Assessing the impact of trade deficits on public debt in Asian economies under inflation volatility
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Author(s)Huyen Le ThanhLink to ORCID Index: https://orcid.org/0000-0002-7876-8461
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Trang Tran Thi ThuLink to ORCID Index: https://orcid.org/0009-0001-5723-3054
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Ha Le HaiLink to ORCID Index: https://orcid.org/0009-0003-9560-3495
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DOIhttp://dx.doi.org/10.21511/pmf.15(2).2026.08
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Article InfoVolume 15 2026, Issue #2, pp. 91-106
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Creative Commons Attribution 4.0 International License
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.
- Keywords
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JEL Classification (Paper profile tab)H63, F32, E31, O53
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References42
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Tables8
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Figures3
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- Figure 1. Public debt and inflation of Asian countries (2005–2022)
- Figure 2. Trade balance of Asian countries as a percentage of GDP (2005–2022)
- Figure A1. Government debt
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- Table 1. Slope-heterogeneity and cross-sectional dependency test results
- Table 2. CIPS test results
- Table 3. Westerlund cointegration tests
- Table 4. Correlation matrix
- Table 5. Panel ARDL estimation results
- Table 6. Comparison of ARDL (PMG) and CS-ARDL estimation results
- Table 7. Robustness check (AMG)
- Table 8. Results of panel causality test
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Darmawati ,
Elis Mediawati ,
Syarifuddin Rasyid
doi: http://dx.doi.org/10.21511/pmf.13(1).2024.11
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Acknowledgments
The authors would like to express their sincere gratitude to the Dean of the Faculty of Economics and Business, Hasanuddin University, for their invaluable support and assistance in this research. Their unwavering commitment to advancing academic research and community service has been the key to completing this study. -
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Nguyen Phu Ha
doi: http://dx.doi.org/10.21511/bbs.16(1).2021.12
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Endri Endri 
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Asti Marlina ,
Hurriyaturrohman
doi: http://dx.doi.org/10.21511/bbs.15(4).2020.09
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