Nonfinancial debt and economic growth in euro-area countries

Marta Gómez-Puig and Simon Sosvilla-Rivero

No 1708, Working Papers del Instituto Complutense de Estudios Internacionales from Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales

Abstract: In this paper we analyse the effects of all sources of the accumulation of nonfinancial debt (household, corporate as well as government) on economic growth in ten euro-area countries during the 1980-2015 period. To this end, we make use of three models (a baseline, an asymmetric and a threshold model) based on the empirical growth literature augmented by debt to assess whether a debt change has an impact on growth over and above other determinants, treating the different types of borrowers separately. By exploring the time series dimension in order to properly account for the historical experience of each country in the sample, we aim to detect potential heterogeneities in the relationship across euro area countries. Our results with both the baseline and the asymmetric models suggest that although the effects on nonfinancial debt accumulation clearly differ across countries, on average, the highest marginal impact of a rise in debt corresponds to the household and public sector, with an increase in private debt being more harmful in peripheral than in central countries; in contrast, the average effect of a rise in public debt does not differ between these two groups of countries. As for the effects of a debt increase beyond the turning point estimated in the threshold model, our findings indicate that the highest marginal impact corresponds to the household sector.

Keywords: Public debt; Household debt; Nonfinancial corporate debt; Economic growth; Heterogeneity; Euro area; Peripheral EMU countries; Central EMU countries. (search for similar items in EconPapers)
JEL-codes: C22 D12 F33 H63 O16 O40 O52 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017
New Economics Papers: this item is included in nep-eec
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Related works:
Journal Article: Nonfinancial debt and economic growth in euro-area countries (2018)
Working Paper: Nonfinancial debt and economic growth in euro-area countries (2017)
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