Public debt, economic growth and public sector management in developing countries: is there a link?

Kelbesa Megersa and Danny Cassimon

No 2014.11, IOB Working Papers from Universiteit Antwerpen, Institute of Development Policy (IOB)

Abstract: The paper investigates whether differences in public sector management quality affect the link between public debt and economic growth in developing countries. For this purpose, we primarily use World Bank’s institutional indices of public sector management (PSM). Using PSM thresholds, we split our panel into country clusters and make comparisons. Our linear baseline regressions reveal a significant negative relationship between public debt and growth. The various robustness exercises that we perform also confirm these results. When we dissect our dataset into ‘weak’ and ‘strong’ county clusters using public sector management scores, however, we find different results. While public debt still displayed a negative relationship with growth in countries with ‘weak’ public sector management quality, it generally displayed a positive relationship in the latter group. The tests for non-linearity shows evidence of an ‘inverse-U’ shape relationship between public debt and economic growth. However, we fail to see a similar significant relationship on country clusters that account for PSM quality. Yet, countries with well managed public sectors demonstrate a higher public debt sustainability threshold.

Keywords: public debt; economic growth; public sector management; developing countries (search for similar items in EconPapers)
JEL-codes: E62 F34 H63 H83 O11 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2014-12
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Public Debt, Economic Growth, and Public Sector Management in Developing Countries: Is There a Link? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:iob:wpaper:201411

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