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Non-linear Growth-Determinants Nexus: The Role of Sovereign Debt

Author

Listed:
  • Po-Chin Wu

    (Chung Yuan Christian University)

  • Shiao-Yen Liu

    (Chung Yuan Christian University)

  • Tsai-Yuan Huang

    (National Pingtung University)

Abstract

We expand the new growth model as a panel smooth transition regression specification to measure the effects of determinants on growth and the role of debt ratio in the growth-determinants nexus. In the model, we consider new determinants (FDI, export and tourism) and use a two-period lagged debt- GDP ratio as the transition variable. The effects of determinants on growth vary across countries and with time, depending on the value of the transition variable. The threshold of the debt-GDP ratio (73.019%) is a referenced index to set the ceiling of debt-GDP ratio for the fiscal stability. For countries with high debt ratios, the policies to accumulate human capital and promote tourism are more effective in boosting growth than to stimulate domestic physical investment and export. For countries with low debt ratios, the conclusion is opposite. Thus, lowering debt ratio is not always favorable for the contri-butions of individual determinants to growth.

Suggested Citation

  • Po-Chin Wu & Shiao-Yen Liu & Tsai-Yuan Huang, 2017. "Non-linear Growth-Determinants Nexus: The Role of Sovereign Debt," Hacienda Pública Española / Review of Public Economics, IEF, vol. 222(3), pages 43-63, September.
    • Handle: RePEc:hpe:journl:y:2017:v:221:i:3:p:43-63
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    References listed on IDEAS

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    More about this item

    Keywords

    Panel smooth transition regression (PSTR) model; debt-GDP ratio; new growth theory; foreign direct investment (FDI); international tourism receipts;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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