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Faculty of Economics

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Chudik, A., Mohaddes, K., Pesaran, M.H. and Raissi, M.

Is there a debt-threshold effect on output growth?

Review of Economics and Statistics

Vol. 99(1) pp. 135-150 (2017)

Abstract: This paper studies the relationship between public debt expansion and economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. We contribute theoretically by developing tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors. In the empirical application, using data on a sample of forty countries over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth. Regardless of the threshold, however, we find significant negative effects of public debt buildup on output growth.

Author links: Kamiar Mohaddes  

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Cambridge Working Paper in Economics Version of Paper: Is There a Debt-threshold Effect on Output Growth?, Chudik, A., Mohaddes, K., Pesaran, M. H. and Raissi, M., (2015)

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