Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/239034 
Year of Publication: 
2019
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 12 [Issue:] 1 [Publisher:] MDPI [Place:] Basel [Year:] 2019 [Pages:] 1-22
Publisher: 
MDPI, Basel
Abstract: 
The new growth theories with an emphasis on fundamental determinants such as institutions suggest a non-linear cross-country growth process. In this paper, we investigate the public debt and economic growth relationship using the semi-parametric smooth coefficient approach that allows democracy to influence this relationship and parameter heterogeneity in the unknown functional form and addresses the endogeneity of variables. We find results consistent with the previous literature that identified a significant adverse effect of public debt on growth for the countries below a particular democracy level. However, we also find conclusive evidence that countries with high institutional quality have an adverse effect of public debt on growth for the period 1980-2009, as well as for the extended period including the years 2010-2014. A 10-percentage point increase in the debt-to-GDP ratio is associated with a 0.12% and 0.07% decrease in the subsequent 10-year period real GDP growth rate for the zero democracy countries and for the countries with a democracy score of 10, respectively.
Subjects: 
functional coefficients
local linear regression
nonparametric 2SLS estimator
series estimator
Solow economic growth convergence model
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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