This Time They Are Different: Heterogeneity and Nonlinearity in the Relationship Between Debt and Growth
IMF Working Papers, December 17, 2013
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Bibliographic details
- Authors: Markus Eberhardt, Andrea F Presbitero
- Published: December 17, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484309285.001
Study objective and methodological approach
- Objective: Study the long-run relationship between public debt and growth in a large panel of countries.
- Analytical emphasis:
- Take particular note of theoretical arguments and data considerations in modeling the debt–growth relationship as heterogeneous across countries.
- Investigate nonlinearities (debt thresholds) in both the cross-country and within-country dimensions.
- Employ novel methods and diagnostics from the time-series literature adapted for use in the panel.
- Keywords and technical terms used in the analysis: asymmetric ARDL, common factor model, debt coefficient, GDP ratio, linear regression, nonlinearity.
Key findings
- There is some support for a nonlinear relationship between debt and long-run growth across countries.
- There is no evidence for common debt thresholds within countries over time.
- Emphasis on heterogeneity: the debt–growth relationship should be modeled as heterogeneous across countries rather than assumed homogeneous.
Analytical implications (from the paper’s results)
- Cross-country analyses: nonlinearities (debt thresholds) can be present across countries, implying that average or pooled estimates may mask important nonlinearity across different country contexts.
- Within-country analyses: absence of common debt thresholds over time suggests that a single universal threshold applicable to every country-period is not supported by the evidence presented.