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Nonfinancial debt and economic growth in euro-area countries

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  • Marta Gómez-Puig

    () (Universitat de Barcelona, Department of Economics and Riskcenter. 08034 Barcelona, Spain.)

  • Simón Sosvilla-Rivero

    () (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)

Abstract

In this paper we analyse the effects of all sources of the accumulation of nonfinancial debt (household, corporate as well as government) on economic growth in ten euro-area countries during the 1980-2015 period. To this end, we make use of three models (a baseline, an asymmetric and a threshold model) based on the empirical growth literature augmented by debt to assess whether a debt change has an impact on growth over and above other determinants, treating the different types of borrowers separately. By exploring the time series dimension in order to properly account for the historical experience of each country in the sample, we aim to detect potential heterogeneities in the relationship across euro area countries. Our results with both the baseline and the asymmetric models suggest that although the effects on nonfinancial debt accumulation clearly differ across countries, on average, the highest marginal impact of a rise in debt corresponds to the household and public sector, with an increase in private debt being more harmful in peripheral than in central countries; in contrast, the average effect of a rise in public debt does not differ between these two groups of countries. As for the effects of a debt increase beyond the turning point estimated in the threshold model, our findings indicate that the highest marginal impact corresponds to the household sector.

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  • Marta Gómez-Puig & Simón Sosvilla-Rivero, 2017. "Nonfinancial debt and economic growth in euro-area countries," Working Papers del Instituto Complutense de Estudios Internacionales 1708, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
  • Handle: RePEc:ucm:wpaper:1708
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    Cited by:

    1. Marta Gómez-Puig & Simón Sosvilla-Rivero & Inmaculada Martínez-Zarzoso, 2019. "Re-examining the debt-growth nexus: A grouped fixed-effect approach," Documentos de Trabajo del ICAE 2019-21, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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    Keywords

    Public debt; Household debt; Nonfinancial corporate debt; Economic growth; Heterogeneity; Euro area; Peripheral EMU countries; Central EMU countries.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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