Public Debt and Economic Growth nexus in Latin America: A Dynamic Panel ARDL approach

Madrid

Conferencia; XXIII Conference on International Economics; 2022

AEEFI

This study identifies the short- and long-run impact of debt on economic growth as well as the direction by which the implicit causality between debt and growth runs for 16 Latin American countries over the period 1980-2019. Using a panel ARDL approach, public debt boosts economic growth in the short-run. Nevertheless, it deteriorates economic performance in the long-run. The gross capital formation contributes to higher economic living conditions both in the short- and long-run. The degree of openness favors economic growth in the long-run. An erosion of economic growth is achieved due to higher inflation rate in both short- and long-run, and to population growth in the long-run. The findings also suggest there is a bidirectional panel Granger causality between economic growth and debt. This means that country?s level of public indebtedness is likely to grow when the growth rate of GDP is low.