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Is Public Debt Always Harmful to Economic Growth

Author

Listed:
  • Christian Richter

    (Faculty of Managemennt Technology, German University in Cairo)

  • Sara El Asy

    (Faculty of Management Technology, German University in Cairo)

Abstract

The relationship between public debt and economic growth has been crucial in economics and economic development not least since the financial crisis in 2007. The problem arises when debt reduces economic growth. Thus, the focus of this paper is to investigate the relationship between public debt and economic growth. In particular, we determine the debt threshold that affects this relationship. We find that there is no single debt threshold valid for all countries and in turn that each country possesses its own country specifics, which affect its economic growth. We also find that debt is not always harmful to economic growth. Last but not least, we compare recent debt levels with the threshold and average debt levels. We also find that exceeding a threshold does not necessarily result in immediate default. This holds in particular for Western European countries where debt levels exceed threshold levels by more than for developing economies.

Suggested Citation

  • Christian Richter & Sara El Asy, 2019. "Is Public Debt Always Harmful to Economic Growth," Working Papers 52, The German University in Cairo, Faculty of Management Technology.
    • Handle: RePEc:guc:wpaper:52
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Public debt; Economic growth; Debt Threshold; Threshold model; Time series.;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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