Granger causality between debt and growth: Evidence from OECD countries

Puente‐Ajovín, Miguel; Sanso‐Navarro, Marcos

doi:10.1016/j.iref.2014.09.007

Cited by 70 publications

(30 citation statements)

References 23 publications

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“…Eberhardt and Presbitero 2014;Égert 2015;Gómez-Puig and Sosvilla-Rivero 2015;Lof and Malinen 2014;Panizza and Presbitero 2014;Puente-Avojín and Sanso-Navarro 2015). Eberhardt and Presbitero (2014) e.g.…”

Section: Introductionmentioning

confidence: 99%

Public debt and economic growth – economic systems matter

Ahlborn

Schweickert

2017

Int Econ Econ Policy

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Most studies on the relationship between public debt and economic growth implicitly assume homogeneous debt effects across their samples. We -in accordance with recent literature-challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. However, other than scholars assuming that all countries are different, we expect that clusters of countries differ. We identify three country clusters with distinct economic systems: Liberal (Anglo Saxon), Continental (Core EU members) and Nordic (Scandinavian). We argue that different degrees of fiscal uncertainty at comparable levels of public debt between those economic systems constitute a major source of heterogeneity in the debt-growth relationship. Our empirical evidence supports this assumption. Continental countries face more growth reducing public debt effects than especially Liberal countries. There, public debt apparently exerts neutral or even positive growth effects, while for Nordic countries a non-linear relationship is discovered, with negative debt effects kicking in at public debt values of around 60% of GDP.

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Section: Introductionmentioning

confidence: 99%

Public debt and economic growth – economic systems matter

Ahlborn

Schweickert

2017

Int Econ Econ Policy

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“…This result is consistent with other findings in the literature such as in Bell et al . () or Puente‐Ajovín and Sanso‐Navarro () who also suggest that negative correlations between the two variables might be due to the increase in debt levels witnessed after economic downturns and in particular find no causal relationship from high debt to low growth for the case of the UK.…”

Section: Resultsmentioning

confidence: 99%

“…Controlling for these issues, their replication study finds that the effect of the 90% debt‐to‐GDP threshold on growth becomes neglectfully small. A recent study by Puente‐Ajovín and Sanso‐Navarro () makes use of panel Granger causality tests across 16 OECD countries allowing for cross‐country heterogeneity and cross‐sectional dependence. Using annual data over a 30‐year time span ending in 2009, they find little evidence of a causal relation between debt and growth for all the countries examined.…”

Section: Introductionmentioning

confidence: 92%

Growth in a time of austerity: evidence from the UK

Amann

Middleditch

2017

Scottish J Political Eco

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A recent recovery in the United Kingdom comes after a program of austerity measures announced by the incoming coalition government in 2010. Can the recent pick up in economic activity be attributed to this controversial fiscal policy? This paper uses an empirical approach to test the causal relationship between debt and growth for the case of the UK using monthly time series data between 1995 and 2013. This time series perspective makes use of Granger-causality and co-integration tests that allow for non-stationarity in macroeconomic time series data. We find that controlling for structural breaks in this way leads us to the finding of no empirical support for the hypothesis that fiscal discipline can restore economic activity after a recession.

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“…(), focusing on 18 OECD countries for the period 1980–2010, find evidence for a potential threshold of 90% and 85% of GDP for NFC and household debt, respectively, beyond which debt becomes a drag on economic growth. Using a similar pool of countries, Puente‐Ajovín and Sanso‐Navarro () examine the possible presence of Granger causality between private debt and growth. They find strong evidence that higher levels of private debt Granger‐cause slower growth, especially with regard to household debt.…”

Section: The Debt and Growth Literaturementioning

confidence: 99%

Unbundled debt and economic growth in developed and developing economies: An empirical analysis

2018

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We unbundle the effect of debt on economic growth using a new panel data set sourced from Vague (2014, The next economic disaster: Why it's coming and how to avoid it. Philadelphia, PA: University of Pennsylvania Press) for 48 countries over the period 1961–2015. We distinguish between public, private, household and nonfinancial corporation (NFC) debt. We use the panel vector autoregressive approach, Granger causality tests and impulse response to establish causality. We also test the heterogeneity in the debt–growth relationship across developed and developing countries. In our full sample of countries, all types of debt appear to be harmful to economic growth. The negative effect of public debt appears to be uniform across developed and developing countries, although the impact is much stronger on developed countries. Household debt appears to be expansionary in developing countries whereas contractionary in developed countries. Nonfinancial corporation debt appears to have no impact on developing countries but negative impact on developed countries. Finally, total debt (i.e., the sum of public, household and NFC debt) has a negative impact on growth in developed countries, but no impact is detected in the case of developing countries.

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Granger causality between debt and growth: Evidence from OECD countries

Cited by 70 publications

References 23 publications

Public debt and economic growth – economic systems matter

Public debt and economic growth – economic systems matter

Growth in a time of austerity: evidence from the UK

Unbundled debt and economic growth in developed and developing economies: An empirical analysis

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