Nonlinear effect of public debt on economic growth: An analysis for emerging countries
DOI:
https://doi.org/10.55532/1806-8944.2020.69Keywords:
Crescimento Econômico, Dívida Pública, Política FiscalAbstract
After the 2008 crisis, there was a process of continuous deterioration in the debt indicators in several emerging countries. As noted in the literature, this deterioration can have negative effects on economic growth, either via an increase in real interest rates or via an increase in future uncertainty. Based on these problems, the present work seeks to analyze the effect of public indebtedness on economic growth for a group of 36 emerging countries for the period from 1990 to 2017. As a form of estimation we use the Generalized Method of Moments with instrumental variables to treat the problem of endogeneity between indebtedness and economic growth.
As a result, we find that indebtedness has a nonlinear effect, in the form of an inverted U, on growth one and five years ahead, with the reversal point, that is, the point at which the effect of indebtedness on growth is maximum, it is between 40-60% of GDP, values significantly lower than those observed for developed countries. In addition, we carried out a series of robustness tests that corroborated both this nonlinear effect of indebtedness on economic growth and the point of reversal.
Finally, we still observe that for countries with higher levels of democracy, the reversal point is higher compared to countries with low levels of democracy and for countries where public investment is high, the relationship between indebtedness and economic growth is positive, that is, greater indebtedness leads to greater economic growth.
References
ANDERSON, T. Estimating linear restrictions on regression coefficients for multivariate normal distributions. The Annals of Mathematical Statistics, v. 22, n. 3, p. 327-351, 1951.
ANGRIST, J.; PISCHKE, J. Mostly harmless econometrics: An empiricist's companion. Princeton university press, 2008.
ARELLANO, M.; BOVER, O. Another look at the instrumental variable estimation of error-components models. Journal of econometrics, v. 68, n. 1, p. 29-51, 1995.
BANCO CENTRAL EUROPEU. The carry-over effect on annual average real GDP growth. ECB Monthly Bulletin. Março de 2010.
BANCO MUNDIAL. World Bank Open Data. Washington, 2019.
BARRO, R. On the determination of the public debt. Journal of political Economy, v. 87, n. 5, Part 1, p. 940-971, 1979.
BERNANKE, Ben; GERTLER, Mark. Financial fragility and economic performance. The Quarterly Journal of Economics, v. 105, n. 1, p. 87-114, 1990.
CAMURI, P. Endividamento público e crescimento econômico: evidências teóricas e empíricas para economias desenvolvidas e emergentes. 2015. Tese de Doutorado. Universidade Federal de Minas Gerais – CEDEPLAR, Minas Gerais, 2015.
CANER, M.; GRENNES, T.; KOEHLER-GEIB, F. Finding the tipping point: when sovereign debt turns bad. Sovereign Debt and Financial Crisis, p. 64-75, 2010.
CECCHETTI, S.; MOHANTY, M.; ZAMPOLLI, F. Achieving growth amid fiscal imbalances: the real effects of debt. In: Economic Symposium Conference Proceedings. Federal Reserve Bank of Kansas City, p. 145-196, 2011.
CHECHERITA-WESTPHAL, C.; ROTHER, P. The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European economic review, v. 56, n. 7, p. 1392-1405, 2012.
CHICOLI, R. Sustentabilidade da dívida pública brasileira: Uma análise sob diversos conceitos de superávit primário e endividamento. 87 p. Dissertação de Mestrado. Universidade de São Paulo, São Paulo, 2015.
CHOURAQUI, J; JONES, B.; MONTADOR, R. Public debt in a medium-term context and its implications for fiscal policy. OECD Publishing, 1986.
CHUDIK, A.; MOHADDES, K; PESARAN, M; RAISSI, M. Is there a debt-threshold effect on output growth? Review of Economics and Statistics, v. 99, n. 1, p. 135- 150, 2017.
COCHRANE, J. Understanding policy in the great recession: Some unpleasant fiscal arithmetic. European Economic Review, v. 55, n. 1, p. 2-30, 2011.
CODOGNO, L.; FAVERO, C.; MISSALE, A. Yield spreads on EMU government bonds. Economic Policy, v. 18, n. 37, p. 503-532, 2003.
COHEN, D. Growth and external debt: A new perspective on the African and Latin American tragedies. London: Centre for Economic Policy Research, 1997.
DIAMOND, P. National debt in a neoclassical growth model. The American Economic Review, v. 55, n. 5, p. 1126-1150, 1965.
DYSON, K. States, Debt, and Power:'saints' and'sinners' in European History and Integration. OUP Oxford, 2014.
EBERHARDT, M.; PRESBITERO, A. Public debt and growth: Heterogeneity and non- linearity. Journal of International Economics, v. 97, n. 1, p. 45-58, 2015.
ELBADAWI, I.; NDULU, B.; NDUNG’U, N. Debt overhang and economic growth in Sub- Saharan Africa. External finance for low-income countries, p. 49-76, 1997.
FINCKE, B.; GREINER, A. Public debt and economic growth in emerging market economies. South African Journal of Economics, v. 83, n. 3, p. 357-370, 2015.
FUNDO MONETÁRIO INTERNACIONAL. Tackling Inequality. Fiscal Monitor.
Washington, 2017a.
FUNDO MONETÁRIO INTERNACIONAL. IMF Investment and Capital Stock Dataset. Washington, 2017b.
FUNDO MONETÁRIO INTERNACIONAL. World Economic Outlook. Washington, 2019.
GUPTA, S.; KANGUR, A.; PAPAGEORGIOU, C.; WANE, A. Efficiency-adjusted public capital and growth. World Development, v. 57, p. 164-178, 2014.
HERNDON, T.; ASH, M.; POLLIN, R. Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge Journal of Economics, v. 38, n. 2, p. 257-279, 2014.
KAMPS, C. New estimates of government net capital stocks for 22 OECD countries, 1960–2001. IMF staff papers, v. 53, n. 1, p. 120-150, 2006.
KLEIBERGEN, F.; PAAP, R. Generalized reduced rank tests using the singular value decomposition. Journal of econometrics, v. 133, n. 1, p. 97-126, 2006.
KOURTELLOS, A.; STENGOS, T.; TAN, C. The effect of public debt on growth in multiple regimes. Journal of Macroeconomics, v. 38, p. 35-43, 2013.
KUMAR, M.; WOO, J. Public Debt and Growth. IMF Working Paper. No. 10/174, 2010.
LAUBACH, T. New evidence on the interest rate effects of budget deficits and debt. Journal of the European Economic Association, v. 7, n. 4, p. 858-885, 2009.
PANIZZA, U.; PRESBITERO, A. Public debt and economic growth: is there a causal effect? Journal of Macroeconomics, v. 41, p. 21-41, 2014.
PATTILLO, C.; POIRSON, Helene; RICCI, Luca Antonio. External debt and growth. International Monetary Fund, 2002.
REINHART, C.; ROGOFF, K. Growth in a Time of Debt. American Economic Review. V. 100, n. 2, p. 573-78, 2010.
REINHART, Carmen. The Return of Financial Repression. CEPR Discussion Papers, 2012.
SAEED, S.; ISLAM, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Prepints. 2018.
SAINT-PAUL, G. Fiscal policy in an endogenous growth model. The Quarterly Journal of Economics, v. 107, n. 4, p. 1243-1259, 1992.
SALSMAN, R. The political economy of public debt: three centuries of theory and evidence. Edward Elgar Publishing, 2017.
SARGENT, T.; WALLACE, N. Some unpleasant monetarist arithmetic. Federal Reserv Bank of Minneapolis. Quarterly Review. v. 5, n. 3, p. 1-17, 1981.
STAIGER, D., STOCK, J. Instrumental Variables Regression with Weak Instruments. Econometrica. 65(3), 557-586, 1997.
STOCK, J.; YOGO, M. Testing for Weak Instruments in Linear IV Regression. In: Andrews DWK Identification and Inference for Econometric Models. New York: Cambridge University Press, pp. 80-108, 2005.
ANGRIST, J.; PISCHKE, J. Mostly harmless econometrics: An empiricist's companion. Princeton university press, 2008.
ARELLANO, M.; BOVER, O. Another look at the instrumental variable estimation of error-components models. Journal of econometrics, v. 68, n. 1, p. 29-51, 1995.
BANCO CENTRAL EUROPEU. The carry-over effect on annual average real GDP growth. ECB Monthly Bulletin. Março de 2010.
BANCO MUNDIAL. World Bank Open Data. Washington, 2019.
BARRO, R. On the determination of the public debt. Journal of political Economy, v. 87, n. 5, Part 1, p. 940-971, 1979.
BERNANKE, Ben; GERTLER, Mark. Financial fragility and economic performance. The Quarterly Journal of Economics, v. 105, n. 1, p. 87-114, 1990.
CAMURI, P. Endividamento público e crescimento econômico: evidências teóricas e empíricas para economias desenvolvidas e emergentes. 2015. Tese de Doutorado. Universidade Federal de Minas Gerais – CEDEPLAR, Minas Gerais, 2015.
CANER, M.; GRENNES, T.; KOEHLER-GEIB, F. Finding the tipping point: when sovereign debt turns bad. Sovereign Debt and Financial Crisis, p. 64-75, 2010.
CECCHETTI, S.; MOHANTY, M.; ZAMPOLLI, F. Achieving growth amid fiscal imbalances: the real effects of debt. In: Economic Symposium Conference Proceedings. Federal Reserve Bank of Kansas City, p. 145-196, 2011.
CHECHERITA-WESTPHAL, C.; ROTHER, P. The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European economic review, v. 56, n. 7, p. 1392-1405, 2012.
CHICOLI, R. Sustentabilidade da dívida pública brasileira: Uma análise sob diversos conceitos de superávit primário e endividamento. 87 p. Dissertação de Mestrado. Universidade de São Paulo, São Paulo, 2015.
CHOURAQUI, J; JONES, B.; MONTADOR, R. Public debt in a medium-term context and its implications for fiscal policy. OECD Publishing, 1986.
CHUDIK, A.; MOHADDES, K; PESARAN, M; RAISSI, M. Is there a debt-threshold effect on output growth? Review of Economics and Statistics, v. 99, n. 1, p. 135- 150, 2017.
COCHRANE, J. Understanding policy in the great recession: Some unpleasant fiscal arithmetic. European Economic Review, v. 55, n. 1, p. 2-30, 2011.
CODOGNO, L.; FAVERO, C.; MISSALE, A. Yield spreads on EMU government bonds. Economic Policy, v. 18, n. 37, p. 503-532, 2003.
COHEN, D. Growth and external debt: A new perspective on the African and Latin American tragedies. London: Centre for Economic Policy Research, 1997.
DIAMOND, P. National debt in a neoclassical growth model. The American Economic Review, v. 55, n. 5, p. 1126-1150, 1965.
DYSON, K. States, Debt, and Power:'saints' and'sinners' in European History and Integration. OUP Oxford, 2014.
EBERHARDT, M.; PRESBITERO, A. Public debt and growth: Heterogeneity and non- linearity. Journal of International Economics, v. 97, n. 1, p. 45-58, 2015.
ELBADAWI, I.; NDULU, B.; NDUNG’U, N. Debt overhang and economic growth in Sub- Saharan Africa. External finance for low-income countries, p. 49-76, 1997.
FINCKE, B.; GREINER, A. Public debt and economic growth in emerging market economies. South African Journal of Economics, v. 83, n. 3, p. 357-370, 2015.
FUNDO MONETÁRIO INTERNACIONAL. Tackling Inequality. Fiscal Monitor.
Washington, 2017a.
FUNDO MONETÁRIO INTERNACIONAL. IMF Investment and Capital Stock Dataset. Washington, 2017b.
FUNDO MONETÁRIO INTERNACIONAL. World Economic Outlook. Washington, 2019.
GUPTA, S.; KANGUR, A.; PAPAGEORGIOU, C.; WANE, A. Efficiency-adjusted public capital and growth. World Development, v. 57, p. 164-178, 2014.
HERNDON, T.; ASH, M.; POLLIN, R. Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge Journal of Economics, v. 38, n. 2, p. 257-279, 2014.
KAMPS, C. New estimates of government net capital stocks for 22 OECD countries, 1960–2001. IMF staff papers, v. 53, n. 1, p. 120-150, 2006.
KLEIBERGEN, F.; PAAP, R. Generalized reduced rank tests using the singular value decomposition. Journal of econometrics, v. 133, n. 1, p. 97-126, 2006.
KOURTELLOS, A.; STENGOS, T.; TAN, C. The effect of public debt on growth in multiple regimes. Journal of Macroeconomics, v. 38, p. 35-43, 2013.
KUMAR, M.; WOO, J. Public Debt and Growth. IMF Working Paper. No. 10/174, 2010.
LAUBACH, T. New evidence on the interest rate effects of budget deficits and debt. Journal of the European Economic Association, v. 7, n. 4, p. 858-885, 2009.
PANIZZA, U.; PRESBITERO, A. Public debt and economic growth: is there a causal effect? Journal of Macroeconomics, v. 41, p. 21-41, 2014.
PATTILLO, C.; POIRSON, Helene; RICCI, Luca Antonio. External debt and growth. International Monetary Fund, 2002.
REINHART, C.; ROGOFF, K. Growth in a Time of Debt. American Economic Review. V. 100, n. 2, p. 573-78, 2010.
REINHART, Carmen. The Return of Financial Repression. CEPR Discussion Papers, 2012.
SAEED, S.; ISLAM, T. Public Debt and Economic Growth Nexus: Evidence from South Asia. Prepints. 2018.
SAINT-PAUL, G. Fiscal policy in an endogenous growth model. The Quarterly Journal of Economics, v. 107, n. 4, p. 1243-1259, 1992.
SALSMAN, R. The political economy of public debt: three centuries of theory and evidence. Edward Elgar Publishing, 2017.
SARGENT, T.; WALLACE, N. Some unpleasant monetarist arithmetic. Federal Reserv Bank of Minneapolis. Quarterly Review. v. 5, n. 3, p. 1-17, 1981.
STAIGER, D., STOCK, J. Instrumental Variables Regression with Weak Instruments. Econometrica. 65(3), 557-586, 1997.
STOCK, J.; YOGO, M. Testing for Weak Instruments in Linear IV Regression. In: Andrews DWK Identification and Inference for Econometric Models. New York: Cambridge University Press, pp. 80-108, 2005.
Downloads
Published
16-05-2020
How to Cite
Silva Chicoli, R. . (2020). Nonlinear effect of public debt on economic growth: An analysis for emerging countries. CADERNOS DE FINANÇAS PÚBLICAS, 20(01). https://doi.org/10.55532/1806-8944.2020.69
Issue
Section
Artigos
License
The articles can be copied, since quoted the source.
