Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth

Andrew Bell, Ron Johnston, Kelvyn Jones

Research output: Contribution to journalArticle (Academic Journal)

14 Citations (Scopus)
180 Downloads (Pure)

Abstract

This paper reanalyses data used by Reinhart and Rogoff (2010c - RR), and later Herndon et al. (2013) to consider the relationship between growth and debt in developed countries. The consistency over countries and the causal direction of RR’s so called ‘stylised fact’ is considered. Using multilevel models, we find that when the effect of debt on growth is allowed to vary, and linear time trends are fully controlled for, the average effect of debt on growth disappears, whilst country-specific debt relations vary significantly. Additionally, countries with high debt levels debt appear more volatile in their growth rates. Regarding causality, we develop a new method extending distributed lag models to multilevel situations. These models suggest the causal direction is predominantly growth-to-debt, and is consistent (with some exceptions) across countries. We argue that RR’s findings are too simplistic, with limited policy relevance, whilst demonstrating how multilevel models can explicate realistically complex scenarios.
Original languageEnglish
Pages (from-to)449-472
Number of pages24
JournalJournal of Economic Geography
Volume15
Issue number2
Early online date12 Mar 2014
DOIs
Publication statusPublished - Mar 2015

Fingerprint Dive into the research topics of 'Stylised fact or situated messiness? The diverse effects of increasing debt on national economic growth'. Together they form a unique fingerprint.

  • Projects

    Lemma 3

    Rintoul, D. A.

    1/10/1130/09/14

    Project: Research

    Cite this