Public Debt and Economic Growth in Development Spectrum with Moderating Role of Governance Quality

Abstract

The study aims to investigate the influence of (PD) public debt on economic growth in the presence of governance quality for 53 selected developing countries over a period extending from 1996 to 2017. The researchers used a method known as the Dynamic System Generalized Method of Moments (SYS-GMM). In their regression equation of the study is augmented by variables including public debt, GDP growth, governance quality, saving-investment gap, and governance public debt. The results show that (PD) appears to inversely affect economic output in the case of selected developing nations. However, the saving-investment gap and governance quality positively determined economic growth. The moderating role of governance excellence in the presence of public debt is positive. Hence, this shows that improvement in institutions not only contributes to economic growth, but it also helps in weakening the negative effect of public debt on economic growth. This influence of governance quality can attract policymakers to set policies that can enhance the quality of institutions so that the path to economic growth and development can be settled in developing countries.