Public debt management and economic growth: A threshold regression approach
-
DOIhttp://dx.doi.org/10.21511/pmf.12(1).2023.06
-
Article InfoVolume 12 2023, Issue #1, pp. 62-72
- Cited by
- 487 Views
-
235 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study deals with the impact of national debt on gross domestic product growth, which plays an essential role in economic development when the debt-to-GDP ratio achieves the optimal public debt ratio. The goal of this study is to comprehend the relationship between government debt and GDP growth, which becomes increasingly essential for economic development as the debt-to-GDP ratio approaches the optimal threshold of public debt. The study applied regression threshold models, unit roots, and Pearson correlation tests to the data collected in Vietnam from 2000 to 2020 to determine the optimum national debt-to-GDP threshold. The results show that the correlation between national debt-to-GDP and GDP growth was 85.2%. All the variables are stationary at the first difference and lag after one year, and the 38% threshold is the best level of national debt for GDP growth. This study contributes to the theoretical enhancement of the current knowledge of the factors that offer the Vietnamese government a point of reference for policy recommendations to control national debt successfully.
- Keywords
-
JEL Classification (Paper profile tab)H68, H62, O47, F43
-
References55
-
Tables5
-
Figures2
-
- Figure 1. Inverse roots of AR characteristic polynomial test
- Figure 2. Residual and estimated values
-
- Table 1. Variable description
- Table 2. Testing the null hypothesis: Vietnam’s debt and GDP unit root test at lag I(0)
- Table 3. Testing the null hypothesis: Vietnam’s debt and GDP unit root test at lag I(1)
- Table 4. Vietnam’s discrete threshold regression
- Table 5. Discrete threshold specification
-
- Aiyedogbon, J. O., Zhuravka, F., Korneyev, M., Banchuk-Petrosova, O., & Kravchenko, O. (2022). Impact of public debt profile on economic growth: Evidence from Nigeria. Public and Municipal Finance, 11(1), 10-19.
- Akaike, H. (1973). Information theory and an extension of the maximum likelihood principle. Proceeding of the 2nd International Symposium on Information Theory (pp. 267-281). Budapest, Hungary: Akadémiai Kiadó.
- Alshammary, M. D., Karim, Z. A., Khalid, N., & Ahmad, R. (2020). Debt-growth nexus in the MENA region: Evidence from a panel threshold analysis. Economies, 8(4), 102.
- CEIC Data. (2021). Vietnam Government Debt: % of GDP 2010–2021.
- Checherita-Westphal, C., & Rother, P. (2012). The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area. European Economic Review, 56(7), 1392-1405.
- Chen, S., & Li, W. (2019). Local government debt and regional economic growth in China. China Political Economy, 2(2), 330-353.
- Daud, S. N., & Podivinsky, J. (2014). Government debt and economic growth in Malaysia: The role of institutional quality. Applied Economics Letters, 21(17), 1179-1183.
- Diallo, A. A., & N’Zué, F. F. (2021). An econometric analysis: Is there an optimal external debt threshold for Guinea? Economics and International Finance, 13(3), 136-142.
- Dickey, D., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica, 49(4), 1057-1072.
- Dinh, D. V. (2019). Analysed money supply and inflation: evidence from Vietnam economy. Advances and Applications in Statistics, 56(2), 125-142.
- Dinh, D. V. (2020a). Optimal inflation threshold and economic growth: Ordinal regression model analysis. Journal of Asian Finance, Economics and Business, 7(5), 91-102.
- Dinh, D. V. (2020b). Comparison of the impact of lending and inflation rates on economic growth in Vietnam and China. Banks and Bank Systems, 15(4), 193-203.
- Dinh, D. V. (2020c). Impulse response of inflation to economic growth dynamics: VAR model analysis. The Journal of Asian Finance, Economics, and Business, 7(9), 219-228.
- Dinh, D. V. (2020d). Money supply and inflation impact on economic growth. Journal of Financial Economic Policy, 12(1), 121-136.
- Dinh, D. V. (2022). Fiscal policy and economic growth: Threshold regression model approach. Industrial Engineering & Management Systems, 21(4), 632-645.
- Doğan, İ., & Bilgili, F. (2014). The non-linear impact of high and growing government external debt on economic growth: A Markov regime-switching approach. Economic Modelling, 39, 213-220.
- Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45-58.
- Égert, B. (2015). Public debt, economic growth and non-linear effects: Myth or reality? Journal of Macroeconomics, 43, 226-238.
- Eneida, P. Ç. (2018). The relationship between public debt and economic growth in Albania and other countries. Academic Journal of Interdisciplinary Studies, 7(3), 95-102.
- Fincke, B., & Greiner, A. (2015). Public debt and economic growth in emerging market economies. South African Journal of Economics, 83(3), 357-370.
- Fong, Y., Huang, Y., Gilbert, P. B., & Permar, S. R. (2017). chngpt: threshold regression model estimation and inference. BMC Bioinformatics, 18(1), 454.
- Gujarati, D. N. (2003). Basic econometrics (4th ed.). New York: McGraw-Hill.
- Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345-368.
- Jacobs, J., Ogawa, K., Sterken, E., & Tokutsu, I. (2020). Public debt, economic growth and the real interest rate: A panel VAR approach to EU and OECD countries. Applied Economics, 52(12), 1377-1394.
- Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551-1580.
- Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. New York: Oxford University Press.
- Khanfir, W. (2019). Threshold effect of public debt on economic growth: An empirical investigation for selected North African countries. Economic Alternatives, 2019(3), 429-436.
- Kim, J., Wang, M., Park, D., & Petalcorin, C. C. (2021). Fiscal policy and economic growth: Some evidence from China. Review of World Economics, 157(2), 555-582.
- Kourtellos, A., Stengos, T., & Tan, C. M. (2013). The effect of public debt on growth in multiple regimes. Journal of Macroeconomics, 38, 35-43.
- Law, S. H., Ng, C. H., Kutan, A. M., & Law, Z. K. (2021). Public debt and economic growth in developing countries: Nonlinearity and threshold analysis. Economic Modelling, 98, 26-40.
- Lee, S., Park, H., Seo, M. H., & Shin, Y. (2017). Testing for a debt-threshold effect on output growth. Fiscal Studies, 38(4), 701-717.
- Liu, Z., & Lyu, J. (2021). Public debt and economic growth: Threshold effect and its influence factors. Applied Economics Letters, 28(3), 208-212.
- Loan, H. (2022). Nợ công của Việt Nam có xu hướng giảm [Vietnam’s public debt tends to decrease]. (In Vietnamese).
- Mishkin, F. S. (2013). The economics of money, banking and financial markets (7th ed.). Pearson/The Addison-Wesley Series in Economics.
- Mohanty, R. K., & Panda, S. (2020). How does public debt affect the Indian macroeconomy? A structural VAR approach. Margin: The Journal of Applied Economic Research, 14(3), 253-284.
- Mohsin, M., Ullah, H., Iqbal, N., Iqbal, W., & Taghizadeh-Hesary, F. (2021). How external debt led to economic growth in South Asia: A policy perspective analysis from quantile regression. Economic Analysis and Policy, 72, 423-437.
- Ndoricimpa, A. (2020). Threshold effects of public debt on economic growth in Africa: A new evidence. Journal of Economics and Development, 22(2), 187-207.
- Owyang, M. T., Ramey, V. A., & Zubairy, S. (2013). Are government spending multipliers greater during periods of slack? Evidence from twentieth-century historical data. American Economic Review, 103(3), 129-134.
- Panizza, U., & Presbitero, A. F. (2013). Public debt and economic growth in advanced economies: A survey. Swiss Journal of Economics and Statistics, 149, 175-204.
- Panizza, U., & Presbitero, A. F. (2014). Public debt and economic growth: Is there a causal effect? Journal of Macroeconomics, 41, 21-41.
- Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed-lag modelling approach to cointegration analysis (2nd ed.). The Ragnar Frisch Centennial Symposium: Cambridge University Press.
- Pienkowski, A. (2017). Debt limits and the structure of public debt (IMF Working Paper 2017/117).
- Presbitero, A. F. (2012). Total public debt and growth in developing countries. The European Journal of Development Research, 24, 606-626.
- Ramanathan, R. (2002). Introductory econometrics with applications (5th ed.). Stamford: Harcourt College.
- Ramey, V. A. (2019). Ten years after the financial crisis: What have we learned from the renaissance in fiscal research? Journal of Economic Perspectives, 33(2), 89-114.
- Reinhart, C. M., & Rogoff, K. S. (2009). The aftermath of financial crises (NBER Working Paper No. 14656). National Bureau of Economic Research.
- Sanusi, K., Hassan, A., & Meyer, D. (2019). Non-linear effects of public debt on economic growth in Southern Africa Development Community (SADC) countries. International Journal of Economics and Management, 13(1), 193-202.
- Schwarz, G. (1978). Estimating the dimension of a model. Annals of Statistics, 6(2), 461-464.
- Serrão, A. (2016). Impact of public debt on economic growth in advanced economies. International Journal of Managerial Studies and Research, 4(2), 70-76.
- Sharaf, M. F. (2022). The asymmetric and threshold impact of external debt on economic growth: New evidence from Egypt. Journal of Business and Socio-economic Development, 2(1), 1-18.
- Shvets, S. (2017). Internal public debt and economic growth: The case study of Ukraine. Public and Municipal Finance, 6(4), 23-32.
- Spilioti, S., & Vamvouka, G. (2015). The impact of government debt on economic growth: An empirical investigation of the Greek market. The Journal of Economic Asymmetries, 12(1), 34-40.
- Šuliková, V., & Tykhonenko, A. (2017). The impact of public debt on the twin imbalances in Europe: A threshold model. Economic Annals, 62(213), 27-44.
- World Bank. (n.d.). GDP growth (annual %), 1961–2021.
- Yener, H., Stengos, T., & Yazgan, M. E. (2017). Analysis of the seeds of the debt crisis in Europe. The European Journal of Finance, 23(15), 1589-1610.