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Financial development and public debt. Estimating the role of institutional quality

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  • Qamar ABBAS

    (Nankai University, China)

  • Muhammad RAMZAN

    (Jiangsu University, China)

  • Sumbal FATIMA

    (Nankai University, China)

Abstract

Maintaining a sustainable debt level has emerged as a critical issue, particularly when public debt exceeds a certain threshold level. This paper examines the impact of public debt on financial development as mediated by institutional quality. For this purpose, we use FE (LSDV) and system GMM estimators. Our empirical findings demonstrate that public debt has negative impact on financial development, but this negative impact turns positive when it interacts with institutional quality. This implies that public debt is a function of institutional quality, and policymakers must maintain the threshold level of institutional quality in order to make better use of the debt.

Suggested Citation

  • Qamar ABBAS & Muhammad RAMZAN & Sumbal FATIMA, 2022. "Financial development and public debt. Estimating the role of institutional quality," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 5-26, Autumn.
    • Handle: RePEc:agr:journl:v:3(632):y:2022:i:3(632):p:5-26
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