Financial development and public debt. Estimating the role of institutional quality

Maintaining a sustainable debt level has emerged as a critical issue, particularly when public debt exceeds a certain threshold level. This paper examines the impact of public debt on financial development as mediated by institutional quality. For this purpose, we use FE (LSDV) and system GMM estima...

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Bibliographic Details
Published in:Theoretical and applied economics 2022-09, Vol.XXIX (3), p.5-26
Main Authors: Qamar ABBAS, Muhammad RAMZAN, Sumbal FATIMA
Format: Article
Language:English
Subjects:
fe (lsdv)
financial development
institutional quality
public debt
system gmm
Online Access:Get full text
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Summary:Maintaining a sustainable debt level has emerged as a critical issue, particularly when public debt exceeds a certain threshold level. This paper examines the impact of public debt on financial development as mediated by institutional quality. For this purpose, we use FE (LSDV) and system GMM estimators. Our empirical findings demonstrate that public debt has negative impact on financial development, but this negative impact turns positive when it interacts with institutional quality. This implies that public debt is a function of institutional quality, and policymakers must maintain the threshold level of institutional quality in order to make better use of the debt.
ISSN:1841-8678
1844-0029