Ha Le Hai

Type of the article: Research Article

Abstract
Public debt has emerged as a critical macroeconomic issue in many Asian economies, where persistent trade imbalances and inflation volatility continue to exacerbate fiscal pressures. A clear understanding of the causal mechanisms linking these factors to public debt is therefore essential for effective fiscal and monetary policymaking. This study examines the causal effects of trade deficits and inflation on public debt using balanced panel data from 31 Asian countries over the period 2005–2022, where annual observations from all countries were combined into a pooled panel dataset for econometric estimation. To capture both long-run and short-run dynamics, the analysis employs the Autoregressive Distributed Lag (ARDL) model and the Cross-Sectionally Augmented ARDL (CS-ARDL) approach.
The empirical findings reveal that trade balance and inflation exert statistically significant long-run effects on public debt. Improvements in the trade balance are associated with a substantial reduction in public debt, while higher inflation is also linked to lower public debt levels in the long run. In the short run, changes in the trade balance do not have a significant impact, while inflation effects remain negative but statistically insignificant. The error correction term (–0.196) indicates a relatively rapid adjustment toward long-run equilibrium. Panel causality test results further reveal bidirectional relationships among public debt, trade balance, and inflation, implying mutual feedback effects. Overall, the findings highlight the importance of improving trade performance and maintaining stable inflation to support long-term debt sustainability in Asian economies.