Debt-Growth Nexus and Latin America

Using a panel ARDL approach, we novelty explore the debt-growth nexus for 16 Latin American countries during 40 years whereas accounting for the bi-directional causality. We find that public debt temporarily boosts economic growth but discourages it in the long-run. While the gross capital formation contributes to economic growth in both the short- and the long-run, the degree of openness of the economy only impacts in the long-run. A higher inflation rate erodes economic growth at all times whereas population does so in the long-run. Our findings suggest a bidirectional causality between debt and economic growth.