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Growth in the shadow of debt

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  • Lim, Jamus Jerome

Abstract

This paper revisits the relationship between debt and growth from a vantage point that considers the totality of private and public debt. We exploit quarter-long timing lags inherent in the response of borrowing to innovations in output to identify the effects of debt on growth in a panel vector autoregressive model. We verify that debt accumulation is negatively related to output growth, with a one standard deviation innovation in the former leading to a 0.2 percentage-point contraction in the latter. This result is robust to the inclusion of exogenous variables in the system, alternative measures of the endogenous variables, and varying temporal treatments. We also find variations depending on the type of debt accumulated, the specific subset of countries considered, and the channels along which debt expansion operates.

Suggested Citation

  • Lim, Jamus Jerome, 2019. "Growth in the shadow of debt," Journal of Banking & Finance, Elsevier, vol. 103(C), pages 98-112.
  • Handle: RePEc:eee:jbfina:v:103:y:2019:i:c:p:98-112
    DOI: 10.1016/j.jbankfin.2019.04.002
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    Cited by:

    1. Lim, Jamus Jerome, 2020. "The political economy of fiscal procyclicality," European Journal of Political Economy, Elsevier, vol. 65(C).
    2. Attahir Babaji Abubakar, 2020. "Does fiscal tightening (loosening) reduce public debt?," African Development Review, African Development Bank, vol. 32(4), pages 528-539, December.

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    More about this item

    Keywords

    Economic growth; Total debt; Panel VAR;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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