Public debt and economic growth: is there a causal effect?

Panizza, Ugo ; Presbitero, Andrea F

Ancona : MOFIR, 2012 . - 47 p.

MOFIR working paper ; no. 65

Abstract: This paper uses an instrumental variable approach to study whether public debt has a causal effect on economic growth in a sample of OECD countries. The results are consistent with the existing literature that has found a negative correlation between debt and growth. However, the link between debt and growth disappears once we instrument debt with a variable that captures valuation effects brought about by the interaction between foreign currency debt and exchange rate volatility. We conduct a battery of robustness tests and show that our results are not affected by weak instrument problems and are robust to relaxing our exclusion restriction.


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Academic Departments > International Economics Department
Research Clusters > Development Policies and Practices
Research Clusters > Culture, Identity and Religion
Research Clusters > Trade and Economic Integration
Research Clusters > Finance and Development
Research Clusters > Governance
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 Record created 2013-05-21, last modified 2017-10-24


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