Unbundled debt and economic growth in developed and developing economies: An empirical analysis

We unbundle the effect of debt on economic growth using a new panel data set sourced from Vague (2014, The next economic disaster: Why it's coming and how to avoid it. Philadelphia, PA: University of Pennsylvania Press) for 48 countries over the period 1961–2015. We distinguish between public,...

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Bibliographic Details
Published in:World economy 2018-12, Vol.41 (12), p.3345-3358
Main Authors: Intartaglia, Maurizio, Antoniades, Andreas, Bhattacharyya, Sambit
Format: Article
Language:English
Subjects:
Causality
debt
Developed countries
Developing countries
developing economies
Economic analysis
Economic conditions
Economic growth
Economic models
External debt
granger causality
growth
Heterogeneity
household debt
Industrialized nations
LDCs
Panel data
Public debt
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Summary:We unbundle the effect of debt on economic growth using a new panel data set sourced from Vague (2014, The next economic disaster: Why it's coming and how to avoid it. Philadelphia, PA: University of Pennsylvania Press) for 48 countries over the period 1961–2015. We distinguish between public, private, household and nonfinancial corporation (NFC) debt. We use the panel vector autoregressive approach, Granger causality tests and impulse response to establish causality. We also test the heterogeneity in the debt–growth relationship across developed and developing countries. In our full sample of countries, all types of debt appear to be harmful to economic growth. The negative effect of public debt appears to be uniform across developed and developing countries, although the impact is much stronger on developed countries. Household debt appears to be expansionary in developing countries whereas contractionary in developed countries. Nonfinancial corporation debt appears to have no impact on developing countries but negative impact on developed countries. Finally, total debt (i.e., the sum of public, household and NFC debt) has a negative impact on growth in developed countries, but no impact is detected in the case of developing countries.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12626