Total Public Debt and Economic Growth in Developing Countries
Andrea Filippo Presbitero
Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)
October 19, 2010
The global crisis and the expansionary government reaction in many countries has revamped the attention of policy makers 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 paper 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 non only on external debt, but 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 up to a threshold of 90 percent of GDP, beyond which its effect becomes irrelevant. This non-linear effect can be explained by country-specific factors since debt overhang is at work only in countries with sound macroeconomic policies and stable institutions.
Number of Pages in PDF File: 22
Keywords: Domestic Debt, Public Debt, Growth, Institutions and Policies
JEL Classification: F33, F34, F35, O11
Date posted: October 25, 2010
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