Total Public Debt and Economic Growth in Developing Countries

22 Pages Posted: 25 Oct 2010  

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

Date Written: October 19, 2010

Abstract

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.

Keywords: Domestic Debt, Public Debt, Growth, Institutions and Policies

JEL Classification: F33, F34, F35, O11

Suggested Citation

Presbitero, Andrea Filippo, Total Public Debt and Economic Growth in Developing Countries (October 19, 2010). Available at SSRN: https://ssrn.com/abstract=1697506 or http://dx.doi.org/10.2139/ssrn.1697506

Andrea Filippo Presbitero (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy
+39 0712207074 (Phone)

HOME PAGE: http://sites.google.com/site/presbitero/

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milan, 20100
Italy

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