An interesting paper (pdf) on the relationship between a country’s debt load and future gdp growth. Here is the abstract.
We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering a wide range of political systems, institutions, exchange rate arrangements, and historic circumstances. Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are ro ughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.) The story is entirely different for emerging markets, where inflation rises sharply as debt increases.
FYI: The US public debt to GDP is currently spiking past through 90%.
This would seem another indicator that the next decade will have slower growth, but does not indicate whether serious inflation will materialize.
Growth in a Time of Debt
An interesting paper (pdf) on the relationship between a country’s debt load and future gdp growth. Here is the abstract.
FYI: The US public debt to GDP is currently spiking past through 90%.
This would seem another indicator that the next decade will have slower growth, but does not indicate whether serious inflation will materialize.
This entry was posted by David on January 29, 2010 at 4:18 pm, and is filed under Commentary. Follow any responses to this post through RSS 2.0.Both comments and pings are currently closed.