Preprint Article Version 1 This version is not peer-reviewed

Public Debt and Economic Growth Nexus: Evidence from South Asia

Version 1 : Received: 27 April 2018 / Approved: 27 April 2018 / Online: 27 April 2018 (15:17:46 CEST)

How to cite: Saeed, S.; Islam, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Preprints 2018, 2018040361 (doi: 10.20944/preprints201804.0361.v1). Saeed, S.; Islam, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Preprints 2018, 2018040361 (doi: 10.20944/preprints201804.0361.v1).

Abstract

It is well established in literature that the public debt and economic growth bear positive and non-linear relationship. However, in recent literature, evidence of no causal relationship is found when accounted for endogeneity in case of advanced economies (Panizza & Presbitero, 2014). Chudik, Mohaddes, Pesaran, & Raissi, (2017) analyse the data on forty countries and find no evidence of universally applicable threshold effect in the relationship between debt and growth. These advancements in the debt-growth literature provides the motivation to re-explore the relationship between public debt and economic growth under non-linearity and endogeneity in context of developing economies of South Asia including Pakistan, India, Bangladesh and Sri-Lanka for the period 1980-2014. There exists a significant, positive but nonlinear relationship between the public debt and economic growth for the selected set of developing countries when accounted for endogeneity and non-linearity. The negative association between the public debt and economic growth for SAARC region is found when the debt level is higher than 61% of GDP which is quite lower than developed economies (90% of GDP). Individual threshold levels for debt-to-GDP ratio divulge that Sri Lanka, Pakistan and India need to control their public borrowings as their current debt levels are higher and/or around the respective threshold levels.

Subject Areas

endogeneity, non-linearity, threshold, FMOLS

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Comment 1
Received: 27 April 2018
Commenter: Dania umar
The commenter has declared there is no conflict of interests.
Comment: Significant contribution
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