The relationship between Turkey’s foreign debt and economic growth: an asymmetric causality analysis

Tackling foreign debt that arises as a result of limited and ineffective use of resources is an item that remains on the agenda particularly for developing countries. In this study, we examine the foreign debt debates to date in terms of economic growth and using the time series for the period 2003Q1 to 2017Q1. We used unit root tests to determine the maximum integration degree of series, and we conducted causality analysis. We found a causality relationship between net foreign debt stock and economic growth in causality analyses performed for Turkey. The empirical results of this study indicate that there is a causality relationship, including both positive and negative aspects, between net foreign debt stock and economic growth. The results of our testing showed a significant causal relationship between the variables.     

Growth in a time of austerity: evidence from the UK

This paper uses an empirical approach to test the specific causal relationship between debt and growth in the UK, in the context of the debate surrounding the use of a policy known as austerity measures. This time series perspective makes use of more recent Granger causality and cointegration tests that allow for non‐stationarity in macroeconomic time series data in the presence of structural breaks. Controlling for exogenous shocks associated with the period around the financial crisis, we find no evidence of a causal relationship between economic growth and public debt for the UK.     

Growth Effects of Fiscal Policy and Debt Sustainability in the EU

In this paper we study the relationship of fiscal policy and economicperformance of some core countries in the EU. Our aim is to find outwhether public deficit and public debt have consequences for real variables in the economies we consider. The background of our empirical study is a growth model that provides us with some predictions on the relationship between fiscal policy and economic growth. In a first step we then use Granger causality tests to analyze empirically whether some of the implications of our model arecompatible with the data. In a second step, we investigate whether the fiscalpolicies of the member states have been sustainable. Given this information,we then pursue the question of whether differences in the fiscal positions ofcountries have consequences as concerns the outcome of our empirical testsof step one. Finally, we study whether the impact of the public deficit ratiodepends on the magnitude of the debt ratio.     

“Twin deficits” in Greece: in search of causality

Abstract:

The paper discusses the trajectories of the Greek public deficit and sovereign debt between 1980 and 2010 and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the external deficits in the period after 1995, the post–Maastricht Treaty period. We argue that, due to the European monetary unification process and the adoption of the common currency, causality ran from the external deficit to the public deficit. This hypothesis is tested econometrically using both Granger causality and cointegration analyses. We find empirical support for this hypothesis.     

Public Debt,Economic Growth and the Real Interest Rate: A Panel VAR Approach to EU and OECD Countries

ABSTRACT

We investigate the causal relationship between public debt ratios and economic growth rates for 31 EU and OECD countries. We estimate a panel VAR model that incorporates the long-term real interest rate on government bonds as a vehicle to transmit shocks in both the public debt to GDP ratio and the economic growth rate. We find no causal link from public debt to growth, irrespective of the levels of the public debt ratio. Rather, we find a causal relationship from growth to public debt. In high-debt countries, the direct negative impact of growth on public debt is enhanced by an increase in the long-term real interest rate, which in its turn decreases interest-sensitive demand and leads to a further increase in the public debt ratio.     

The long-term consequences of external debt: Revisiting the evidence and inspecting the mechanism using panel VARs

We estimate a panel vector autoregression model to examine the relationship between external debt and economic growth. We use a large dataset based on 123 countries, classified according to income levels over the period 1990–2015. While total external debt appears to have a negative effect on growth rate overall, it is positively associated with income growth in the lower- and upper-middle income countries. Further disaggregating external debt into its components reveals that public external debt negatively affects economic growth across all income categories of countries, whereas the impact of private external debt is not statistically significant. We do not detect a common threshold level in the relationship between public debt and economic growth across countries. Savings and investment are the primary channels through which external debt impacts economic growth. These results are robust to various model specifications, additional controls, and identifying restrictions.     

An empirical characterization of the effects of public debt on economic growth

Based on a data set of 115 economies, this article empirically investigates the relation between public debt and economic growth. Using the World Bank’s classification for income groups, we initially find that those countries that present the lowest public debt are characterized by the highest economic growth, while the smallest growth rates are associated with the highest public debt. Nevertheless, this conclusion is tempered when we analyse the countries by income level: low-income countries have a different behaviour with respect to lower-middle, upper-middle and high-income countries. When using the IMF’s country classification, the results do not suggest a clear pattern in the public debt–economic growth nexus across different countries, but indicate a heterogeneous relationship between such key macroeconomic variables.     

ON THE IMPACT OF PUBLIC DEBT ON ECONOMIC GROWTH: DOES COUNTRY RISK MATTER?

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 C33, E02, H63, O43)     

Empirical evidence regarding electricity consumption and urban economic growth

Links between electricity consumption and economic growth are fairly well documented for national economies, but less so for urban economies. The analysis of such relationships at the sub-national level of aggregation can potentially offer a useful complement to national-level research. This study examines the electricity-growth nexus in El Paso, Texas, while also considering the roles of capital stocks and employment. Testing suggests the presence of cointegrating relationships and a vector error correction model is estimated. Granger causality tests reveal the absence of causality between electricity consumption and personal income, implying that energy conservation efforts will have a neutral effect on economic growth. Furthermore, the results indicate that causality runs from the capital stock and employment to both personal income and electricity consumption. This echoes previous research regarding the importance of accounting for capital and labour factors of production in studies of aggregate electricity utilization and economic performance. The methodology used in this analysis to develop a broad synthetic measure of the urban capital stock, including various categories of public infrastructure, can also be applied to other regions and urban economies.     

External Debt and Growth in Emerging Economies

The paper studies the relationship between external debt and economic growth in a panel of emerging countries. A number of economists have proposed different methods of analysing the nexus between economic growth and public debt. The paper investigates the debt-growth nexus using a linear and non-linear specification, employing a panel ARDL model on 13 emerging countries during the period 1990–2016. The results show that there is no robust effect of debt on economic growth in the long run; however in the short run, external debt is negatively and significantly correlated to economic growth.     

A quantitative reassessment of the finance–growth nexus: evidence from a multivariate VAR

The long-run relationship between financial development and economic growth is examined in a multivariate vector autoregression (VAR) framework using 10 sample countries. Difficulties surrounding the cross-country regressions and bivariate time series studies are outlined. The long-run financial development and output relationships are identified in a cointegrating framework through tests of over-identifying restrictions. We find bi-directional causality between financial development and economic growth in all the sample countries, conclusions that stand distinct from those in the existing empirical literature. We attribute our findings to: (i) analysis of a higher dimensional system, (ii) a new method of identifying the long-run economic relationships, and (iii) a new approach to long-run causality testing.     

IN SEARCH OF AN OPTIMAL DEBT RATIO FOR ECONOMIC GROWTH

This paper extends the work of Barro (1979), Eisner (1992), foines (1991), Sawhney and DiPietro (1994), and others and examines whether an optimal debt ratio exists that will maximize economic growth. The growth rate of real GDP is specified as a function of the debt ratio, the debt ratio squared, the growth rates of labor employment, capital services, money stock, and a trend variable. The sample ranges from 1960 to 1991. Hypothesis tests show that economic growth and its determinants, including the debt ratio are cointegrated and have a long-run stable relationship. Results also indicate that the optimal debt ratio is 38.4 percent for debt held by the public and 48.9 percent for total debt. Thus, the current (1993) debt ratios of 50.9 percent for the debt held by the public and 68.2 percent for total debt are far greater than the desirable levels.     

On the time-varying nature of the debt-growth nexus: evidence from the euro area

This article uses the DCC-generalized autoregressive conditional heteroskedasticity model to investigate the existence of time-varying correlations between public debt and economic growth. To that end, we use annual data from both central and peripheral countries of the euro area for the period 1961–2015. The results suggest that the relationships between these variables are time-varying and that in some countries and for some periods, there is a positive association between them.     

Government debt and economic growth in the G7 countries: are there any causal linkages?

This article investigates the direction of Granger-causality between debt and growth in the G7 countries using quarterly data from 1980 to 2013. We analyse the causal structure both in level data using the Toda and Yamamoto causality test, and with differenced data by means of dynamic impulse response analysis. Results indicate that growth causes debt rather than the other way around. We find the effect of growth on debt to be unambiguously negative in all cases of significant causality, but to be a short- to medium-run phenomenon with no lasting impact. We also find that results are sensitive to the sample period, with causality from growth to debt much more prevalent when the sample period includes the recent financial crisis.     

The 90% public debt threshold: the rise and fall of a stylized fact

We put the original Reinhart–Rogoff data-set, made public by Herndon et al. (2013), to a formal econometric test to identify public debt thresholds endogenously. We show that the nonlinear relation between debt and growth is not robust. Taken with a pinch of salt, our results suggest, however, that a negative association between central government debt and growth may set in at debt levels as low as 20% of GDP. Further (and greater) thresholds may exist, but their magnitude is uncertain. For general government debt, the threshold is considerably higher at about 50%. Country-specific estimates reveal a large amount of cross-country heterogeneity. For some countries including the United States, a nonlinear negative link can be detected at about 30% of GDP. For others, no nonlinearities can be established. Our results are a formal econometric confirmation that the 90% public debt threshold is not in the Reinhart–Rogoff data. But our results also seem to suggest that public debt be associated with poor economic performance at fairly moderate public debt levels. The absence of threshold effects or low estimated thresholds may not preclude the emergence of further threshold effects, especially as public debt levels are rising to unprecedentedly high levels.     

Institutional arrangements and public debt threshold limits

Inter-governmental Organisations, such as the IMF and OECD, advocate a medium-term reduction in deficit spending and public debt accumulation among advanced economies to satisfy conditions of fiscal sustainability. Buttressing the need for fiscal austerity, Reinhart and Rogoff claim to have identified a so-called tipping point, beyond which public debt accumulation negatively affects economic growth. While recent data seem to indicate that some Eurozone (non-sovereign) economies have reached a tipping point, for other advanced (sovereign) economies, such as the US, UK and Japan, this is not clear. The mainstream tipping point literature however does not recognise the importance of institutional arrangements for the conduct of fiscal and monetary policy. Furthermore, the literature sheds little light on the transmission mechanism between high public debt and low economic growth. This article draws on the principles of Modern Monetary Theory to discuss institutional arrangements and to justify the theoretical and empirical focus on Eurozone economies. The empirical analysis unpacks the transmission mechanism(s) to reveal that Eurozone economies have reached a public debt threshold limit with respect to long-term interest rates.     

Multi-scale causality between saving and growth: evidence from China

In this article, we use a wavelet-based Granger causality approach to examine the multi-scale causality between saving and growth for China. We show that significant causality runs from saving to growth for most timescales, whereas multi-scale causality from growth to saving is not statistically significant. Our subsample results suggest that economic systems have remarkable effects on the multi-scale causality. Overall, our study provides a novel perspective to deeply explore the relationships between macroeconomic variables.     

城市化、FDI与经济增长间关系的实证分析——以北京市为例

利用1987—2011年北京的时间序列数据,采用单位根检验、协整检验、误差修正模型、Granger因果关系检验和脉冲函数分析等方法和模型,对城市化、FDI与经济增长三者间的长期和短期关系进行了检验和分析。结果表明:城市化与经济增长互为Granger因果关系;城市化与FDI也互为Granger因果关系;经济增长是FDI的Granger原因,但FDI不是经济增长的Granger原因的概率高达31.8%。     

Financial depth,internet penetration rates and economic growth: country-panel evidence

The article investigates causal relationships between internet penetration rates, financial depth and per capita economic growth in the Next-11 countries. Using panel vector autoregressive (VAR) approaches, our empirical results show that these variables are cointegrated. Moreover, we find bidirectional causality between internet penetration rates and economic growth, and between financial depth and economic growth in the short run.     

Public investment,national debt,and economic growth: The role of debt finance under dynamic inefficiency

Public investment is a central issue in the dynamic analyses of fiscal policy and economic growth. Debt financing for public investment and its effects have recently received great attention because interest rates have been low, almost invariably remaining below economic growth rates. This paper presents examination of the effects of debt-financed public investment subject to a simple fiscal rule in an overlapping generations model with public capital. This topic includes capital budgeting and the debt–deficit criterion of the Maastricht treaty. We show herein that debt financing for public investment enhances economic growth if an economy is dynamically inefficient and if public capital has a sufficiently large productivity effect. Moreover, it reduces economic growth rates in a dynamically efficient economy. Debt and growth can have a monotonic or non-monotonic relation, depending on the steady-state interest rate, growth rate, and productivity effect of public investment. The findings indicate that debt–growth relations match with controversial empirical evidence. Furthermore, existing generations choose perfect debt finance if dynamic inefficiency exists. In contrast, a balanced budget is preferred in a dynamically efficient economy with low productivity effects of public capital. However, an economy with high productivity effects of public capital might cho ose debt financing. This paper contributes to the elucidation of currently emphasized issues of public investment.