Citations (26)



Public Debt and Growth

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Jaejoon Woo

International Monetary Fund (IMF) - Fiscal Affairs Department

July 2010

IMF Working Paper No. 10/174

This paper explores the impact of high public debt on long-run economic growth. The analysis, based on a panel of advanced and emerging economies over almost four decades, takes into account a broad range of determinants of growth as well as various estimation issues including reverse causality and endogeneity. In addition, threshold effects, nonlinearities, and differences between advanced and emerging market economies are examined. The empirical results suggest an inverse relationship between initial debt and subsequent growth, controlling for other determinants of growth: on average, a 10 percentage point increase in the initial debt-to-GDP ratio is associated with a slowdown in annual real per capita GDP growth of around 0.2 percentage points per year, with the impact being somewhat smaller in advanced economies. There is some evidence of nonlinearity with higher levels of initial debt having a proportionately larger negative effect on subsequent growth. Analysis of the components of growth suggests that the adverse effect largely reflects a slowdown in labor productivity growth mainly due to reduced investment and slower growth of capital stock.

Number of Pages in PDF File: 47

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Date posted: August 4, 2010  

Suggested Citation

Kumar, Manmohan and Woo, Jaejoon, Public Debt and Growth (July 2010). IMF Working Papers, Vol. , pp. 1-47, 2010. Available at SSRN: http://ssrn.com/abstract=1653188

Contact Information

Manmohan Kumar
International Monetary Fund (IMF) - Research Department ( email )
700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)
Jaejoon Woo (Contact Author)
International Monetary Fund (IMF) - Fiscal Affairs Department ( email )
700 19th Street, NW
Washington, DC 20431
United States
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