topics in macroeconomic literature; Hence, the present study examined the role of budget deficit and government debt on financing the economic growth in 40 developing countries between 2010-2019. In this regard, the economic growth was defined as a function of financial development, budget deficit, government debt, government expenditure, human capital, inflation rate, trade freedom, and the interaction of budget deficit and government debt with financial development. To examine the relationships between variables, the panel data econometric model and the feasible generalized least squares method were used. The estimation results showed that in developing countries, financial development had a positive and budget deficit and government debt had a negative and significant effect on the economic growth. Also, the interaction effect of budget deficit and government debt with financial development on economic growth was negative and significant that showed budget deficit and government debt play a negative role in positive relationship between financial development and economic growth. In addition, government expenditure, human capital, and trade freedom had a positive and significant effect on economic growth, while the inflation rate effect on economic growth was not significant.

Suggested Citation

Handle: RePEc:air:journl:v:10:y:2023:i:4:p:284
DOI: 10.5281/zenodo.7965707
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