Public Debt and Economic Growth: A Two-Sided Story

Bilan, Irina; Ihnatov, Iulian

doi:10.20472/es.2015.4.2.003

Cited by 14 publications

(13 citation statements)

References 19 publications

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“…The examinations conducted by Baum et al (2012) with the involvement of 12 euro area Member States between 1990 and 2010 found a turning point at 95 per cent of GDP where the negative impact of public debt prevails. Bilan and Ihnatov (2015) also achieved a similar result, based on a sample of 33 European countries from 1990 to 2011, where 94 per cent of GDP had such a turning point. In contrast, Caner et al (2010) has turned the threshold of non-linear effects into 100 per cent in case of the developed economies.…”

Section: Public Debt and Economic Growthsupporting

confidence: 53%

The Relationship Between Increased Debt Ratio and Economic Growth in the European Union: The Granger Causality Approach

Marton

2021

Európai Tükör

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Increased government debt rates in recent years can be easily financed in the current global economic environment characterised by liquidity abundance. Nevertheless, the debt ratios represent a potential threat under the surface, which could lead to significant macroeconomic problems in the future. The purpose of the paper is to contribute to the debate in the empirical studies between public debt and economic growth, as well as external debt and economic growth. During the analyses, the relationship between variables was examined using the panel Granger causality test with the Dumitrescu–Hurlin test in the Member States of the European Union. The main findings of the study are that there is a unidirectional causal effect between public debt and economic growth, that is, only debt impacts on the economic growth. In case of external debt and economic growth there is also a unidirectional effect, but it is in the reverse direction. In addition, the pre-crisis and post-crisis period was also examined, on the basis of which it can be concluded that before the crisis, the nature of the relationship was bidirectional between public debt and economic growth, whereas after the crisis the debt had an impact on the economy growth, and the reverse effect does not exist.

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Section: Public Debt and Economic Growthsupporting

confidence: 53%

The Relationship Between Increased Debt Ratio and Economic Growth in the European Union: The Granger Causality Approach

Marton

2021

Európai Tükör

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“…The Bilan-Ihnatov (2015) analysis confirmed the existence of a "U inverted" relationship between public debt and economic growth, with a maximum debt threshold of approximately 94% of GDP for the whole group. After this threshold, public debt is expected to negatively affect the economic growth rate, due to higher interest rates, fear of public debt unsustainability and severe budgetary consolidation measures.…”

Section: U M C Smentioning

confidence: 65%

The Impact of Public Debt on Economic Growth in Ukraine

Кондрат

Pozniakova

Chervinska

2019

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Theoretical background: The growth in government borrowing, carried out in connection with the banks’ capitalisation, significantly increased the state budget expenditures aimed at servicing the capitalisation domestic public debt, which reinforces the general tendency regarding the exacerbation of the budget risk in the debt sphere in Ukraine. A weighty debt-creating factor was the budget deficit, which was covered by borrowing. Proceeding ahead of the rate of increase in debt volumes in comparison with gross domestic product (GDP) growth rates under the influence of internal and external destabilising factors contributed to the excess of the debt levels security indicators and increased the insolvency risk of the state. The increase of the obligations share denominated in foreign currency or linked to the exchange rate in the overall debt structure as an important indicator of the financial system’s vulnerability to exchange rate fluctuations creates additional threats to debt sustainability regarding the increasing currency risk and the national currency devaluation.Purpose of the article: The article is focused on studying the dynamics and structure of Ukraine’s public debt, its ratio to GDP, and an empirical analysis of the relationship between public debt (external and domestic) and economic growth in Ukraine.Research methods: To empirically test the relationship between public debt and economic growth in Ukraine over the 1992 to 2018 period, multiple regression models were conducted. A real GDP per capita was used as an indicator for economic growth and the debt-to-GDP ratio was used as an index of public debt. Research hypotheses were the following: H1: The public external debt-to-GDP ratio and GDP per capita have a strong negative and statistically relevant correlation; H2: The public domestic debt-to-GDP ratio and GDP per capita have a strong negative and statistically relevant correlation.Main findings: Examining the dynamics and structure of Ukraine’s public debt by borrowing market (external and domestic), it is concluded that there is no strong negative or positive statistically relevant correlation between the public debt-to-GDP ratio and GDP per capita for Ukraine. The impact of this factor is so insignificant that it encourages further research to verify that low GDP growth rate causes the increase in Ukraine’s public debt.

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“…It is interesting to mention the analysis conducted by Bilan and Ihnatov (2015), who analyzed the relationship between public debt and economic growth for a panel of 33 European countries (28 European Union Member States and 5 candidate countries for European membership) over the period 1990-2011. The results confirm the existence of a "U inverted" relationship, with a maximum debt threshold of about 94% of GDP.…”

Section: Literature Reviewmentioning

confidence: 99%

Public Debt Threshold in the Republic of North Macedonia

Kjosev

Noveski

Kjoseva³

2021

Manage: J. Sustainable Bus. Manage, Solutions Emerging Econ.

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Research question: Is there a non-linear relationship between public debt and economic growth in North Macedonia, in the form of an inverted U-shape? Motivation: Government consumption plays an important role in the stability of the national economy, especially in periods of economic crisis. However, a rapidly growing public debt is a concerning issue nowadays, since it might jeopardize economic growth perspectives. Economic theory suggests that public debt has non-linear impact on economic growth in the form of an inverted U-shape. In other words, it is believed that after a certain threshold, the public debt will have deleterious impact on economic growth. Idea: Given that such threshold varies significantly across countries, the aim of this paper is to calculate the turning point of the public debt impact in the Republic of North Macedonia. Tools: For this purpose, we use non-linear multiple regression model for the real GDP growth rate as a dependent variable, general government public debt-to-GDP ratio (in nominal and squared terms) as a key independent variable, as well as several other controlling variables. Since theory also suggests reverse causality between economic growth and public debt, we use two different estimation techniques (Ordinary Least Squares and Generalized Method of Moments) to deal with potential endogeneity, and to cross-validate the results. Data: In this regard, we use annual data for the period 1998 – 2019, for 14 variables in total, obtained from several different data sources. Findings: Our results show that general government debt in the Republic of North Macedonia positively affects economic growth until it reaches around 30% of GDP, whereas further indebtedness after that turning point will most likely have a negative impact. Contribution: Given that current debt level is far above the estimated turning point, the need of urgent fiscal consolidation inevitably arises. This is especially important in the light of the ongoing COVID-19 crisis, which imposed the need for strong government intervention and pointed out the importance of the fiscal space for such matter.

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Public Debt and Economic Growth: A Two-Sided Story

Cited by 14 publications

References 19 publications

The Relationship Between Increased Debt Ratio and Economic Growth in the European Union: The Granger Causality Approach

The Relationship Between Increased Debt Ratio and Economic Growth in the European Union: The Granger Causality Approach

The Impact of Public Debt on Economic Growth in Ukraine

Public Debt Threshold in the Republic of North Macedonia

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