Abstract
This study examines the relationship between public debt on both short and long-run economic growth, in a panel of selected Asian countries for the period of 1980–2012. We employ several econometrics methods: pooled mean group, mean group, dynamic fixed effects and also allow for common correlated effects. The impact of a change in public debt is also analysed using asymmetric panel ARDL method. Our results indicate that an increase in government debt is negatively associated with economic growth in both the short and long-run.
Highlights
The relationship between public debt and economic growth has been a subject of increasing interest amongst academic scholars and policy makers
The use of panel autoregressive distributed lag (ARDL) models for analysing the impact of public debt on economic growth can be found in Chudik et al (2017) using data on a sample of 40 developed and developing countries over the period 1965–2010 they find an adverse effect of increases in the public debt to GDP ratio on economic growth
By creating indicators of crosssectional averages of regressors to control for the common factor, this study focuses on Common Correlated Effect Pooled Mean Group (CCEPMG) method and adds Common Correlated Effect Mean Group (CCEMG) as a comparison (Pesaran 2006)
Summary
The relationship between public debt and economic growth has been a subject of increasing interest amongst academic scholars and policy makers. In their study Herndon et al (2014) conclude that there are significant errors in the results of Reinhart and Rogoff and that the 90% adverse debt threshold impact on economic growth is non-existent. Reinhart and Rogoff do not deal with the issue of causality and Dafermos (2015) shows that their results are heavily impacted by periods of low economic growth in which there is usually a noticeable increase in public debt. This study analyses whether rising public debt is harmful for growth, in both the short-run and long-run using data from fourteen Asian countries. The presence of cross-sectional dependence may be caused by numerous aspects: spatial spillover, omitted and unobserved common factors as discussed in Breitung and Pesaran (2008).
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