Re-Examining the Debt-Growth Nexus: A Grouped Fixed-Effect Approach

47 Pages Posted: 9 Jul 2019

See all articles by Marta Gómez-Puig

Marta Gómez-Puig

Economic Theory Department. University of Barcelona

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Inmaculada Martínez‐Zarzoso

Jaume I University; University of Goettingen (Gottingen)

Date Written: July 5, 2019

Abstract

This paper uses panel data for 116 countries over the period 1995-2016 to investigate the heterogeneity of the debt-growth nexus across countries and the factors underlying it. In the first step, the grouped fixed effects (GFE) estimator proposed by Bonhomme and Manresa (2015) is used to classify countries into groups, with group membership being endogenously determined. In the second step, a multinomial logit model is used to explore the drivers of the heterogeneity detected, among them the quality of institutions, the composition of debt-funded public expenditure, the relative public and private indebtedness, and the maturity of debt. Finally, the underlying factors explaining the time-varying impact of public debt on growth in the country groups identified is also investigated.

Keywords: public debt, economic growth, heterogeneity, grouped fixed-effects, debt-growth link, panel data, multinomial logit regression

JEL Classification: C23, F33, H63, O47, O52

Suggested Citation

Gómez-Puig, Marta and Sosvilla-Rivero, Simon and Martínez‐Zarzoso, Inmaculada, Re-Examining the Debt-Growth Nexus: A Grouped Fixed-Effect Approach (July 5, 2019). Available at SSRN: https://ssrn.com/abstract=3415405 or http://dx.doi.org/10.2139/ssrn.3415405

Marta Gómez-Puig (Contact Author)

Economic Theory Department. University of Barcelona ( email )

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

Simon Sosvilla-Rivero

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/

Inmaculada Martínez‐Zarzoso

Jaume I University

Av. de Vicent Sos Baynat, s/n
Castellón, Castellón de la Plana 12071
Spain

University of Goettingen (Gottingen)

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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