Public debt and its impact on economic growth: a panel quantile regression approach for developing economies

Abstract

Previous studies on the relationship between government debt and economic growth have yielded diverse and often contradictory results. This study investigates the impact of public debt on economic growth in developing countries using a quantile regression approach with fixed effects and bootstrapping, covering the 10th to 90th percentiles of the economic growth distribution. The quantile groups are based on specific percentiles of economic growth across developing nations. Utilizing panel data from 127 developing countries between 2012 and 2019, the study draws on data from the World Development Indicators, the World Bank, and Transparency International. The findings reveal that public debt negatively affects economic growth, particularly in the 30th to 90th quantiles, suggesting that higher levels of economic growth are more adversely impacted by public debt. In contrast, trade openness and net foreign direct investment (FDI) significantly contribute to economic growth. Conversely, public debt, inflation, government spending, and corruption are found to impede growth. Other variables such as education expenditure, private debt, tax revenue, and labor force participation do not show a statistically significant effect on growth. These results underscore the critical importance of sound public debt governance and institutional quality in enhancing economic performance. The study contributes empirically and policy-wise to the discourse on the institutional effectiveness of public debt management in fostering sustainable growth in developing economies.