This analysis looks at the impact of government debt on economic growth by relying on recent research and new findings. Using information from 10 developing nations, we estimate a regression (PSTR) where the effect of public debt on GDP growth changes only after reaching a certain level of debt. We used government spending, investment, industry and services employment and trade openness indicators from the World Bank. Because of the results from unit-root tests, correlation checks and linearity tests, we are using our method. The major result is that debt and growth follow an inverted U-shape. For debt below 60% of GDP, a rise in debt is linked to slightly more growth, but once the debt-GDP ratio is above 61%, it tends to reduce growth. The result is consistent with recent research that shows turning points occurring at around 50–65%. Moderate spending and increased investment help boost growth, but they are less effective when the public debt is high, perhaps due to crowding out and a decline in how efficiently resources are used. These results do not change when using different methods. All in all, our findings suggest that handling debt wisely is necessary: using some debt to finance infrastructure and social programs can help economic growth, but after a certain limit, it no longer does. Therefore, policymakers should prevent large deficits and maintain moderate debt to encourage economic growth.
Tasawar et al. (Wed,) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: