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Public debt and growth in Asian developing economies: evidence of non-linearity and geographical heterogeneity

Author

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  • Gan-Ochir Doojav

    (The Bank of Mongolia)

  • Munkhbayar Baatarkhuu

    (Bank of Mongolia)

Abstract

This paper examines the nonlinear effects of public debt on economic growth in Asian developing economies through the application of panel Generalized Method of Moments (GMM) regressions and panel vector autoregression (VAR) models. Our analysis reveals a statistically significant nonlinear (i.e., an inverted U-shape) relationship between public debt (as a percentage of GDP) and GDP per capita growth. The turning points are identified at 52 percent for all Asian developing economies and 50 percent for Asian coastal developing economies. Asymmetric mutual feedback effects are observed between economic growth and public debt, contingent on the level of public debt. These two-way effects are both statistically significant and more pronounced when public debt surpasses its threshold level. Additionally, our results unveil geographical (cross-country) heterogeneity in the mutual feedback effects. These findings carry significant policy implications, emphasizing the necessity of employing region-specific debt threshold levels and asymmetric response coefficients in the analysis of public debt policies.

Suggested Citation

  • Gan-Ochir Doojav & Munkhbayar Baatarkhuu, 2024. "Public debt and growth in Asian developing economies: evidence of non-linearity and geographical heterogeneity," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(2), pages 421-452, June.
    • Handle: RePEc:spr:eurase:v:14:y:2024:i:2:d:10.1007_s40822-023-00259-3
    DOI: 10.1007/s40822-023-00259-3
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    More about this item

    Keywords

    Public debt; Economic growth; Asian developing countries; Sustainability of debt; Non-linearity; Geographical heterogeneity;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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