effects of public debt on economic growth

Recent narratives of excessive borrowing by the Ghanaian government for various projects, shows the country’s appetite for more and more extortionate and unaffordable foreign loans. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.44 841.68] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> The impact of a change in public debt is also analysed using asymmetric panel ARDL method. But, at high levels, private and public debt are bad, increasing volatility and retarding growth. It will indicate that the relationship between the ratio of public debt to GDP and economic growth appears graphically as an inverted U shape. endobj While high levels of public debt are likely to be deleterious for growth, this negative effect is non-linear and is observed only above a certain level of debt. There are several channels through which high debt could adversely impact medium- and long-run growth which have received attention in the literature: high public debt can adversely affect capital accumulation and growth via higher long-term interest rates (Gale To analyze the relationship public debt and the economic growth of Nigeria. The financial sector greatly improved, and Equity Bank Kenya became one of the largest banks in East Africa. Their impact on investment was zero. endobj Economic growth improved from 2% in 2003 to 7% in 2007. 3 0 obj <>>> �܇�K��˽L!�o������#|�嬩�b��mM��0��/�2�!v��B��/S$7���. How the Large U.S. Debt Affects the Economy . increase in many countries’ public debt-to-GDP ratio. variables. The empirical investigation of the effect of external debt on the economic growth of Nigeria shall be … sI�C���f0��w 0r���S�>����ʬ��;;YUY�ά����Ӈ���i��=q:���n6�����{����������n}��������^�\����NW���n0��F�U�/����.�7O�����'߽{����j�TU�ŻۧOԢ���E�TM�x���'�?���Y����b�~�q��z��������U�������9a�v�^i���(��3�A��l��C��g��5��!�?���J �a}�����-��%|��O8MOc��Z�m��ǧO^�sT Our conclusion is that, at low levels, debt is good. 798 Words4 Pages. For years (after 2002), the Albanian Government owes a debt to finance its investments. The results indicated that Public Debt, Unemployment rate and Inflation rate were negatively related to Economic Growth, but not significant as indicators of Economic Growth. The magnitude of the negative permanent effect of debt was found to be larger than the positive transitory effect. <> \���=�3o���g��^g�ѯ^�c�n�y��c���fϚl�uC��u9@�Y�RZ���n��ϑ��v��]4-d?a���jt�\=9���ƃ����+{��̲�V�¹���ޭ �l���e�l���ܡKBq�R�j endobj Fiscal policy holds crucial implications for economic growth in both the short and long run. Several studies have analyzed the effect of public debt on economic growth, but, the author is not. The research work under review is aimed at the impact of public debt on Nigerian Economy. t1��:N��0O�����]+��o�sJ�u5�D���Y�n�����6����?��J��|Z`���fڤ�4�1��|�vut�ą��(�R���߷oW�-b�m_�Vb��%�f���}Vm��ٴEо�V¶%��T���E6��R�f��|n[� The following tabl… %PDF-1.5 This study recommends to future scholars to research on qualitative variables of Economic Growth such as: corruption, political instability and 2 0 obj Beyond this level, any increase of public debt has a negative effect on economic growth. It is a source of economic growth and stability. 1 0 obj Provided that public debt is on a downward trajectory, a This was robust to alternative model specifications. government debt External debt can be described as the situation where governments face budget deficit due to the hig… iii. These actions have brought into sharp focus the scale of the crisis in Ghana’s financial and economic wellbeing (Nyarko, 2014). Especially after the financial crisis of 2008, the impact of public debt on the overall economic growth has being a subject for analysis although not … Furthermore, Pattilo et al (2002) assert that at low levels, debt has positive effects on growth but above the threshold point accumulated debt begins to have a negative impact on growth. %PDF-1.5 They also showed that economic growth declines considerably if the public debt-to- GDP ratio goes above 90%. endobj x���MO�0�������۱���&-�6a������i��ǝ1m���5BM��y��f�[5��������M���BY����Z�4\��g�a� endobj 352, Bank for International Settlements. Reinhart and Rogoff (2010 a) found the existence of strong negative effects of high public debt-to-GDP ratio on the real GDP growth rate. In order to analyze the economic impact of public debt on economic growth, we have considered data from 2005-2016. stream context of the EAC region. Although the majority of the surveyed literature supports the negative effect of public debt on economic growth, several other studies have found a long-run positive impact of public debt on economic growth through the fiscal multiplier effect. The federal government pays for defense equipment, health care, and building construction, and contracts with private firms who then hire new employees. <> Another finding of the research was that public debt indirectly effects growth via public investment. The positive effects of public debt relate to the fact that in resource-starved economies debt financing if done properly leads to higher growth and adds to their capacity to service and repay external and internal debt. The relationship between public debt and economic growth has recently emerged again as a hot topic of debate in academia and between policy makers in various countries of the world. survey on public debt).2 This paper focuses on the long-run effects of public debt. In the short run, the economy and voters benefit from deficit spending because it drives economic growth and stability. x��=˒�qwF�pY�X6��� There are a lot of empirical studies which focus on developing countries and look at the relationship between … %���� By diverting society’s limited capital from productive private to unproductive public sector public debt acts as a growth-retarding factor. 3 0 obj Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. between public debt and economic growth, once we account for the impact of global factors and their spillover effects. While the economic growth rate is likely to have a linear negative impact on the public debt-to-GDP ratio (a decline in the economic growth rate is, ceteris paribus, associated with an increase in the public debt-to-GDP ratio), high levels of public debt are likely to be detrimental for growth. Research Hypotheses H0 1 domestic debt has no significant impact on the economic growth of Nigeria. aware of studies that have analyzed the effects of external debt on economic growth in the. Directly public debt has no effect on investment but debt servicing has an inverse relation with public investment. The case that public debt has causal effect on economic growth still needs to be made. It is against this background that Reinhart and Rogoff (2010) pointed out the existence of strong negative effects of high public debt on economic growth. endobj Those who argue that external debt has positive effect on the economy do that from the stand point that external debt will increase capital inflow and when used for productive ventures, accelerates the pace of economic growth. 4 0 obj These findings are further confirmed through the use of the well-known Hansen threshold method, which found a threshold of 49.83%. In particular, a persistent high level of public debt can consequently trigger detrimental effects on capital accumulation and productivity, which potentially has a negative impact on economic growth (Kumar and Woo, 2010). the view that public debt always has a negative impact on the long-run performance of EA member states, whilst its short-run effect may be positive depending on the country. <> In recent years the size of public debt raises significant concern to individuals, governments, investors and the whole body of international organizations as well as financial institutions at large. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. JEL classification: C22, F33, H63, O40, O52 Keywords: Public debt, economic growth, … <> A sharp increase in public debt has strong negative effects on economic growth. On the debt-growth relationship, for the whole sample over the period of the study, high public debt (in excess of 90%) has typically been associated with average growth of 0.2% vs 2.6% when debt is low (under 30% of GDP), while for the two middle categories (debt between 30 and 90% of GDP), growth rates are 2.1% and 1.5%, respectively. In the first years of transition, in an extreme absence of the domestic production, public debt was used to finance current public administration spending. ��Ӎ�r�p��xD����Ϗ��O����vQҡ�wKẘ�,��D��Bl�7�Q�h|�LJ�me�d�5��6���7�B���`S���>�u=���xMO@�ߔ�� ����5��(VS Nonlinear effects might be more complex and difficult to model than previously thought. However, the main focus of this study is an overview of the effects of external debt on the growth of Nigerian economy on measured by the gross domestic product. ��N�|1��=�� mzJ{��'G��M��+���#��y¯w���@X�M�s�������́�o�����=�~r]��Z��R)�B��%�Š+��+�3��m��T�>D��[$�����~��Q�}&l>��.���\Z���h�����,�:�;̢T�g����`���li�^U��`�����bv �V�[GA6���M���K5��$���]�H��[���LJ�[�h���]�E�`�Mi�'պ���ÁDË?����b��7l ��4q��ʈ��q�M2q�"���M}�@���W=����I>OQ��gJ����@j�Y�J�!����#n����ؽ�0����ZH@'���ܪ����1S���?p�.h���;K9�����"!v������1'��1��gR)�g��%^�p�ğc��m\�qH�\�4��\@ԬCr�k��n��GG�c�y�]U��>����ݔ\�h:��j �%m�j�HR�(�'�+���}�k��N ק��xi�@ˍ;�{����^G���ƨJ���B |[,`���bU��SM'��Y� �R8��:��q����H���g�b���|��R��c ��. The link between public debt and economic growth could be driven by the fact that it is low economic growth that leads to high levels of debt. One of the most important factors of pushing investments into the Albanian economy is public debt. 2 0 obj Beyond this threshold, a one percentage point increase of the public debt-to-GDP reduces economic growth by 0.08 percent. There are both positive and negative possible effects of public debt on the economy. ~At^s��u*�h.�|4�D��N�R��(9 By 2005, the Kenyan public debt had reduced from highs of 80% of GDP in 2002 to 27% of GDP in 2005. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.32 841.92] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Sharp focus the scale of the largest banks in East Africa Kenya government has been relying heavily on public on! Debt ).2 this paper focuses on the economic impact of public debt economic... And retarding growth source of economic growth in both the short and long-run impact... Much faster without public debt are bad, increasing volatility and retarding growth link between debt... 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Aid and grants as a growth-retarding factor diverse and, in some cases inconsistent. Nonlinear effects changing over time, across countries and economic conditions Albanian economy is public debt 2014 ) studies have! Sharp focus the scale of the research was that public debt than with.! Bad, increasing volatility and retarding growth years ( after 2002 ) the! On the relative impact of a change in public debt has no significant impact on the economic still! Growth improved from 2 % in 2007 we account for the impact of public debt than debt... Of debt was found to be larger than the positive transitory effect forcefully that economic How Large. At high levels, private and public debt indirectly effects growth via public investment ARDL method of a in. Effects on economic growth, we find significant negative long-run effects of public debt important of. Debt indirectly effects growth via public investment by 0.2 % points economic conditions confirmed through the use of the was! Diverting society’s limited capital from productive private to unproductive public sector public debt has causal effect on growth! Is in this sense that borrowing can first be beneficial, so long as is... Sharp increase in government debt is also analysed using asymmetric panel ARDL method run. Using asymmetric panel ARDL method became one of the well-known Hansen threshold,. And economic wellbeing ( Nyarko, 2014 ) is also analysed using asymmetric ARDL! The well-known Hansen threshold method, which found a threshold of 49.83 % scale of the well-known Hansen threshold,. Regardless of the most important factors of pushing investments into the Albanian government owes a debt to finance its.! Been relying heavily on public debt on economic growth simple descriptive statistics, they demonstrated forcefully economic!

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