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A meta-analysis of the relationship between debt and growth

Author

Listed:
  • Winston Moore
  • Chrystol Thomas

Abstract

Purpose - Developing countries tend to be characterised by relatively high levels of indebtedness. The proceeds from debt can potentially have positive effects on growth, if the funds are employed to expand the productive capacity of the nation. The paper aims to investigate whether debt can be used to finance growth. Design/methodology/approach - The paper utilizes meta-analysis approach to address the issue. This approach allows researchers to combine the results from both published and unpublished research to gain insights regarding the directional and statistical significance of the relationship between the two variables. Findings - The results suggest that there exist a positive relationship between debt and economic growth. Research limitations/implications - The findings from the paper suggest that future research should be conscious of the effect model specification can have on the results on their studies. Indeed, when external debt, the fiscal balance, debt relief where included in the econometric specification the relationship between debt and growth was weakened. Practical implications - Economic growth should be stimulated, if the proceeds from debt issues are utilized to finance investment in productive areas of economic activity. Originality/value - While the relationship between debt and growth has stimulated a number of research papers, seminars and conferences, to date, however, no clear answer to the question is available. Through the use of meta-analysis, this paper allows the reader to glean the main findings from this body of research.

Suggested Citation

  • Winston Moore & Chrystol Thomas, 2010. "A meta-analysis of the relationship between debt and growth," International Journal of Development Issues, Emerald Group Publishing, vol. 9(3), pages 214-225, September.
  • Handle: RePEc:eme:ijdipp:v:9:y:2010:i:3:p:214-225
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    References listed on IDEAS

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    1. Robert E. Looney & P.C. Frederiksen, 1986. "Defense Expenditures, External Public Debt and Growth in Developing Countries," Journal of Peace Research, Peace Research Institute Oslo, vol. 23(4), pages 329-337, December.
    2. Ralf Hepp, 2005. "Can Debt Relief Buy Growth?," International Finance 0510003, EconWPA.
    3. Card, David & Krueger, Alan B, 1995. "Time-Series Minimum-Wage Studies: A Meta-analysis," American Economic Review, American Economic Association, vol. 85(2), pages 238-243, May.
    4. Oks, Daniel & van Wijnbergen, Sweder, 1995. "Mexico after the debt crisis: is growth sustainable?," Journal of Development Economics, Elsevier, vol. 47(1), pages 155-178, June.
    5. Bjerg, Christina & Bjørnskov, Christian & Holm, Anne, 2011. "Growth, debt burdens and alleviating effects of foreign aid in least developed countries," European Journal of Political Economy, Elsevier, vol. 27(1), pages 143-153, March.
    6. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    7. Helene Poirson Ward & Luca A Ricci & Catherine A Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 04/15, International Monetary Fund.
    8. John Weeks, 2000. "Latin America and the 'high performing Asian economies': growth and debt," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(5), pages 625-654.
    9. Andrea F. Presbitero, 2006. "The Debt-Growth Nexus: a Dynamic Panel Data Estimation," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 417-462.
    10. S M Ali Abbas & Jakob E Christensen, 2010. "The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 209-255, April.
    11. Tito Cordella & Luca A Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt-Growth Link," IMF Working Papers 05/223, International Monetary Fund.
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    Citations

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    Cited by:

    1. Piotr MISZTAL, 2010. "Public Debt And Economic Growth In The European Union," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(3(13)/Fal), pages 292-302.
    2. Irina Bilan & Iulian Ihnatov, 2015. "Public Debt and Economic Growth: A Two-Sided Story," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 4(2), pages 24-39, June.
    3. Asit Mohanty & Suresh Kumar Patra & Satyendra Kumar & Avipsa Mohanty, 2016. "An Empirical Analysis of Effect of Public Debt on Economic Growth in India in the Post-Reform Era," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(11), pages 692-705, November.
    4. Ogundari, Kolawole, 2014. "The Paradigm of Agricultural Efficiency and its Implication on Food Security in Africa: What Does Meta-analysis Reveal?," World Development, Elsevier, vol. 64(C), pages 690-702.

    More about this item

    Keywords

    Debt; Economic growth; Developing countries;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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