The impact of sovereign debt on growth : an empirical study on GIIPS versus JUUSD countries

Abstract

This study aims at concluding the general debt impact on economic growth for two different groups of countries during the period (1993-2013). Results showed negative impact of public debt on economic growth on short and long terms. Impact percentage differs according to countries and interpretive variables that interpret the relationship. Negative impact of debt starts from levels between 60-90% of gross domestic product on long term; its impact becomes bigger on long and short terms when percentage is higher than 90% of gross domestic product, whereas raise of public debt by 10% leads into decreasing economic growth by 1-2% in average. Results showed that the variables which affect the economic growth the most are savings/ investment, population growth, long and short terms of nominal interest rate, current account balance, private credit, inflation, Government budget primary balance, and debt service. Study results also revealed that banking crisis and double crisis are the most negatively reflecting crisis on the economic growth.