The Causal Relationship between Debt and Growth: Evidence from OECD Countries

28 Pages Posted: 6 Apr 2014 Last revised: 15 Sep 2014

See all articles by Miguel Puente-Ajovin

Miguel Puente-Ajovin

Independent; University of Zaragoza

Marcos Sanso-Navarro

Universidad de Zaragoza

Date Written: April 4, 2014

Abstract

This paper analyzes the possible causal relationship between debt and growth in 16 OECD countries from 1980 to 2009. This is done considering not only government debt but also non-…financial corporate and household debt. The panel bootstrap Granger causality test applied allows us to control for both the presence of cross-country heterogeneity and cross-sectional dependence. Our results barely provide evidence against the null hypothesis according to which government debt does not cause real GDP per capita growth. More interestingly, we find evidence against the absence of causality from non-…financial private debt - especially that of households - to growth. Finally, government debt is found to be negatively influenced by growth.

Keywords: Debt, Growth, Granger causality, SUR estimation, Bootstrap

JEL Classification: C32, H30, H63, O40, O57

Suggested Citation

Puente-Ajovin, Miguel and Puente-Ajovin, Miguel and Sanso-Navarro, Marcos, The Causal Relationship between Debt and Growth: Evidence from OECD Countries (April 4, 2014). Available at SSRN: https://ssrn.com/abstract=2420445 or http://dx.doi.org/10.2139/ssrn.2420445

Miguel Puente-Ajovin

Independent ( email )

University of Zaragoza ( email )

50005 Zaragoza
Spain

HOME PAGE: http://mpajovin.github.io

Marcos Sanso-Navarro (Contact Author)

Universidad de Zaragoza ( email )

Facultad de Economía y Empresa
Departamento de Análisis Económico
Zaragoza, 50005
Spain
+34 876 554 629 (Phone)

HOME PAGE: http://personal.unizar.es/marcossn

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