The multiple attempts at empirical evidence, yet recent, fail to truly dispel the theoretical vagueness of the effects of public debt on economic growth. The aim of this work is to demonstrate that public overindebtedness negatively impacts economic activity in developing countries. From estimation by the generalized moments’ method in the system of the relationship between economic growth and outstanding public debt on data of the Gabonese economy, we get that an increase in the public debt in this country, causes a deceleration of economic activity, thus reflecting a scissor effect between public debt trend and that of economic growth.
KeywordsPublic DebtEconomic GrowthGabonGMM
Reinhart, C.M. and Rogoff, K.S. (2009) This Time Is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.
Woodford, M. (1990) Public Debt as Private Liquidity. The American Economic Review, 80, 382-388.
Aiyagari, S. and Mc Grattan, E. (1998) The Optimum Quantity of Debt. Journal of Monetary Economics, 42, 447-469. https://doi.org/10.1016/S0304-3932(98)00031-2
Desbonnet, A. and Kankanamge, S. (2008) Fluctuations macroéconomiques et dette publique. Revue Economique, 59, 583-593. https://doi.org/10.3917/reco.593.0583
Barro, R. (1979) On the Determination of the Public Debt. Journal of Political Economy, 87, 940-971. https://doi.org/10.1086/260807
Bernheim, B.D. (1989) A Neoclassical Perspective on Budget Deficits. Journal of Economic Perspectives, 3, 55-72. https://doi.org/10.1257/jep.3.2.55
Diamond, P. (1965) National Debt in a Neo-Classical Growth Model. American Economic Review, 55, 1126-1150.
Olson, M. (1965) The Logic of Collective Action. Havard University Press, Cambridge.
Elmendorf, D. and Mankiw, G. (1999) Government Debt. In: Taylor, J. and Woodford, M., Ed., Handbook of Macroeconomics, Volume 1c, Elsevier, North Holland, 1615-1669.
De Grauwe, P. (2011) The Governance of a Fragile Eurozone. Working Document, 346 CEPS.
Cochrane, J. (2001) Long-Term Debt and Optimal Policy in the Fiscal Theory of the Price Level. Econometrica, 69, 69-116. https://doi.org/10.1111/1468-0262.00179
Nautet, M. and Van Meensel, L. (2011) Economic Impact of the Public Debt. Economic Review, 3.
Deppler, M. and Williamson, M. (1987) Capital Flight: Concepts, Measurement, and Issues, Staff Studies for the World Economic Outlook. International Monetary Fund, Washington DC, 39-58.
Ajayi, S.I. (1997) An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa. International Monetary Fund Research Department, Washington DC.
Corden, W.M. (1988) Debt Relief and Adjustment Incentives. IMF Staff Papers, 35, 628-643. https://doi.org/10.2307/3867113
Krugman, P. (1988) Financing vs. Forgiving a Debt Overhang. NBER Working Paper No. 6.
Krugman, P. (1988) Market-Based Debt-Reduction Schemes. NBER Working Paper No. 2587.
Elbadawi, I. and Ndulu, B. (1996) Long-Term Development and Sustainable Growth in Sub-Saharan Africa.
Bulow, J. and Rogoff, K. (1990) Cleaning Up Third World Debt without Getting Taken to the Cleaners. Journal of Economic Perspectives, 4, 31-42. https://doi.org/10.1257/jep.4.1.31
Easterly, W. (2002) What Did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans. Working Papers 11, Center for Global Development.
Asiedu, E. (2003) Foreign Direct Investment in Africa: The Role of Government Policy, Institutions and Political Instability. Working Paper, University of Kansas, Lawrence, KS.
Banquemondiale (2015) World Development Indicators. Cdrom.
Idlemouden and Raffinot (2005) Le fardeau virtuel de la dette extérieure. Eurisco Cahier No. 2005-03.
Eaton, J. and Gersovitz, M. (1981) Debt with Potential Repudiation: Theoretical and Empirical Analysis. Review of Economic Studies, 48, 289-309. https://doi.org/10.2307/2296886
Sachs, J. (1989) Conditionality, Debt Relief, and the Developing Country Debt Crisis. In: Sachs, J.D., Ed., Developing Country Debt and Economic Performance, Vol. 1: The International Financial System, University of Chicago Press, Chicago, 255-295.
Sachs, J. (1989) Developing Country Debt and the World Economy. University of Chicago Press, Chicago. https://doi.org/10.7208/chicago/9780226733234.001.0001
Cohen, D. (1993) Low Investment and Large LDC Debt in the 1980’s. American Economic Review, 83, 436-449.
Gurbuz, B. and Raffinot, M. (2001) Dette publique et investissements privés. Le cas de la Turquie. Economie Internationale No. 86, CEPII.
Barro, R. (1990) Government Spending in a Simple Model of Economic Growth. Journal of Political Economy, 98, 103-125. https://doi.org/10.1086/261726
Agénor, P.-R. and Montiel, P.J. (1996) Development Macroeconomics. Princeton University Press, Princeton, NJ.
Calvo, G.A. (1998) Growth, Debt and Economic Transformation: The Capital Flight Problem. In: Coricelli, F., di Matteo, M. and Hahn, F., Eds., New Theories in Growth and Development, New York.
Dijkstra, G. and Hermes, N. (2001) The Uncertainty of Debt Service Payments and Economic Growth of Highly Indebted Poor Countries: Is There a Case for Debt Relief? UNU/WIDER Development Conference on Debt Relief, Helsinki, Finlande, 17-18 August 2001.
Serven, L. (1997) Uncertainty, Instability and Irreversible Investment: Theory, Evidence and Lessons from Africa. World Bank Policy Research Working Paper No. 1722.
Lucas, R.E. (1988) On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42. https://doi.org/10.1016/0304-3932(88)90168-7
Romer, P. (1986) Increasing Returns and Long Run Growth. Journal of Political Economy, 98, S71-S102. https://doi.org/10.1086/261725
Reinhart, C.M. and Rogoff, K.S. (2010) Growth in a Time of Debt. American Economic Review, 100, 573-578. https://doi.org/10.1257/aer.100.2.573
Reinhart, C. and Rogoff, K. (2010) From Financial Crash to Debt Crisis. NBER, Working Paper 15795.
Kumar, M.S. and Woo, J. (2010) Public Debt and Growth. IMF Working Paper No. 10/174, Fondsmonétaire International.
Rother, C.-W. (2012) The Impact of High Government Debt on Economic Growth and Its Channels: An Empirical Investigation for the Euro Area. European Economic Review, 56, 1392-1405. https://doi.org/10.1016/j.euroecorev.2012.06.007
Cohen, D. (1995) Large External Debt and (Slow) Domestic Growth. Journal of Economic Dynamics and Control, 19, 1141-1163. https://doi.org/10.1016/0165-1889(94)00822-Y
Clemens, B.J., Rina, B. and Toan Quoc, N. (2003) External Debt, Public Investment and Growth in Low-Incomes Countries. IMF Working Paper WP/03/249.
Borensztein, E. and Overhang, D. (1990) Debt Reduction and Investment: The Case of the Philippines. IMF Working Paper, 1-27.
Deshpande, A. (1997) The Debt Overhang and Disincentive to Invest. Journal of Development Economics, 52, 169-187. https://doi.org/10.1016/S0304-3878(96)00435-X
Savvides, A. (1992) Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows? Kyklos, 45, 363-378. https://doi.org/10.1111/j.1467-6435.1992.tb02121.x
Mendoza, R., et al. (2003) Deuda externa, inversión y crecimiento en Colombia, 1970-2002. Borradores de Economía No. 272, Banco de la República de Colombia.
Barro, R.J. and Sala-i-Martin, X. (1995) Economic Growth. McGraw-Hill, New York.
Ehrhart, H., Minea, A. and Villieu, P. (2009) Deficit, Seigniorage and the Growth Laffer Curve in Developing Countries. Document de travail de la série, Etudes et Documents No. 26, CERDI.
Minea and Villieu (2009; 2010) Dette publique, croissance et bien être: Une perspective de long terme. DT CERDI.
Vedder, R.K. and Gallaway, L.E. (1998) Government Size and Economic Growth. Joint Economic Committee.
Pevcin, P. (2004) Economic Output and the Optimal Size of Government. Economic and Business Review, 6, 213-227.
Herath, S. (2010) The Size of the Government and Economic Growth: An Empirical Study of Sri Lanka. Discussion Papers WU Vienna University of Economics and Business, Vienna.
Forte, F. and Magazzino, C. (2010) Optimal Size of Government and Economic Growth in EU-27. CREI Working Paper No. 4.
Caselli, F., Esquivel, G. and Lefort, F. (1996) Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics. Journal of Economic Growth, 1, 363-389. https://doi.org/10.1007/BF00141044
Nickell, S. (1981) Biases in Dynamic Models with Fixed Effects. Econometrica, 49, 1417-1426. https://doi.org/10.2307/1911408
Arellano, M. and Bover, O. (1995) Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics, 68, 29-51. https://doi.org/10.1016/0304-4076(94)01642-D
Blundell, R. and Bond, S. (1998) Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Hansen, L.P. (1982) Large Sample Properties of Generalized Method of Moments Estimators. Econometrica, 50, 1029-1054. https://doi.org/10.2307/1912775
Arellano, M. and Bond, S. (1991) Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58, 277-297. https://doi.org/10.2307/2297968