ASYMMETRIC IMPACTS OF PUBLIC DEBT ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM VIETNAM
Keywords:Economic, Growth, Public, Debt, Nardl, Vietnam
Purpose: The objective studies the influence of government debt on the expansion of the Vietnamese economy was the subject of the research presented in this article.
Theoretical framework: Most governments in developing nations have budget deficits due to excessive spending and inadequate revenue. When the government chooses to pay the budget deficit through borrowing, it incurs a liability known as public debt and public debt on economic growth.
Design/methodology/approach: In regression analysis involving time series data, if the regression model contains the variables' present values and the lagged values (past values), this model is known as the lagged distribution model. If the model's explanatory variables include one or more lagged values of the dependent variable, the model is called the autoregressive model. Nonlinear Auto Regressive Distributed Lag regression was applied.
Findings: The findings reveal that government debt has a considerable and disproportionate effect on sustained economic growth in the short and long run using a Nonlinear Autoregressive Distributed Lag (NARDL) model with quarterly data over twenty years beginning in 2000.
Research, Practical & Social implications: The results indicate a disproportional association between public sector debt levels and short- and long-term economic growth. The results are consistent with recent empirical studies showing a nonlinear relationship between some nations' public debt and economic development.
Originality/value: Government debt should support short- and long-term economic growth through funding production. Consequently, government debt should not burden the economy when the high amount of debt exceeds the capacity to repay.
Abu, B., & Hassan (2008). Empirical evaluation on the external debt of Malaysia. International Business & Economics Research Journal, 7(2), 95-108.
Abubakar, A. B., & Suleiman, O. M. (2020). Permanent and transitory effect of public debt on economic growth. Journal of Economic Studies, 48(5), 1064-1083.
Adam, C. S., & Bevan, D. L. (2005). Fiscal deficits and growth in developing countries. Journal of Public Economics, 89(4), 571-597.
Al-Obaidi, M. B. M., & Almashhadani, A. N. (2022). Assessment of the financial sustainability of external debt in Iraq: An econometric analysis. International Journal of Professional Business Review, 7(5), 1-24.
Alshammary, M. D., Karim, Z. A., Khalid, N., & Ahmad, R. (2020). Debt-growth nexus in the MENA Region: Evidence from a panel threshold analysis. Economies, 8(4), 1-12.
Ardagna, S., Caselli, F., & Lane, T. (2007). Fiscal discipline and the cost of public debt service: some estimates for OECD countries. Journal of Macroeconomics, 7(1), 1-33.
Baa, R., & Chattoraj, A. K. (2022). The significance, role, and need for public sector enterprises in economic growth. International Journal of Professional Business Review, 7(5), 1-16.
Babu, J. O., Kiprop, S., Kalio, A. M., & Gisore, M. (2014). External debt and economic growth in the East Africa community. African Journal of Business Management, 8(21), 1011-1018.
Barro, R. J. (1989). The Ricardian approach to budget deficits. Journal of Economic Perspectives, 3(2), 37-54.
Baum, A., Checherita-Westphal, C., & Rother, P. (2012). Debt and growth: New evidence for the Euro Area. ECB Working Paper, 1450(1), 1-22.
Bökemeier, B., & Greiner, A. (2015). On the relation between public debt and economic growth: an empirical investigation. Economics and Business Letters, 4(2), 137-150.
Buchanan, J. M., & Roback, J. (1987). The incidence and effects of public debt in the absence of fiscal illusion. Public Finance Quarterly, 15(1), 5-25.
Buffie, E. F., Berg, A., Pattillo, C., Portillo, R., & Zanna, L. F. (2012). Public investment, growth, and debt sustainability: Putting together the pieces (IMF Working Paper No. 12/144). Washington, DC: International Monetary Fund.
Caner, M., Grennes, T., & Koehler-Geib, F. (2010). Finding the tipping point: When sovereign debt turns bad. In C. Braga & G. Vincelette (Eds.), Sovereign debt and the financial crisis: Will this time be different? Washington, DC: The World Bank, 1-460.
Checherita-Westphal, C., & Rother, P. (2010). The impact of high and growing government debt on economic growth. An empirical investigation for the Euro Area. ECB Working Paper. No. 1237. August 2010.
Choong, C. K., Lau, E., Liew, V. K. S., & Puah, C. H. (2010). Do debts foster economic growth? The experience of Malaysia. African Journal of Business Management, 4(8), 1564-1575.
Christensen, J. E. (2004). Domestic debt markets in Sub-Saharan Africa (IMF Working Paper No. 04/46). Washington, DC: International Monetary Fund.
Claessens, S. (1990). The debt Laffer curve: Some estimates. World Development, 18(12), 1671-1677
Clements, B., Bhattacharya, R., & Nguyen, T. Q. (2003). External debt, public investment and growth in low-income countries (IMF Working Paper No. 03/249). Washington, DC: International Monetary Fund.
Cochrane, J. H. (2011b). Understanding policy in the great recession: Some unpleasant fiscal arithmetic. European Economic Review, 55(4), 2-30.
Cordella, T., Ricci, L. A., & Ruiz-Arranz, M. (2010). Debt Overhang or Debt Irrelevance?. IMF Staff Papers, 57(1), 1-24.
Cox, D., & Jappelli, T. (1990). Credit rationing and private transfers: Evidence from survey data. Review of Economics and Statistics, 72(4), 445-454.
Diamond, P. A. (1965). National debt in a neoclassical growth model. American Economic Review, 55(5), 1126-1150.
Donayre, L., & Taivan, A. (2017). Causality between public debt and real growth in the OECD: a country by country analysis. Journal of Applied Economics and Policy, 36(2), 156-170.
Eberhardt, M., & Presbitero, A. F. (2015). Public Debt and Growth: Heterogeneity and Non-linearity. Journal of International Economics, 97(1), 45-58.
Égert, B. (2012). Public debt, economic growth, and nonlinear effects: Myth or reality?. OECD Economic Department Working Paper, 9(3), 1-23.
Égert, B. (2015). Public Debt, economic growth, and nonlinear effects: myth or reality?. Journal of Macroeconomics, 43(4), 226-238.
Freeman, S., & Webber, D. J. (2009). Basic needs, government debt, and economic growth. The World Economy, 32(6), 965-994.
Greiner, A. (2006). Human capital formation, public debt, and economic growth. Journal of Macroeconomics, 30(3), 415-427.
Greiner, A. (2011). Economic growth, public debt, and welfare: Comparing three budgetary rules. German Economic Review, 12(3), 205-222.
Gulde, A., Pattillo, C., & Christensen, J. (2006). Sub-Saharan Africa: Financial sector challenges. Washington, DC: International Monetary Fund.
Herndon, T., Ash, M., & Pollin, R. (2013). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff (PERI Working Paper No. 322). Amherst: Political Economy Research Institute, University of Massachusetts.
Herndon, T., Ash, M., & Pollin, R. (2014). Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff. Cambridge Journal of Economics, 38(4), 257-279.
International Monetary Fund. (2005). Monetary and fiscal policy design issues in low-income countries. Washington, DC: Author.
International Monetary Fund. (2013). Public sector debt statistics: A guide for compilers and users. Washington, DC: Author.
Karadam, D. Y. (2018). An investigation of nonlinear effects of debt on growth. Journal of Economic Asymmetries, 18(2), 1-13.
Kharusi, S. A., & Ada, M. S. (2018). External debt and economic growth: the case of emerging economy. Journal of Economic Integration, 33(1), 1141-1157.
Kirchner, M., Cimadomo, J., & Hauptmeier, S. (2010). Transmission of government spending shocks in the Euro Area: Time Variation and Driving Forces (ECB Working Paper Series No. 1219). Frankfurt: ECB.
Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29(3), 253-268.
Krugman, P. (1989). Financing vs. forgiving a debt overhang. NBER Working Paper Series N 2486.
Krugman, P. (2013). How the case for austerity has crumbled. New York Review (June 6).
Krumm, L. K. (1985). The external debt of Sub-Saharan Africa: origins, magnitude, and implications for action. Working Paper, 741, World Bank, Washington, DC.
Kumar, M. S., & Woo, J. (2010). Public debt and growth (IMF Working Paper 10/174). Washington, D.C.: IMF.
Lim, J. J. (2019). Growth in the shadow of debt. Journal of Banking and Finance, 103(3), 98-112
Lybeck, J. A. (1988). Comparing government growth rates: The non-institutional vs. the institutional approach. In J. A. Lybeck, & M. Henderson (Eds.), Explaining the growth of government (pp. 29-48). Amsterdam, the Netherlands: North-Holland.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Ndikumana, L. & Boyce, J. K. (2003). Public debts and private assets: Explaining capital flight from Sub-Saharan African countries. World Development, 31(1), 107-130.
Ndikumana, L., & Boyce, J. K. (2015). Africa's odious debts: How foreign loans and capital flight bled a continent. Journal of Economic and Social Thought, 3(2), 217-223.
Ogunmuyiwa, M. S. (2011). Does external debt promote economic growth in Nigeria? Current Research Journal of Economic Theory, 3(1), 29-35.
Owusu-Nantwi, V., & Erickson, C. (2016). Public debt and economic growth in Ghana. African Development Review, 28(3), 116-126.
Panizza, U., & Presbitero, A. F. (2012). Public debt and economic growth: Is there a causal effect? POLIS Working Paper. No. 198. April 2012.
Pattillo, C., Poirson, H., & Ricci, L. (2002). External debt and growth (IMF Working Paper No. 02/69). Washington, DC: International Monetary Fund.
Pham, T. H. A., Mai, B. D., & Nguyen, T. T. (2020). The Impact of Public Debt on Economic Growth of ASEAN 1 3 Countries. International Journal of Economics and Business Administration, 8(4), 87-100.
Presbitero, A. F. (2010). The debt-growth nexus in Jamaica. Rome, Italy: Università Politec-nica delle Marche.
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 1-9.
Reinhart, C. M., & Rogoff, K. S. (2012). From the financial crash to the debt crisis. American Economic Review, 101(5), 1676-1706.
Saifuddin, M. (2016). Public debt and economic growth: Evidence from Bangladesh. Global Journal of Management and Business Research: Economics and Commerce, 16(5), 65-73.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modeling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in Honor of Peter Schmidt, pp. 281-314. Springer New York
Shkolnyk, I., & Koilo, V. (2018). The relationship between external debt and economic growth: empirical evidence from Ukraine and other emerging economies. Investment Management and Financial Innovations, 15(1), 387-400.
Stambuli, P. K. (1998). Causes and consequences of the 1982 world debt crisis. Predoctoral Research Paper Department of Economics University of Surrey Guildford, 3(2), 1-35.
Swamy, V. (2020). Debt and growth: Decomposing the cause and effect relationship. International Journal of Finance and Economics, 25(2), 141-56.
Teles, V. K., & Mussolini, C. C. (2014). Public debt and the limits of fiscal policy to increase economic growth. European Economic Review, 66(5), 1-15.
Topal, P. (2014). Threshold effects of public debt on economic growth in the euro area economies. SSRN Working Paper, Social Science Research Network.
Uzun, A., Kabadayi, B., & Emsen, O. S. (2012). The impacts of external debt on economic growth in transition economies. Chinese Business Review, 11(3), 491-499.
Vinokurov, E., Lavrova, N., & Petrenko, V. (2020). Optimal debt and the quality of institutions. Eurasian Development Fund for Stabilization and Development Working Paper No. 20/4, Eurasian Development Bank.
Woo, J., & Kumar, M. S. (2015). Public debt and growth. Economica, 82(328), 705-739.
Yeasmin, F., & Chowdhury, M. N. M. (2014). Impact of foreign debt on economic growth in Bangladesh: An econometrics analysis. International Journal of Developing and Emerging Economics, 2(4), 1-23.
How to Cite
Copyright (c) 2023 Dung Xuan Nguyen, Trung Duc Nguyen
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Authors who publish in this journal agree to the following terms: the author(s) authorize(s) the publication of the text in the journal;
The author(s) ensure(s) that the contribution is original and unpublished and that it is not in the process of evaluation by another journal;
The journal is not responsible for the views, ideas and concepts presented in articles, and these are the sole responsibility of the author(s);
The publishers reserve the right to make textual adjustments and adapt texts to meet with publication standards.
Authors retain copyright and grant the journal the right to first publication, with the work simultaneously licensed under the Creative Commons Atribuição NãoComercial 4.0 (http://creativecommons.org/licenses/by-nc/4.0/), which allows the work to be shared with recognized authorship and initial publication in this journal.
Authors are allowed to assume additional contracts separately, for non-exclusive distribution of the version of the work published in this journal (e.g. publish in institutional repository or as a book chapter), with recognition of authorship and initial publication in this journal.
Authors are allowed and are encouraged to publish and distribute their work online (e.g. in institutional repositories or on a personal web page) at any point before or during the editorial process, as this can generate positive effects, as well as increase the impact and citations of the published work (see the effect of Free Access) at http://opcit.eprints.org/oacitation-biblio.html