This document is a term paper presentation analyzing the relationship between economic growth and government public debt for several countries. It uses an empirical model to regress GDP growth against variables like gross savings, labor force growth, and government debt. The findings show that gross savings has a high positive influence on GDP growth, while the size of debt does not significantly affect growth. Some limitations of the analysis are discussed, such as the need for more countries, years of data, and control variables.

1. Constantinos Kolios
Term Paper Presentation
Economics Department
University of Piraeus
June 06, 2014

2.  Countries were selected based on the high
level of net trade in goods and services (BoP,
current international U.S.$)
Canada
Malaysia
Netherlands
Norway
Germany
Singapore

4.  Canada:
Canada has become a model of fiscal stability as the
government has posted surpluses every fiscal year
from 1996 to the 2008 recession.
 Germany:
2000-2004 had steady GDP growth and the high
rate of unemployment led to an increase of the
retirement age
2004-2008 leading exporter.
2009 Global economic crisis - modernization of
eastern Germany (70 billions per year).
 Malaysia:
2001 Ethnic clashes Malays-Ethnic Indians ( grGDP)
2004 Natural disaster(tsunami)
2008 Economic downturn due to political clashes.

5.  Netherlands:
2002 euro replaced guilder. The prime minister
quit.
2002-2007 Gradual development
2007-2008 global economic crisis.
 Norway:
2000-2007 Norway had a steady growth rate and
was evaluated by Moody’s with AAA (highest
credit rating)
2008 was affected by the global economic crisis.
 Singapore:
2000-2003 Asian countries came through the
1997 financial crisis
2004-2007 had a stable annual growth rate of 8%
2008- global economic crisis.

6. Note : Debt in millions (2005), US Dollars

7. Motivation
Note: GDP growth is calculated with GDP in current prices (international US $)

8. Paper Question Data Findings
Checherita-
Westphal and
Rother, 2012
Impact of government
debt on economic
growth
12 Countries
Euro area 1970-
2010
Debt has a negative impact on
long term growth
Reinhart and
Roggoth, 2010
Growth in a time of
Debt
44 Countries
About 200
years
weak relationship between
debt and GDP growth
Cunningham,
1993
The effects of debt
burden on economic
growth in heavily
indebted developing
nations
16 Countries
Heavily
indebted
developing
nations
1971-1979
negative relationship between
the growth of and economic
growth
Schclarek, 2004 Debt and Economic
Growth in Developing
and Industrial
Countries
83 Countries
Developing and
Industrial
Economies
1970-2002
negative relationship between
total external debt levels and
growth rates which is caused
by the levels of public external
debt

9.  The purpose of this presentation is to
analyze the regression of economic growth
in relation to the Government Public Debt
behavior.

10.  We study the determinants of economic
growth with special emphasis on public debt
(Central Government Public Debt) along with
the Gross Saving (% GDP) and the growth rate
of Labor Force.

11.  git+k = α + βln(GDP/cap)it + γ1 debt_sqit + γ2
debtit + δ saving/gfcfit + φ pop.growthit +
other controls (fiscal; openness; interest rate)
+ μi + νt + εit
Note: Based on empirical Neoclassical Model of Growth, Solow 1957; Barro
1991 and work on Checherita-Westphal and Rother, European Economic
Review, 2012

13. legend: * p<0.05; ** p<0.01; *** p<0.001
rho .48279582 .45377373 .48279582
sigma_e 2.6814646 1.8833943 2.6814646
sigma_u 2.5907339 1.7166219 2.5907339
r2_w .19152959 .67154066 .19152959
r2_b .452698 .34828472 .452698
r2_o .2276216 .55525085 .2276216
r2 .34460227 .43847206 .73160941 .34460227 .19152959 .67154066 .19152959
N 60 60 60 60 60 60 60
_cons -21.232794** -40.942385* -16.753914*** -21.232794* -38.200517* -12.562275 -38.200517*
_IYEAR_11 1.3454521 2.9249183*
_IYEAR_10 -6.3154293*** -4.6191432***
_IYEAR_9 -2.9133138* -1.6281907
_IYEAR_8 (omitted) .77077877
_IYEAR_7 -.10206824 .8322421
_IYEAR_6 -.63784243 .45624729
_IYEAR_5 .45616169 1.7373032
_IYEAR_4 -1.2719815 (omitted)
_IYEAR_3 -1.1774724 .05859969
_IYEAR_2 -2.4990942* -1.6710911
_ICOUNTRY_6 -5.682253
_ICOUNTRY_5 -9.9526879**
_ICOUNTRY_4 -2.9044788
_ICOUNTRY_3 (omitted)
_ICOUNTRY_2 -1.2059315
grLabor .17380207 -.29156666 .30634825 .17380207 -.29156666 .07021985 -.29156666
lnDebt 1.7972366 -1.451081 1.9559877* 1.7972366 -1.451081 -2.0634974 -1.451081
lnSavings 5.5254564** 13.887056** 4.3181056*** 5.5254564*** 13.887056** 6.8993229 13.887056*
ycap_2005 -.00006133 .00017538 -.00005846* -.00006133* (omitted) (omitted) (omitted)
Variable POOLED_COEF POOLED_DVLS~Y POOLED_DVLS~R WLS_POOLED FE DVLS_FE_YEAR WLS_FE

14. legend: * p<0.05; ** p<0.01; *** p<0.001
rho 0 0 0
sigma_e 2.6814646 1.8833943 2.6814646
sigma_u 0 0 0
r2_w .10110245 .63296018 .10110245
r2_b .91755306 .95957285 .91755306
r2_o .34460227 .73160941 .34460227
r2
N 60 60 60
_cons -21.232794*** -15.408462** -21.232794***
_IYEAR_11 (omitted)
_IYEAR_10 -7.6608814***
_IYEAR_9 -4.2587659***
_IYEAR_8 -1.3454521
_IYEAR_7 -1.4475203
_IYEAR_6 -1.9832945
_IYEAR_5 -.88929041
_IYEAR_4 -2.6174337*
_IYEAR_3 -2.5229245*
_IYEAR_2 -3.8445463**
_ICOUNTRY_6
_ICOUNTRY_5
_ICOUNTRY_4
_ICOUNTRY_3
_ICOUNTRY_2
grLabor .17380207 .30634825 .17380207
lnDebt 1.7972366 1.9559877* 1.7972366***
lnSavings 5.5254564*** 4.3181056*** 5.5254564***
ycap_2005 -.00006133 -.00005846* -.00006133***
Variable RE DVLS_RE_YEAR WLS_RE

15. Note: Outliers estimated with Cook’s distance method

16. Without outliers
With outliers
grGDP grGDP_hat
grGDP 1.0000
grGDP_hat 0.5525 1.0000
grGDP grGDP_hat
grGDP 1.0000
grGDP_hat 0.4771 1.0000

17. o grGDPit = -26,368 + 10,026lnSavingsit –
(-1,87) (+3,00)
1,237lnDebtit + 0,085grLaborit + eit
(-0,63) (+0,30)
Obs (n) : 56
Prob > F = 0.0062
R-sq (overall) = 0,3053

18.  The size of debt does not affect the GDP
growth.
 The gross savings has a high positive
influence on GDP growth. For example 1 unit
increase of gross savings will increase GDP
growth by 10,206 units.
 The initial GDP was omitted as a
consequence of the Fixed-Effects model
choice.

19. We need to investigate further :
 the size of debt and its impact on the
Economic growth.
 the alteration of Labor Force on the GDP
growth.

20.  Net Trade could be added as variable in order
to improve the interpretation of our results.
 More years and countries should be added.
 More controls variables such as government
spendings for R&D, educational level of Labor
force, rate of openness.

21.  Checherita, C., Rother, P., “The impact of high and
growing government debt on economic growth: An
empirical investigation for the Euro Area”. European
Central Bank Working Paper Series 2010, No 1237
 Reinhart, C., Roggoth, K., “Growth in a time of Debt”.
National Bureau of Economic Research 2010, Working
Paper No 15639
 Cunningham, R., “The effects of debt burden on
economic growth in heavily indebted developing
nations”. Journal of Economic Development 1993, 18(1)
 Schclarek, A.,” Debt and Economic Growth in Developing
and Industrial Countries”. 2004

22.  Data available at:
http://databank.worldbank.org/data/views/v
ariableSelection/selectvariables.aspx?source=
world-development-indicators (Accessed
April 28 2014)

23.  Αγιακλόγλου, Χ. και Μπένος, Θ. 2007.
«Εισαγωγή στην Οικονομετρική Ανάλυση»,
Τόμος Β, Αθήνα: Εκδόσεις Γ. Μπένου