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Does sovereign debt weaken economic growth? A Panel VAR analysis

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  • Lof, Matthijs
  • Malinen, Tuomas

Abstract

We estimate a panel vector autoregressive model to analyze the highly disputed relationship between debt and growth. Using data on 20 developed countries, we find no evidence for a robust effect on debt to growth, even for higher levels of sovereign debt. We do find a significant negative reverse effect of growth to debt, which explains the negative correlation.

Suggested Citation

  • Lof, Matthijs & Malinen, Tuomas, 2013. "Does sovereign debt weaken economic growth? A Panel VAR analysis," MPRA Paper 52039, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52039
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    References listed on IDEAS

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    1. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 257-279.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
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    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    6. Alexandru Minea & Antoine Parent, 2012. "Is High Public Debt Always Harmful to Economic Growth? Reinhart and Rogoff and some complex nonlinearities," Working Papers 12-08, Association Française de Cliométrie (AFC).
    7. Checherita-Westphal, Cristina & Rother, Philipp, 2012. "The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area," European Economic Review, Elsevier, vol. 56(7), pages 1392-1405.
    8. Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2015. "Aid and Income: Another Time-series Perspective," World Development, Elsevier, vol. 69(C), pages 19-30.
    9. Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2013. "Debt and growth: New evidence for the euro area," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 809-821.
    10. Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2015. "Aid and Income: Another Time-series Perspective," World Development, Elsevier, vol. 69(C), pages 19-30.
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    12. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
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    More about this item

    Keywords

    Public debt; debt share; GDP growth;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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