Determinants of growth in rich countries : non-linear effects of debt

Abstract

This paper explores the impact of high public debt on long-run economic growth. The analysis, based on a panel of 38 advanced economies over almost four decades, takes into account a broad range of determinants of growth and addresses a variety of potential estimation problems including reverse causality and endogeneity. The empirical results are not significant enough to determine a negative relation between debt and growth. Results for other determinants of growth are not in disaccord with the theory: we find evidence of conditional convergence, openness of an economy andeducation promote growth, while banking crises and inflation seem to undermine it.