Date of Award

1-1-2012

Document Type

Campus Access Thesis

Department

Moore School of Business

Sub-Department

Economics

First Advisor

John H McDermott

Second Advisor

William Hauk

Abstract

This paper examines the linear relationship between high debt and long-term economic growth using a panel data set of 76 advanced and emerging economies over 1980-2009. The analysis uses a standard growth model conditioned with a large group of the usual determinants of growth and complemented with several debt indicators. Various econometric techniques and regression specifications deliver results generally robust to estimation concerns including omitted variable bias and measurement errors. The empirical results suggest an average 0.2 percentage point decline in real GDP per capita growth per year when the debt to GDP ratio increases by 10 percentage points. The findings also suggest that the inverse relationship between debt and growth is slightly stronger with higher levels of debt servicing (a 0.3-0.5 percentage point slowdown of economic growth). The efficiency of investment is also found to influence the effect of debt on growth more than the volume of investment.

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