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“Re-examining the debt-growth nexus: A grouped fixed-effect approach”

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  • Inmaculada Martínez-Zarzoso

    () (Faculty of Economic Sciences, University of Göttingen, Germany and Department of Economics, University Jaume I, Castellón. Spain.)

  • Marta Gómez-Puig

    () (Department of Economics and Riskcenter, Universidad de Barcelona.)

  • Simón Sosvilla-Rivero

    () (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid.)

Abstract

This paper uses panel data for 116 countries over the period 1995-2016 to investigate the heterogeneity of the debt-growth nexus across countries and the factors underlying it. In the first step, the grouped fixed effects (GFE) estimator proposed by Bonhomme and Manresa (2015) is used to classify countries into groups, with group membership being endogenously determined. In the second step, a multinomial logit model is used to explore the drivers of the heterogeneity detected, among them the quality of institutions, the composition of debt-funded public expenditure, the relative public and private indebtedness, and the maturity of debt. Finally, the underlying factors explaining the time-varying impact of public debt on growth in the country groups identified is also investigated.

Suggested Citation

  • Inmaculada Martínez-Zarzoso & Marta Gómez-Puig & Simón Sosvilla-Rivero, 2019. "“Re-examining the debt-growth nexus: A grouped fixed-effect approach”," IREA Working Papers 201911, University of Barcelona, Research Institute of Applied Economics, revised Jul 2019.
  • Handle: RePEc:ira:wpaper:201911
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    References listed on IDEAS

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    Keywords

    Public debt; economic growth; heterogeneity; grouped fixed-effects; debt-growth link; panel data; multinomial logit regression. JEL classification:C23; F33; H63; O47; O52.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • 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
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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