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. Preprints2018, 2018040361. https://doi.org/10.20944/preprints201804.0361.v1.
Saeed, S.; Islam, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Preprints 2018, 2018040361. https://doi.org/10.20944/preprints201804.0361.v1.
Cite as:
Saeed, S.; Islam, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Preprints2018, 2018040361. https://doi.org/10.20944/preprints201804.0361.v1.
Saeed, S.; Islam, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Preprints 2018, 2018040361. https://doi.org/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.
Keywords
endogeneity, non-linearity, threshold, FMOLS
Subject
SOCIAL SCIENCES, Economics
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Commenter: Dania umar
The commenter has declared there is no conflict of interests.