Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach
This study investigates the relationship between public debt and economic growth using panel data from 10 European Countries. Using a panel ARDL approach, the results show that public debt, government consumption, and the real exchange rate are negatively associated with economic growth both in the...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Editura Universităţii „Alexandru Ioan Cuza” din Iaşi / Alexandru Ioan Cuza University of Iasi Publishing house
2020-09-01
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| Series: | Scientific Annals of Economics and Business |
| Subjects: | |
| Online Access: | http://saeb.feaa.uaic.ro/index.php/saeb/article/view/379 |
| _version_ | 1818647632293134336 |
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| author | Themba Gilbert Chirwa Nicholas M. Odhiambo |
| author_facet | Themba Gilbert Chirwa Nicholas M. Odhiambo |
| author_sort | Themba Gilbert Chirwa |
| collection | DOAJ |
| description | This study investigates the relationship between public debt and economic growth using panel data from 10 European Countries. Using a panel ARDL approach, the results show that public debt, government consumption, and the real exchange rate are negatively associated with economic growth both in the short- and long-run. Furthermore, investment and the real interest rate were found to be positively associated with economic growth both in the short- and long-run. Inflation and trade openness were found to have mixed results: both were negatively associated with economic growth in the long run while in the short run the relationship was positive and consistent across groups with a few exceptions. Second, the study results also showed that debt is nonlinear at the 70% threshold only in the long-run while in the short run the results were consistently negative and across groups. The study results have significant policy implications for the Stability and Growth Pact of the Euro area. It is recommended that member states should ensure fiscal sustainability by balancing their fiscal budgets to effectively reduce the accumulation of public debt as well as implementing structural reforms that will improve the efficiency of investment as well as macroeconomic stability. |
| first_indexed | 2024-12-17T01:05:37Z |
| format | Article |
| id | doaj.art-9576af46f62a4cf79e1422344b015d8a |
| institution | Directory Open Access Journal |
| issn | 2501-3165 2501-3165 |
| language | English |
| last_indexed | 2024-12-17T01:05:37Z |
| publishDate | 2020-09-01 |
| publisher | Editura Universităţii „Alexandru Ioan Cuza” din Iaşi / Alexandru Ioan Cuza University of Iasi Publishing house |
| record_format | Article |
| series | Scientific Annals of Economics and Business |
| spelling | doaj.art-9576af46f62a4cf79e1422344b015d8a2022-12-21T22:09:17ZengEditura Universităţii „Alexandru Ioan Cuza” din Iaşi / Alexandru Ioan Cuza University of Iasi Publishing houseScientific Annals of Economics and Business2501-31652501-31652020-09-01673291310176Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL ApproachThemba Gilbert Chirwa0Nicholas M. Odhiambo1University of South AfricaUniversity of South AfricaThis study investigates the relationship between public debt and economic growth using panel data from 10 European Countries. Using a panel ARDL approach, the results show that public debt, government consumption, and the real exchange rate are negatively associated with economic growth both in the short- and long-run. Furthermore, investment and the real interest rate were found to be positively associated with economic growth both in the short- and long-run. Inflation and trade openness were found to have mixed results: both were negatively associated with economic growth in the long run while in the short run the relationship was positive and consistent across groups with a few exceptions. Second, the study results also showed that debt is nonlinear at the 70% threshold only in the long-run while in the short run the results were consistently negative and across groups. The study results have significant policy implications for the Stability and Growth Pact of the Euro area. It is recommended that member states should ensure fiscal sustainability by balancing their fiscal budgets to effectively reduce the accumulation of public debt as well as implementing structural reforms that will improve the efficiency of investment as well as macroeconomic stability.http://saeb.feaa.uaic.ro/index.php/saeb/article/view/379euro areapanel ardl modelscointegrationpublic debteconomic growth. |
| spellingShingle | Themba Gilbert Chirwa Nicholas M. Odhiambo Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach Scientific Annals of Economics and Business euro area panel ardl models cointegration public debt economic growth. |
| title | Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach |
| title_full | Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach |
| title_fullStr | Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach |
| title_full_unstemmed | Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach |
| title_short | Public Debt and Economic Growth Nexus in the Euro Area: A Dynamic Panel ARDL Approach |
| title_sort | public debt and economic growth nexus in the euro area a dynamic panel ardl approach |
| topic | euro area panel ardl models cointegration public debt economic growth. |
| url | http://saeb.feaa.uaic.ro/index.php/saeb/article/view/379 |
| work_keys_str_mv | AT thembagilbertchirwa publicdebtandeconomicgrowthnexusintheeuroareaadynamicpanelardlapproach AT nicholasmodhiambo publicdebtandeconomicgrowthnexusintheeuroareaadynamicpanelardlapproach |