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Indebtedness in the EU: a drag or a catalyst for growth?

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  • Mika, Alina
  • Zumer, Tina

Abstract

We study the relationship between debt and growth in EU countries in the years 1995-2015. We investigate the debt-growth nexus in two alternative empirical set-ups: the traditional cross-county panel regressions and mean group estimations. We find evidence of a positive long-run relationship between private sector indebtedness and economic growth, and a negative relationship between public debt and long-run growth across EU countries. However, the more immediate impact of private sector debt on growth is found to be negative, and positive for the public sector debt. We find no conclusive evidence for a common debt threshold within EU countries, neither for the private nor for the public sector, but some indication of a non-linear effect of household debt. JEL Classification: O47, N14, H60

Suggested Citation

  • Mika, Alina & Zumer, Tina, 2017. "Indebtedness in the EU: a drag or a catalyst for growth?," Working Paper Series 2118, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20172118
    Note: 2654369
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    References listed on IDEAS

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    Cited by:

    1. P. López-Delgado & J. Diéguez-Soto, 2020. "Indebtedness in family-managed firms: the moderating role of female directors on the board," Review of Managerial Science, Springer, vol. 14(4), pages 727-762, August.
    2. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Who did it? A European Detective Story. Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool," Bank of Lithuania Working Paper Series 70, Bank of Lithuania.
    3. Fir Nejc, 2022. "Does Debt Have Threshold Effects on Medium-Term Growth? Evidence from European Union Countries," Naše gospodarstvo/Our economy, Sciendo, vol. 68(2), pages 1-18, June.
    4. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Euro Area Growth and European Institutional Reforms," Bank of Lithuania Occasional Paper Series 24, Bank of Lithuania.
    5. Mariarosaria Comunale & Francesco Paolo Mongelli, 2021. "Tracking growth in the euro area subject to a dimensionality problem," Applied Economics, Taylor & Francis Journals, vol. 53(57), pages 6611-6625, December.

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    More about this item

    Keywords

    cross-sectional dependence; debt; European Union countries; panel; threshold;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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