Total Public Debt and Growth in Developing Countries

Andrea Presbitero

The European Journal of Development Research, 2012, vol. 24, issue 4, 606-626

Abstract: The global crisis and the expansionary government reaction in many countries have revamped the attention of policymakers and academics on the growth effects of large public debts. Recent empirical studies investigate the impact of public debt on growth in advanced and emerging countries. This article aims at complementing the existing evidence focusing on developing countries, where the increase in domestic borrowing, already started before the crisis, requires a more comprehensive analysis, based not only on external debt, but also on total public debt. Results on a panel of low- and middle-income countries over the period 1990–2007 show that public debt has a negative impact on output growth until it reaches 90 per cent of GDP. Beyond this threshold, the debt effect on growth becomes irrelevant. This nonlinear effect can be explained by country-specific factors, as debt overhang is a growth constraint only in countries with sound macroeconomic policies and stable institutions.La crise mondiale et les conséquent politiques expansive des gouvernements de plusieurs pays ont amené les décideurs politiques à s′intéresser à nouveau aux effets d′une forte dette publique sur la croissance. Etudes empiriques récents examinent l′impact de la dette publique sur la croissance dans les pays développés aussi bien que dans le pays émergentes. Cet article cherche à apporter des éléments d′information supplémentaires en portant une attention particulière aux pays en développement où la montée de la dette intérieure, datant d′avant la récession, requiert une analyse plus complète qui prenne en compte non seulement la dette extérieure, mais l′ensemble de la dette publique. Les résultats obtenus à partir d′un panel de pays à revenus faibles ou intermédiaires pour la période allant de 1990 à 2007 montrent que la dette publique a un impact négatif sur la croissance au seuil de 90 per cent du PIB, au delà duquel l′effet n′est plus significatif. Cet effet non linéaire s’explique par des facteurs spécifiques à chaque pays puisque le sur-endettement ne constitue une contrainte de croissance que dans les pays pourvus de politiques macroéconomiques saines et d′institutions stables.

Date: 2012
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Related works:
Working Paper: Total public debt and growth in developing countries (2010)
Working Paper: Total Public Debt and Growth in Developing Countries (2010)
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