Does public debt stifle economic growth and increase income inequality in Belt & Road countries? The Role of Corruption

Abstract

This study seeks to investigate the role of corruption in the relationship between public debt and economic growth in Belt & Road countries during 1996-2017 by applying the generalized method of moment (GMM). Using grouped and ungrouped samples; the results reveal that public debt plays a significant and negative role in economic growth. Corruption also plays a significant and negative role in economic growth. The interaction terms of public debt and corruption play a significant and negative role in economic growth. Moreover; several robustness checks like fixed and random effect models also confirm the results of the GMM approach. The inclusion of more control variables also confirms the baseline estimation. The impact of Belt & Road initiative on economic growth is significantly positive. Several policy recommendations can be drawn from this study. The reduction of the adverse effect of public debt and improvement in economic growth can be brought by applying measures that curb corruption and enhance economic collaboration with other economies.