Government Debt and Growth: The Role of R&D
IMF Working Papers, February 7, 2025
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- Government Debt and Growth: The Role of R&D
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Bibliographic details
- Authors: Can Sever
- Published: February 7, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229001090.001
Summary
- Economic growth in the advanced economies (AEs) has been slowing down since the early 2000s, while government debt ratios have been rising.
- The recent surge in debt at the onset of the Covid-19 pandemic has further intensified concerns about these phenomena.
- The paper explores a causal link from government debt to future growth through the impact of debt on R&D activities, using data from manufacturing industries since the 1980s.
Key findings
- Government debt leads to a decline in growth, particularly in R&D-intensive industries.
- The differential effect of government debt on R&D-intensive industries is persistent.
- More developed or open financial systems tend to mitigate this negative impact.
Data and scope
- Sectoral focus: manufacturing industries.
- Time coverage: since the 1980s.
- Geographic focus: advanced economies (AEs).
- Indicators emphasized: government debt ratios, R&D activity, industry-level growth.
Policy implications and interpretation
- The results highlight a transmission channel from government debt to aggregate growth via innovation and technological progress.
- Strengthening or opening financial systems can help mitigate the negative impact of government debt on R&D-intensive industries and thereby on growth.
- Consideration of the role of technological progress and innovation is important when assessing the growth consequences of government debt in AEs.
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- Working Paper