In order to analyze the economic impact of public debt on economic growth, we have considered data from 2005-2016. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.32 841.92] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>>
It is in this sense that borrowing can first be beneficial, so long as it is modest. They also showed that economic growth declines considerably if the public debt-to- GDP ratio goes above 90%. The magnitude of the negative permanent effect of debt was found to be larger than the positive transitory effect. 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 The government then initiated investments in infrastructure. These findings are further confirmed through the use of the well-known Hansen threshold method, which found a threshold of 49.83%. Beyond this level, any increase of public debt has a negative effect on economic growth. context of the EAC region. The impact of a change in public debt is also analysed using asymmetric panel ARDL method. 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. ��Ӎ�r�p��xD����Ϗ��O����vQҡ�wKẘ�,��D��Bl�7�Q�h|�LJ�me�d�5��6���7�B���`S���>�u=���xMO@�ߔ��
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government debt External debt can be described as the situation where governments face budget deficit due to the hig⦠References Cecchetti, Stephen, Madhusudan Mohanty, and Fabrizio Zampolli (2011), "The real effects of debt", BIS Working Papers No. A sharp increase in public debt has strong negative effects on economic growth. 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. Instability might be a result of nonlinear effects changing over time, across countries and economic conditions. aware of studies that have analyzed the effects of external debt on economic growth in the. 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. 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. 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 <>
There are both positive and negative possible effects of public debt on the economy. These actions have brought into sharp focus the scale of the crisis in Ghanaâs financial and economic wellbeing (Nyarko, 2014). The Effects Of Public Debt On Economic Growth 1893 Words | 8 Pages. It will indicate that the relationship between the ratio of public debt to GDP and economic growth appears graphically as an inverted U shape. 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. 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). <>>>
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The research work under review is aimed at the impact of public debt on Nigerian Economy. 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. By diverting societyâs limited capital from productive private to unproductive public sector public debt acts as a growth-retarding factor. ��N�|1��=�� mzJ{��'G��M��+���#��y¯w���@X�M�s�������́�o�����=�~r]��Z��R)�B��%�+��+�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 ��. Further research is certainly needed to fully understand the link between public debt and growth. <>>>
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It is a source of economic growth and stability. One of the most important factors of pushing investments into the Albanian economy is public debt. This increase in public debt for these countries in the region. %PDF-1.5
Our results indicate that an increase in government debt is negatively associated with economic growth in both the short and long-run. endobj
The financial sector greatly improved, and Equity Bank Kenya became one of the largest banks in East Africa. The survey finds diverse and, in some cases, inconsistent evidence on the relative impact of public debt on economic growth. This study recommends to future scholars to research on qualitative variables of Economic Growth such as: corruption, political instability and increase in many countriesâ public debt-to-GDP ratio. The federal government pays for defense equipment, health care, and building construction, and contracts with private firms who then hire new employees. 4 0 obj
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~At^s��u*�h.�|4�D��N�R��(9 The study investigates the effect of public debt on economic growth in Kenya, between 1980-2013.The choices of period was guided by data availability and escalation of Kenyaâs public debt. Such a ⦠3 0 obj
To analyze the relationship public debt and the economic growth of Nigeria. <>
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There are a lot of empirical studies which focus on developing countries and look at the relationship between ⦠Using simple descriptive statistics, they demonstrated forcefully that economic stream
Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. In the short run, the economy and voters benefit from deficit spending because it drives economic growth and stability. While there is evidence that public debt is negatively correlated with economic growth, correlation does not necessarily imply causality. The following tabl⦠1 0 obj
The empirical investigation of the effect of external debt on the economic growth of Nigeria shall be ⦠But, at high levels, private and public debt are bad, increasing volatility and retarding growth. �܇�K��˽L!�o������#|�嬩�b��mM��0��/�2�!v��B��/S$7���. 4 0 obj
H0 2 external debt does not significantly affect the economic growth of Nigeria. 2 0 obj
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. Another finding of the research was that public debt indirectly effects growth via public investment. 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. 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. 1 0 obj
Nonlinear effects might be more complex and difficult to model than previously thought. 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. A 1% point increase in debt servicing (as a % of GDP) decreases the public investment by 0.2% points. 2 0 obj
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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. Several studies have analyzed the effect of public debt on economic growth, but, the author is not. variables. Directly public debt has no effect on investment but debt servicing has an inverse relation with public investment. 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[� endobj
The findings of the study reveal that in the full OECD model public debt exerts a significant negative permanent and positive transitory effect on economic growth. iii. This was robust to alternative model specifications. 352, Bank for International Settlements. Provided that public debt is on a downward trajectory, a %����
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\���=�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 x���MO�0�������۱���&-�6a������i��ǝ1m���5BM��y��f�[5��������M���BY����Z�4\��g�a� between public debt and economic growth, once we account for the impact of global factors and their spillover effects. JEL classification: C22, F33, H63, O40, O52 Keywords: Public debt, economic growth, ⦠endobj
Fiscal policy holds crucial implications for economic growth in both the short and long run. 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. 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. In the first years of transition, in an extreme absence of the domestic production, public debt was used to finance current public administration spending. survey on public debt).2 This paper focuses on the long-run effects of public debt. The main problem is that, Kenya government has been relying heavily on public debt, aid and grants as a source of finance. By 2005, the Kenyan public debt had reduced from highs of 80% of GDP in 2002 to 27% of GDP in 2005. Recent narratives of excessive borrowing by the Ghanaian government for various projects, shows the countryâs appetite for more and more extortionate and unaffordable foreign loans. 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. Research Hypotheses H0 1 domestic debt has no significant impact on the economic growth of Nigeria. The case that public debt has causal effect on economic growth still needs to be made. Our conclusion is that, at low levels, debt is good. Thus an economy grows much faster without public debt than with debt. 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. The Impact Of Public Debt On The Economy. 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