On the Impact of Public Debt on Economic Growth: Does Country Risk Matter?

16 Pages Posted: 28 Aug 2017

See all articles by Yi‐Bin Chiu

Yi‐Bin Chiu

Southwestern University of Finance and Economics (SWUFE)

Chien-Chiang Lee

Nanchang University

Date Written: October 2017

Abstract

This study examines the nonlinear impacts of four country risk indices on the debt‐growth nexus for 61 countries in a panel data framework. Our results show evidence of the different debt‐growth nexus under the different degrees of country risk. Under a high‐risk environment, a country's economic growth is harmed by raising its public debt. The negative effects public debt has on economic growth become weak under low political and financial‐risk environments, while an increase in public debt could help to stimulate economic growth under low composite and economic risk environments. In addition, the differences of countries' income and debt levels also lead country risks to have different effects on the debt‐growth nexus, suggesting that a country should borrow appropriately based on its current risk environments while improving economic performance.

JEL Classification: C33, E02, H63, O43

Suggested Citation

Chiu, Yi‐Bin and Lee, Chien-Chiang, On the Impact of Public Debt on Economic Growth: Does Country Risk Matter? (October 2017). Contemporary Economic Policy, Vol. 35, Issue 4, pp. 751-766, 2017, Available at SSRN: https://ssrn.com/abstract=3026732 or http://dx.doi.org/10.1111/coep.12228

Yi‐Bin Chiu (Contact Author)

Southwestern University of Finance and Economics (SWUFE)

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

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