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Public debt and growth in Asian developing economies: evidence of non-linearity and geographical heterogeneity

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  • Doojav, Gan-Ochir
  • Baatarkhuu, Munkhbayar

Abstract

This paper examines the non-linear effects of public debt on economic growth in Asian developing economies using panel Generalized Method of Moments (GMM) regressions and panel vector autoregression (VAR) models. We find a statistically significant non-linear effect of public debt (as a percent of GDP) on GDP per capita growth, with a turning point at 52 percent and 50 percent of GDP for all Asian developing and Asian coastal developing economies, respectively. It is found that asymmetric mutual feedback effects exist between the growth and the public debt depending on the public debt level. The two-way effects are statistically significant and more evident when the public debt exceeds its threshold level. Our results also show evidence of geographical (cross-country) heterogeneity in the mutual feedback effects. These findings have important policy implications, including the need to use geographic (or region)-specific debt threshold levels and asymmetric response coefficients in public debt policy analysis.

Suggested Citation

  • Doojav, Gan-Ochir & Baatarkhuu, Munkhbayar, 2023. "Public debt and growth in Asian developing economies: evidence of non-linearity and geographical heterogeneity," MPRA Paper 120050, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:120050
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    References listed on IDEAS

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    More about this item

    Keywords

    Public debt; economic growth; Asian developing countries; sustainability of debt; non-linearity; geographical heterogeneity;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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