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Debt Overhang in the Eurozone: A Spatial Panel Analysis

Author

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  • Romero, Alfredo A.

    (North Carolina A&T State University)

  • Burkey, Mark L.

    (North Carolina A&T State University)

Abstract

The debt overhang hypothesis suggests that high debt levels retard prospects for GDP growth. We investigate the impact that debt overhang has had on recent GDP growth in the Eurozone, paying particular attention to the spillover effects that debt has on neighboring countries. We argue that in the Eurozone spatial effects are of crucial importance in modeling regional GDP growth, and find that a Spatial Durbin model is appropriate. We find strong evidence for the debt overhang hypothesis, confirming a concave relationship that has been found in other studies where low levels of debt can have a positive impact on GDP, but at some level a “turning point” occurs. The present study finds that this turning point occurs at a lower Debt/GDP ratio than prior studies, and separates out the direct and indirect (spillover) effects on neighboring countries’ GDPs.

Suggested Citation

  • Romero, Alfredo A. & Burkey, Mark L., 2011. "Debt Overhang in the Eurozone: A Spatial Panel Analysis," The Review of Regional Studies, Southern Regional Science Association, vol. 41(1), pages 49-63, Summer.
    • Handle: RePEc:rre:publsh:v:41:y:2011:i:1:p:49-63
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    2. Saungweme, Talknice & Odhiambo, Nicholas M, 2019. "Relative impact of domestic and foreign public debt on economic growth in South Africa," Working Papers 25664, University of South Africa, Department of Economics.
    3. Haytham Y.M. Ewaida, 2017. "The Impact of Sovereign Debt on Growth: An Empirical Study on GIIPS versus JUUSD Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 607-633.
    4. Talknice Saungweme & Nicholas M. Odhiambo, 2019. "Does Public Debt Impact Economic Growth in Zambia? An Ardl-Bounds Testing Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(4), pages 53-73, October-D.

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    More about this item

    Keywords

    spatial panel data; debt overhang;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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