For emerging economics, a large debt, if used efficiently, can lead to significant positive economic growth, finds the study.
Subaran Roy, Associate Professor, Jindal School of Government and Public Policy, O.P. Jindal Global University, Sonipat, Haryana.
Chitrakalpa Sen, Associate Professor, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India
Traditionally, a higher debt burden is expected to negatively affect the economic growth, although the empirical evidence is inconclusive. In this paper we have re-examined the debt-growth relationship for 32 emerging economies while considering possible nonlinear impact of debt on economic growth using a dynamic panel.
Our results suggest that for emerging economics, a large debt if used efficiently, can lead to significant positive economic growth. This relationship remains unchanged even when we control for other macroeconomic variables.
We have also identified three different threshold debt-GDP ratios for the one, two and three period lags of debt and found an asymmetric impact of debt between above-threshold and below-threshold countries.
Published in: Macroeconomics and Finance in Emerging Market Economies
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