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Granger causality between debt and growth: Evidence from OECD countries

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  • Puente-Ajovín, Miguel
  • Sanso-Navarro, Marcos

Abstract

This paper analyzes the possible presence of Granger causality between debt and growth in 16 OECD countries from 1980 to 2009. This is done considering not only government debt but also non-financial corporate and household debt. The panel bootstrap Granger causality test applied allows us to control for both the presence of cross-country heterogeneity and cross-sectional dependence. Our results barely provide evidence against the null hypothesis according to which government debt does not cause real GDP growth. More interestingly, we find evidence against the absence of causality from non-financial private debt – especially that of households – to growth.

Suggested Citation

  • Puente-Ajovín, Miguel & Sanso-Navarro, Marcos, 2015. "Granger causality between debt and growth: Evidence from OECD countries," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 66-77.
    • Handle: RePEc:eee:reveco:v:35:y:2015:i:c:p:66-77
    DOI: 10.1016/j.iref.2014.09.007
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    More about this item

    Keywords

    Debt; Growth; Granger causality; SUR estimation; Bootstrap;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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