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The debt-growth nexus in Canada: evidence from an open-economy ARDL model

Author

Listed:
  • Zestos, George K.
  • Jiang, Yixiao
  • Winder, Robert C.
  • Matzen, Charles

Abstract

This study investigates the long-run relationship between public debt and economic growth in Canada from 1960 to 2022 using an Autoregressive Distributed Lag (ARDL) model. By incorporating key macroeconomic variables such as world GDP, the current account balance, and long-term interest rates, the analysis captures the macroeconomic dynamics of Canada’s small open economy. The findings reveal a negative relationship between public debt and economic growth in Canada, suggesting that fiscal prudence is crucial for sustained economic performance. Specifically, a 1% annual increase in public debt results in a 0.6–0.7% reduction in real GDP. Moreover, external factors such as global economic conditions and interest rates significantly influence Canada’s economic trajectory. These insights offer valuable policy implications not only for Canada, but also for similar open economies grappling with rising public debt levels.

Suggested Citation

  • Zestos, George K. & Jiang, Yixiao & Winder, Robert C. & Matzen, Charles, 2026. "The debt-growth nexus in Canada: evidence from an open-economy ARDL model," The North American Journal of Economics and Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:ecofin:v:83:y:2026:i:c:s1062940825002141
    DOI: 10.1016/j.najef.2025.102574
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    References listed on IDEAS

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