View metadata

dc.titleDebt and Economic Growth: Does Size Matter? Evidence from Dynamic Parametric and Static Non-parametric Approaches
dc.contributor.authorReyes-Tagle, Gerardo
dc.contributor.authorMuñoz-Ayala, Jorge E.
dc.contributor.orgunitFiscal Management Division
dc.contributor.orgunitInstitutions for Development Sector
dc.coverageLatin America and the Caribbean
dc.date.available2023-04-04T00:04:00
dc.date.issue2023-04-04T00:04:00
dc.description.abstractThis paper provides new evidence on the effect of debt on economic growth through two alternative methodological approaches. On the one hand, by using a panel error correction model with a sample of 130 countries between 1980 and 2020, we found evidence of the existence of a range of debt-to-GDP ratios for which economic growth remains positive after debt surges. This threshold may lie between 32 percent and 136 percent, with optimal economic growth achieved at an 84 percent debt-to-GDP ratio for the whole sample of countries. The error correction form for the economic growth was dynamically consistent and non-linear with respect to the debt-to-GDP ratio. On the other hand, recent evidence has shown that commodity price volatility increases external debt accumulation for commodity-exporting countries. Still, there is no evidence of the effects of debt surges on these countries' economic growth. This paper provides original insights into the relationship between economic growth and the debt-to-GDP ratio for commodity and non-commodity-driven economies by employing a regression discontinuity design (RDD) approach. This method allows us to estimate differences in economic growth around an estimated threshold without assuming any specific function for the underlying relationship between the two variables. Our findings suggest that non-commodity-driven economies benefit from a higher threshold (85 percent) than commodity-exporting economies (50 percent).
dc.format.extent48
dc.identifier.doihttp://dx.doi.org/10.18235/0004818
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/Debt-and-Economic-Growth-Does-Size-Matter-Evidence-from-Dynamic-Parametric-and-Static-Non-parametric-Approaches.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectEconomy
dc.subjectEconomic Development
dc.subjectGross Domestic Product
dc.subjectPandemics
dc.subjectForest Resource
dc.subjectInterest Rate
dc.subjectPublic Debt
dc.subjectExchange Rate
dc.subjectRating
dc.subject.jelcodeC22 - Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models • Diffusion Processes
dc.subject.jelcodeC23 - Panel Data Models • Spatio-temporal Models
dc.subject.jelcodeE62 - Fiscal Policy
dc.subject.jelcodeF43 - Economic Growth of Open Economies
dc.subject.jelcodeG18 - Government Policy and Regulation
dc.subject.jelcodeH63 - Debt • Debt Management • Sovereign Debt
dc.subject.keywordsdebt thresholds;optimal debt;economic growth;ECM/ARDL panel;panel cointegration;RDD;commodity-exporting and non-commodity-exporting economies
dc.typeWorking Papers
idb.identifier.pubnumberIDB-WP-01394
idb.operationRG-T3679
Return to Publication