Public Debt and Economic Growth Nexus in Latin America: A Dynamic Panel ARDL Approach

Alalá de Henares

Congreso; XXIV Congress on International Economics; 2023

Asociación Española de Economía y Finanzas Internacionales

We explore the short- and long-run nexus of debt on GPD growth for 16 Latin American countries over the period 1980-2019 whilst accounting for the bi-directional causality of the relationship. Using a panel ARDL novel approach, we find that public debt temporarily boosts economic growth but discourages it in the long-run. According to our model, 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 also suggest there is a bidirectional causality between debt and economic growth.