Does Rising Public Debt Constrain Growth? Evidence from Developing Economies

[Purpose] The relationship between public debt and economic growth was always a top concern for countries, especially for developing economies. Using data from 83 emerging and developing economies between 1995 and 2022, this study explores the impact of public debt on economic growth. [Methodology] This study employs the cross-sectional autoregressive distributed lag (CS-ARDL) and system generalized method of moments (SGMM) techniques. The CS-ARDL approach is used to account for cross-sectional dependence among the variables, thereby providing more reliable and accurate estimations. Additionally, the SGMM method is applied to address potential endogeneity and heterogeneity issues commonly associated with panel data analysis. [Findings]The results indicate that public debt is negatively associated with economic growth across short- and long-term periods, and this impact intensifies in the long run. This evidence suggests that public debt does not contribute positively to economic growth in the sampled countries. The adverse impact of public debt can be attributed to the inefficient allocation of government borrowing as well as the crowding-out effect on private investment. [Implications] Based on these results, emerging and developing economies need to manage public debt well and develop reasonable fiscal policies to promote economic growth.