Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/115418
Authors: 
Calderón, César
Fuentes, J. Rodrigo
Year of Publication: 
2013
Series/Report no.: 
IDB Working Paper Series IDB-WP-424
Abstract: 
The growth prospects of a nation are stymied by the burden of government debt. This study has two goals: first, it tests whether public debt hinders growth; and, second, it explores whether economic policy ameliorates this effect. A large panel data of countries for 1970-2010 reveal a negative and robust effect of public debt on growth. Strong institutions, high quality domestic policies, and outward-oriented policies partly mitigate this adverse effect. An enhanced policy environment and its interaction with public debt has helped explain the improved growth performance of industrial and developing countries for the years 2001-05 compared to the years 1991-95. Viewing the actual performance of the Latin America and the Caribbean region, South America encompasses the group of countries more benefited by improvement of economic policies, while Central America and the Caribbean lag considerably. A simultaneous sharp reduction in public debt and an improvement in the policy environment induce an increase in the growth rate per capita of 1.7 percentage points for the Caribbean and 2 percentage points for South America. A more conservative scenario that considers an upgrade in quality of policies and a reduction of public debt leads to lower but still significant growth benefits for the Caribbean and South America, by 0.85 and 1.5 percentage points, respectively.
Subjects: 
Public debt
policy environment
growth
JEL: 
O11
O47
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
916.11 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.