Nonfinancial Debt and Economic Growth in Euro-Area Countries

Institut de Recerca en Economia Aplicada Regional i Pública Document de Treball 2017/14 1/41 pág. - Research Institute of Applied Economics Working Paper 2017/14 1/41 pág.

41 Pages Posted: 20 Jul 2017

See all articles by Marta Gómez-Puig

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: July 17, 2017

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

JEL Classification: C22, D12, F33, H63, O16, O40, O52

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon, Nonfinancial Debt and Economic Growth in Euro-Area Countries (July 17, 2017). Institut de Recerca en Economia Aplicada Regional i Pública Document de Treball 2017/14 1/41 pág. - Research Institute of Applied Economics Working Paper 2017/14 1/41 pág. . Available at SSRN: https://ssrn.com/abstract=3003823 or http://dx.doi.org/10.2139/ssrn.3003823

Marta Gómez-Puig

Economic Theory Department. University of Barcelona ( email )

Diagonal 690
Barcelona, 08034
Spain
34-93-4020113 (Phone)
34-93-4039082 (Fax)

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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