Economic Impact of Public Debt on Growth Dynamics
Summary
Public debt has long formed a central pillar of policy debates, influencing the pace and pattern of economic expansion. At moderate levels, borrowing can finance infrastructure, human capital and technological innovation, thereby stimulating productivity and long-run growth. However, excessive debt may trigger higher interest rates, crowd out private investment and give rise to a debt overhang that undermines incentives to invest. Empirical evidence reveals that the impact of public debt on growth is highly non-linear, with threshold effects emerging when the debt-to-GDP ratio exceeds context-specific levels. These thresholds vary across advanced and emerging economies, reflecting differences in institutional quality, fiscal space and economic structure. Moreover, the composition of borrowing—domestic versus external—shapes spillover effects, exchange-rate pressures and vulnerability to global shocks. Current research seeks to resolve tensions between Ricardian equivalence, Keynesian stabilisation and endogenous growth frameworks, emphasising the need for tailored debt management strategies that preserve fiscal sustainability while supporting countercyclical policies. Understanding this dynamic interplay is essential for designing prudential limits, debt-restructuring mechanisms and growth-oriented fiscal reforms with global significance.
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Economic Impact of Public Debt on Growth Dynamics publication trend
The graph below shows the total number of articles in economic impact of public debt on growth dynamics across all publications each year (not limited to Nature Index journals).
Technical terms
Public debt: The total amount of money that a government owes to domestic or external creditors.
Debt-to-GDP ratio: The proportion of a country’s public debt relative to its gross domestic product, indicating debt sustainability.
Crowding-out effect: The reduction in private sector investment resulting from increased government borrowing and higher interest rates.
Debt overhang: A situation where the existing debt burden discourages new investment because future returns are claimed by creditors.
Threshold effect: A non-linear relationship in which public debt affects economic growth differently beyond certain debt-to-GDP levels.
Fiscal space: The capacity of a government to finance public spending and obligations without undermining fiscal sustainability.
References
- Triggering economic growth to ensure financial stability: case study of Northern Cyprus. Financial Innovation (2023).
- China’s Infrastructure Investments in Africa: An Imperative for Attaining Sustainable Development Goals or A Debt-Trap?. The British Accounting Review (2024).
- External debt and economic growth in Sub-Saharan Africa: Does governance matter?. PLOS ONE (2022).
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