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Debt-growth causality and its limit in developing Asia

Crawford School of Public Policy | Arndt-Corden Department of Economics
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Event details

PhD Seminar (Econ)

Date & time

Friday 07 February 2020
11.00am–12.00pm

Venue

Miller Theatre Level 1, Old Canberra House Building 73, Lennox Crossing, ANU

Speaker

Shanika Rathnayake

Contacts

Ryan Edwards

The paper examines the causal effect of public debt on economic growth in developing Asia over the last two decades, using an instrumental variable approach. The author equipped the debt-to-GDP ratio with multiple instruments, one of which is a new index to address the potential endogeneity in statistical modeling of debt-growth nexus. The multiple instruments hold the strength of identification. The consistent estimations provide robust evidence for the detrimental impact of debt on growth. The estimation of a kinked constrained IV-GMM estimator finds a statistically significant debt threshold effect at around 50-60 per cent of GDP, where the growth pays off significantly.

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