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Public Debt, Public Investment and Economic Growth in Mexico

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  • Isaac Sánchez-Juárez

    (Department of Social Sciences, Universidad Autónoma de Ciudad Juárez, 32310 Chihuahua, Mexico)

  • Rosa García-Almada

    (Department of Social Sciences, Universidad Autónoma de Ciudad Juárez, 32310 Chihuahua, Mexico)

Abstract

The primary objective of this article is to answer the following two research questions: has the growing public debt of state governments promoted increased public investment? If the answer is yes, then does any increase in public investment lead to more growth in the Mexican states? Dynamic Models of panel data and the Generalized Method of Moments, with information for 32 states from 1993 to 2012, were used for this purpose. The econometric results confirmed that public debt is positively correlated with public investment and that this in turn generates economic growth. This does not mean that a good economic policy strategy has been followed, since the marginal positive impact of public investment, and therefore the public debt on the production per person, is reduced (1% increase in the interaction between public investment and public debt variable causes a 0.0005% increase in economic growth). This suggests deviations from the debt contracted for purposes other than production, which could lead to a situation of unsustainability of state public finances in the medium term.

Suggested Citation

  • Isaac Sánchez-Juárez & Rosa García-Almada, 2016. "Public Debt, Public Investment and Economic Growth in Mexico," IJFS, MDPI, vol. 4(2), pages 1-14, March.
    • Handle: RePEc:gam:jijfss:v:4:y:2016:i:2:p:6-:d:66901
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    References listed on IDEAS

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    2. Makuyana Garikai & Odhiambo Nicholas M., 2018. "Public and Private Investment and Economic Growth: An Empirical Investigation," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 87-106, August.
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    4. Minhaj ud-Din & Muhammad Azam Khan & Muhammad Tariq, 2020. "External Debt - Blessing or Curse: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 235-246.
    5. Nur Feriyanto, 2020. "Economic and Tourism Factors Affecting the Real Gross Regional Domestic Product: A Case Study," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 736-756.
    6. Babalola Olatunji Oladapo & Awe Dayo Amos, 2024. "Investigating the Relationship between Debt Burden Servicing and Infrastructural Development in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(3s), pages 1400-1412, March.
    7. Theodore Kahn & Zack Zimbalist, 2022. "Public investment versus government consumption: how FDI shocks shape the composition of subnational spending in Mexico," Review of International Political Economy, Taylor & Francis Journals, vol. 29(2), pages 502-537, March.
    8. Vaca Medina, Gustavo & Vaca, Jesús & Mora Pérez, César Omar, 2020. "The impact of public debt on economic growth: an empirical study of Mexico (1994–2016)," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    9. Maureen Were & Lorah Madete, 2022. "The link between public debt and public investment in Tanzania," WIDER Working Paper Series wp-2022-155, World Institute for Development Economic Research (UNU-WIDER).
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    11. Thobeka Ncanywa & Marius Mamokgaetji Masoga, 2018. "Can public debt stimulate public investment and economic growth in South Africa?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1516483-151, January.

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