The Relationship Between Public Debt and Economic Growth: A Note from Developing Countries

The impact of sovereign debt on economic development varies across many studies and concerns many countries. This issue is especially crucial for policymakers in developing nations seeking to improve their economic status. This paper explores data from 25 developing nations from 1980 to 2015 to examine the relationship between public debt and economic growth. Unlike previous research, one model is constructed with three groups of samples: lower-middle-income nations, upper-middle-income nations, and overall sample, to compare the effects of debt level on the economic development of each country group. In the overall sample, the outcomes show a negative correlation between sovereign debt and economic development. However, in the sub-samples, the results are contradictory. Government debt has a positive correlation with economic growth in the lower-middle-income nations, but a negative relationship in the upper-middle-income group. The empirical evidence indicates that the income level of a nation influences the relationship between national debt and economic development. Hence, governments need to exercise caution when making policies for economic growth, considering the income levels of different countries.