The irregular development of ASEAN countries leading to the different impacts of public debt on economic growth in different groups of ASEAN countries Based on the economic growth crite
INTRODUCTION
Research Motivation
The ASEAN region is characterized by diverse economic scales, varying development levels, and differing fiscal policies among its member countries This diversity underscores the importance of researching the relationship between public debt and economic growth in ASEAN nations, particularly from 2001 to 2023, a period marked by significant regional and global economic changes The findings of this research aim to inform and promote effective policies that can foster a sustainable and stable economy across the region.
The irregular development of ASEAN countries leading to the different impacts of public debt on economic growth in different groups of ASEAN countries
ASEAN countries can be categorized into three groups based on economic growth criteria such as GDP per capita, industrialization levels, and development potential: high-developed countries (Singapore, Brunei), medium-developed countries (Malaysia, Thailand, Indonesia), and less-developed countries (Vietnam, Philippines, Cambodia, Lao PDR, Myanmar) This classification reveals varying impacts of public debt on economic growth across these groups Understanding the levels of public debt in each country provides insights into the overall public debt situation and helps identify safe public debt thresholds Additionally, this research aids ASEAN governments in determining which countries should utilize public debt for spending and investment to enhance economic growth.
Examining the link between public debt and economic growth in ASEAN countries reveals distinct strategies for utilizing public debt to foster economic development While public debt can effectively finance critical sectors such as infrastructure, health, education, and social security, poor management may result in significant debt burdens and adverse economic consequences This study aims to enhance understanding of these dynamics.
2 identify the specific elements of each country’s fiscal policies and thereby provide recommendations for improving public debt management
Two economic shocks affected public debt situations in each ASEAN group in the period from 2001 to 2023
In the period from 2001 to 2023, there are two economic shocks which are global financial crisis in 2008 and the global economic crisis during Covid 19 pandemic from
From 2020 to 2022, global events significantly influenced the public debt situation in medium and less-developed countries, while high-developed nations appeared less affected Researching the impact of public debt on the economic development of ASEAN countries will enable a thorough assessment of how effectively public debt was utilized during these crises This analysis will also offer solutions for improving public debt management, ensuring sustainable economic growth in the future.
The impact of two factors namely inflation and trade openness along with the public debt situation on economic growth during the period from 2001 to 2023
This research examines the influence of inflation and trade openness on the connection between public debt and economic growth While inflation can diminish the real value of public debt, uncontrolled inflation may negatively impact the economy Additionally, trade openness can enhance trade and investment but presents challenges in managing capital flows and public debt Analyzing the relationship between public debt and economic growth in ASEAN countries from 2001 to 2023 will clarify the roles of these factors and provide policy recommendations for managing inflation and economic openness, ensuring that public debt is utilized effectively without jeopardizing economic growth.
The importance of sustainable fiscal policies
Examining the link between public debt and economic growth within the ASEAN group offers valuable insights for developing sustainable fiscal policies As nations strive to foster economic growth while effectively managing public debt, implementing a robust and sustainable fiscal policy becomes crucial for achieving this balance.
A sustainable fiscal policy is crucial for effectively utilizing public debt to foster economic growth while minimizing fiscal risks and maintaining manageable public debt levels Analyzing the relationship between public debt and economic growth from 2001 to 2023 will shed light on the challenges faced by ASEAN countries in achieving sustainable fiscal policies and will lead to the development of targeted policy solutions.
Researching the impact of public debt on economic growth in ASEAN countries from 2001 to 2023 is crucial, particularly in light of the economic crises faced by these nations This study aims to elucidate the relationship between public debt and economic growth, offering targeted policy recommendations to aid ASEAN countries in effectively managing public debt and fostering sustainable economic development.
Research Issues
This research examines the effects of public debt on economic growth within ASEAN countries from 2001 to 2023, addressing key issues that arise during the study.
The economic structures and development levels among ASEAN countries create a complex scenario regarding public debt In less-developed and medium-developed nations such as Vietnam, Thailand, and Indonesia, the critical question is whether public debt fosters significant economic growth or results in burdensome debt and ongoing fiscal deficits Conversely, for high-developed countries like Singapore and Brunei, the impact of public debt on economic growth is questionable, particularly given their reliance on public debt for short-term public spending and investment This raises the essential debate on the appropriateness of utilizing public debt in these high-developed nations.
This research examines the debt management capacity and fiscal sustainability of ASEAN countries from 2001 to 2023, highlighting the challenges posed by high public debt levels, particularly during the global financial crisis.
The 2008 financial crisis and the COVID-19 pandemic have highlighted the importance of robust fiscal policies and effective debt management in ASEAN countries In nations with strong debt management frameworks, public debt can serve as a vital instrument for fostering economic growth Conversely, countries lacking effective debt management systems may face significant challenges in leveraging public debt for positive economic outcomes.
Insufficient fiscal controls can result in excessive public debt, which in turn raises borrowing costs and diminishes future public spending capacity Consequently, it is essential for research to carefully examine how countries manage their public debt and their fiscal control capabilities, especially in relation to economic growth.
This research examines the influence of global economic shocks on public debt and economic growth in ASEAN countries from 2001 to 2023 The 2008 global financial crisis and the Covid-19 pandemic significantly affected public debt levels across the region During these crises, many nations resorted to borrowing to sustain economic stability and implement fiscal support measures The study aims to analyze how ASEAN countries utilized public debt during these challenging times and its subsequent effects on their economic growth in the years that followed.
Researching the effects of public debt on economic growth in ASEAN countries from 2001 to 2023 is a complex endeavor that necessitates a thorough examination of various factors These include the distinct economic structures, fiscal management practices, and the influence of global economic shocks.
Research Scope
The research focuses on studying the impact of public debt on economic growth of 3 groups of ASEAN countries in the period 2001 - 2023 These three groups of countries are:
- High-developed countries: Singapore, Brunei
- Medium-developed countries: Malaysia, Thailand, Indonesia
- Less-developed countries: Vietnam, Philippines, Lao PDR, Myanmar, Cambodia
ASEAN countries are categorized into three groups due to varying growth rates and public debt utilization, as highlighted by empirical studies This classification facilitates the examination of public debt's impact and the differing safe public debt ceilings among these groups from 2001 to 2023.
About the timeframe of this research, this research concerns the period from 2001 to
The research spans over 20 years, providing a comprehensive analysis of the impact of public debt on the economic growth of ASEAN countries This extensive timeframe encompasses significant economic events, including the 2008 global financial crisis and the Covid-19 pandemic, both of which are believed to influence the relationship between public debt and economic growth in the region.
Research Methodology
This article examines the influence of public debt on economic growth in ASEAN countries from 2001 to 2023, utilizing a range of research methodologies, including quantitative and qualitative approaches, as well as various data collection methods, to provide a comprehensive analysis of this impact.
Quantitative methods emphasize objective measurement and involve the statistical, mathematical, or numerical analysis of data obtained through various means, including surveys, questionnaires, and publicly available secondary data from reports and websites.
This research employs two quantitative methods: panel data analysis and econometric modeling The panel data analysis utilizes data from 10 ASEAN countries—Brunei, Cambodia, Thailand, Vietnam, Singapore, the Philippines, Myanmar, Lao PDR, Malaysia, and Indonesia—covering a 23-year period.
From 2001 to 2023, this research employs a method that effectively controls for unobserved heterogeneity Additionally, it utilizes econometric modeling to assess the impact of public debt on economic growth and to identify the public debt thresholds for ASEAN countries.
This study utilizes the Threshold Autoregressive Model (TAR model) to examine the relationship between public debt and economic growth in ASEAN countries from 2001 to 2023 The analysis is conducted using STATA 17 software, chosen for its effectiveness in identifying the TAR model Several justifications for this methodological choice are discussed in detail.
- Firstly, based on empirical research such as Reinhart & Rogoff (2010), Kumar & Woo
(2010), Baum et al (2012), it is believed that the relationship between public debt and economic growth is non-linear relationship Besides, during the period from 2001 to
In 2023, ASEAN countries experienced varying economic conditions, making the TAR model an ideal framework for analyzing the non-linear and regime-specific dynamics between public debt and economic growth in the region during this time.
This research aims to identify public debt thresholds for each ASEAN group from 2001 to 2023, utilizing the TAR model as an effective tool for this analysis.
The TAR model excels in analyzing time series data by examining the relationships between variables over time and enabling the assessment of structural changes in the data as key thresholds are surpassed.
The TAR model effectively analyzes the non-linear effects of public debt in relation to economic fluctuations, identifying critical thresholds where the impact of public debt shifts This capability aids in formulating more effective fiscal policy recommendations tailored to each group of ASEAN countries.
Qualitative method is used to give an explanation about concepts, opinions and experiences and gather the detailed insights into a problem or create new ideas for research
The qualitative method used in this research is sequential explanatory design method
This research employs a quantitative approach to identify patterns in the relationship between public debt and economic growth in ASEAN countries from 2001 to 2023 Additionally, it utilizes qualitative methods to elucidate the mechanisms underlying this relationship and to explore the theoretical framework connecting public debt to economic growth.
This research employs a secondary data collection method, focusing on publicly available information regarding public debt and economic growth in ASEAN countries from 2001 to 2023 The data is sourced from various public websites, ensuring a comprehensive analysis of the relevant economic indicators during this period.
World Bank, IMF, Trading Economics, Economics Trend, national statistical agencies, etc.
Research Objectives
This research examines the impact of public debt on economic growth in ASEAN countries from 2001 to 2023, focusing on several key objectives to understand the relationship between these variables.
This study investigates the non-linear effects of public debt on economic growth within various groups of ASEAN countries, emphasizing the need to analyze both non-linear relationships and distinct debt regimes By exploring these dynamics, the research aims to provide a comprehensive understanding of how public debt influences economic performance across different ASEAN member states.
- Observing the impact of other factors including inflation and trade openness on economic growth of each ASEAN group and its interaction with public debt
This research aims to identify the approximate public debt thresholds for different groups of ASEAN countries, analyzing the impact of public debt on economic growth from 2001 to 2023 The study will determine whether public debt levels have a positive or negative effect on the economies of these countries, providing valuable insights into the relationship between debt and growth within the ASEAN region.
This article analyzes the varying effects of public debt on economic growth across different groups of ASEAN countries It provides tailored recommendations for managing public debt safely within each group while highlighting effective strategies for leveraging public debt to stimulate economic growth.
Research Structure
The research is separated into five main parts which are introduction, research content, conclusion, references and appendix The structure is shown below:
RESEARCH CONTENT
Research content includes five chapters which are:
Chapter 2: Overview of the relationship between public debt and economic growth in ASEAN countries in the period from 2001 to 2023
Chapter 5: General discussion for ASEAN countries and recommendations
Literature Review
Concepts and Theory of Public Debt
Public debt is defined in various ways across global research, but it is commonly viewed through two key perspectives The first perspective focuses on the total amount of government interest accrued from borrowing The second perspective examines the potential financial resources utilized to cover government deficits.
Public debt, as defined by Levišauskaitė and Rūškys (2003), refers to the total amount of state loans issued and outstanding, including accrued interest that must be repaid by a specified deadline Snieška et al (2005) describe public debt as the cumulative debt across all levels of government within a financial year Furthermore, Štuopytė and Guzavičius (2008) explain public debt as the sum of non-refundable loans, unpaid interest on those loans, and other financial obligations that the government has incurred to its creditors.
Public debt, as defined by Mankiw and Taylor (2006), serves as a mechanism for governments to finance budget deficits through borrowing in the bond market, reflecting accumulated past borrowings This perspective highlights the role of public debt in managing fiscal challenges and sustaining government operations.
Public debt refers to the total amount of a country's debt securities, which are utilized to address temporary funding shortfalls in the government budget According to Blanchard (2007), it serves as a crucial reserve for the government to manage these financial gaps effectively.
Public debt, despite varying definitions, generally refers to the financial resources available to the government, encompassing both the principal and unpaid interest on government borrowings This comprehensive understanding highlights public debt as the total financial obligation of the government.
10 liabilities and government borrowings to fund the temporary lack of state budget deficit of government
There are four main ways to classify the public debt which are commitments, market, duration and subsectors ways
Public debt is classified into two main categories: direct debt and indirect debt Direct public debt refers to the liabilities incurred by the government through the issuance of securities in financial markets or borrowing from banks In contrast, indirect public debt is the debt taken on by individuals or entities, both public and private, that is backed by government guarantees.
Public debt can be classified into two categories based on the market: domestic debt and foreign debt Domestic public debt refers to liabilities incurred within the domestic market, while foreign public debt involves borrowing from international markets and is denominated in foreign currencies.
Public debt can be categorized into two main types: short-term and long-term debt Short-term public debt refers to obligations that mature within one year, while long-term public debt encompasses those with maturities exceeding one year.
Public debt can be categorized into three main types: central government debt, local government debt, and social security fund debt Central government debt, which constitutes approximately 80% to 90% of total debt, is incurred by state enterprises, non-budgetary funds, and public enterprises Local government debt arises from municipal enterprises and similar funding sources Lastly, social security fund debt is sourced from the State Social Insurance Fund, the Mandatory Health Insurance fund, and other entities within this sector.
1.1.3 Definition of Public Debt Management
Concerning the definition of public debt management, according to Lewis & Viủals
(2014), public debt management can be understood as a process of launching and executing strategies for controlling the government’s public debt to raise the fund for
To achieve a more cost-effective government budget with manageable risks in the medium to long term, it is essential to adjust public debt management strategies to align with broader governmental objectives.
1.1.4 Public Debt Theory – Non-linear relationship between public debt and economic growth
The relationship between public debt and economic growth is believed to be non-linear over the long term, resembling an inverted "U" shape on a graph This indicates that public debt can have both positive and negative effects on economic growth, depending on the specific economic period.
Research by Cohen & Sachs (1986), Cohen (1991), and Cohen (1992) indicates that countries with low borrowing levels can access capital flows from both domestic investors and international financial markets more easily due to their lower risk of default Initially, public debt can positively influence economic development, allowing these nations to borrow at low costs and effectively allocate funds to various public projects However, as economic growth slows, the cost of public debt may rise, leading to potential debt overhang effects if countries fail to implement effective debt rescheduling policies, ultimately hindering economic growth Additionally, Patillo, Poirson & Ricci (2022) highlight a non-linear relationship between public debt and economic growth, which can be illustrated by the Laffer curve This curve features a "good side," where increased debt servicing correlates with enhanced repayment capacity, and a "wrong side," where further debt leads to diminishing returns.
When debt servicing costs exceed a certain threshold, it can negatively impact investment and productivity, as illustrated by the peak of the Laffer curve This point signifies a trade-off where governments incur higher costs in exchange for future benefits While the Laffer curve effectively highlights both the positive and negative effects of public debt on economic development, it does not indicate the specific point at which the impact shifts from positive to negative.
1.1.5 Threshold Autoregressive Model (TAR Model)
TAR Model or Threshold Autoregressive Model was first introduced by Howell Tong
The Threshold Autoregressive (TAR) model, introduced in 1980 and advanced by Tong in 1990, effectively captures nonlinearity in time series data by allowing regime shifts based on a threshold variable Essentially, the TAR model operates as a piecewise linear autoregressive framework, where the behavior of the time series changes depending on whether the threshold variable exceeds a predetermined value.
For the basic structure of the original TAR Model, TAR model tolerates the time series
The two-regime Threshold Autoregressive (TAR) model allows for shifts between multiple autoregressive processes based on whether a lagged value of the series \( y_{t-d} \) or another variable surpasses a specific threshold, denoted as \( r \) This model captures dynamic changes in the behavior of time series data by identifying distinct regimes influenced by the threshold condition.
𝑦 𝑡 : The value of the time series at time t
Empirical Research
1.2.1 Empirical research supporting non-linear relationship between public debt and economic growth
Numerous studies employing Threshold Autoregressive (TAR) models have been conducted globally to demonstrate the long-term non-linear relationship between public debt and economic growth, yielding varied results across different countries and groups.
The study "Finding the Tipping Point – When Sovereign Debt Turns" by Caner, Grennes, and Koehler-Geib (2010) investigates the critical threshold at which public debt shifts from positively impacting economic growth to having a negative effect Utilizing the Hansen Threshold Regression Model, the research analyzes the relationship between the public debt-to-GDP ratio, inflation, trade openness, and real GDP growth across 99 developing and developed nations.
Research conducted from 1980 to 2008 indicates that for developing countries, the optimal public debt ratio is approximately 77% of GDP; exceeding this threshold leads to significant negative effects on economic growth Conversely, when public debt remains below this level, it can have a neutral or even positive impact on growth For developed countries, a higher public debt threshold of 90% of GDP is suggested Additionally, inflation is identified as a critical factor that exacerbates the negative effects of public debt on growth, while trade openness serves to mitigate these adverse impacts.
Reinhart & Rogoff (2010) conduct the research to study the relationship among economic growth, inflation and external debt in 44 countries including 20 advanced and
A recent study analyzing 24 emerging market economies over 200 years employs threshold analysis to investigate the relationship between public debt and economic growth, rather than using the TAR model Researchers Reinhart and Rogoff categorize public debt levels into four bins based on the debt-to-GDP ratio: (i) below 30%, (ii) between 30% and 60%, (iii) between 60% and 90%, and (iv) above 90% Their findings indicate that when public debt is below 90% of GDP, its impact on economic growth is minimal, allowing for a sustained high average growth rate However, once public debt surpasses the 90% threshold, economic growth declines significantly, with some countries experiencing negative growth.
Checherita-Westphal and Rother (2010) analyze data from 12 European countries between 1970 and 2010 to explore the non-linear relationship between public debt and per capita GDP growth Utilizing methodologies such as quadratic specification, fixed effects model, system generalized method of moments, and two-stage least squares, the authors reveal a bell-shaped relationship akin to the Laffer curve, indicating that public debt impacts economic growth in a non-linear manner.
A public debt-to-GDP ratio below 90% fosters positive economic development, while a ratio between 90% and 105% signifies a shift where the impact of public debt becomes negative.
A study by Cecchetti et al (2011), titled "The Real Effects of Debt," employs the Hansen Threshold Regression Model to analyze the effects of public, private, and corporate debt on economic growth across 18 developed countries from 1980 to 2010 The research identifies a critical debt threshold, revealing that sovereign debt positively influences economic growth at low levels but turns negative once it surpasses 85% of GDP Similarly, while household debt initially boosts consumption and investment, exceeding the 85% GDP threshold transforms it into a burden that hampers growth.
A 10 percentage point rise in household debt leads to a decrease in economic growth by approximately 0.1 percentage points While low levels of corporate debt can positively influence economic growth by enabling businesses to finance investment projects, exceeding a corporate debt threshold of 90% of GDP results in a detrimental effect on growth.
A study by Yang & Su (2018) titled “Does Public Debt Affect Economic Growth? A Meta-Analysis” investigates the impact of public debt on economic growth in the U.S from 1971 to 2009 The research examines various factors, including inflation, investment, trade openness, unemployment rate, and infrastructure quality, utilizing the kink model developed by Hansen to analyze these relationships.
A study conducted in 2017 established that the public debt threshold is set at 60% of GDP, indicating a critical point for economic growth When a country's public debt-to-GDP ratio surpasses this threshold, the dynamics between public debt and economic growth shift significantly Specifically, while public debt can facilitate economic growth below 60%, exceeding this limit leads to adverse effects on growth, as evidenced by data from the US economy between 1971 and 2009.
1.2.2 Empirical research supporting other kind of relationships between public debt and economic growth
Research on the long-term relationship between public debt and economic growth reveals varying perspectives, with some studies suggesting a positive correlation supported by neoclassical growth theory Notable studies include Owusu-Nantwi & Erickson (2016), who examined Ghana's public debt and real GDP growth from 1970 to 2012, finding a statistically significant positive long-run relationship Similarly, Uzun et al (2012) analyzed 19 transitional economies between 1991 and 2009, employing the ARDL model to demonstrate a long-term positive relationship between foreign public debt and GDP per capita growth These findings underscore the complexity of the interaction between public debt and economic growth across different contexts.
A study by Christensen (2007) analyzing 93 low-income countries and emerging economies from 1975 to 2004 reveals a positive correlation between domestic public debt as a percentage of GDP and per capita GDP growth, attributed to enhanced investment efficiency.
Many argue that public debt negatively impacts economic growth, a viewpoint supported by debt overhang theory and rational expectation theory Key studies, such as those conducted by Gomez-Puig & Sosvilla-Rivero (2017) and Ahlborn & Scheweickert, provide evidence for this relationship.
Ahlborn and Scheweickert (2016) analyze the relationship between public debt and economic growth across 111 OECD and developing countries over eight five-year periods from 1970 to 2010, finding that the effect of public debt varies by country due to differing levels of fiscal uncertainty Their research indicates that continental countries experience a stronger negative impact of public debt on GDP growth compared to liberal countries Additionally, Gomez-Puig and Sosvilla-Rivero (2017) investigate the long-term relationship between public debt and GDP growth rates in both external and marginal Eurozone countries from 1961 to 2013 using the ARDL model, revealing a significant negative effect of public debt on the long-run GDP growth rates of Euro area member states.
Research indicates that the relationship between public debt and long-term economic growth is non-linear rather than simply linear Factors such as threshold effects, time variations, debt service costs, and policy responses contribute to this complexity, resulting in varying impacts at different levels of debt Consequently, a straightforward linear model fails to capture the full spectrum of influences and variations in the relationship between public debt and economic growth.
Research questions
This research aims to clarify the relationship between public debt and economic growth in ASEAN countries by addressing three key research questions It seeks to identify the factors influencing this relationship, contributing to a deeper understanding of how public debt impacts economic growth within the region.
1 What is kind of relationship between public debt and economic growth in three groups of ASEAN countries (high-developed, medium-developed and less-developed ASEAN countries) in the period from 2001 to 2023 ?
2 What is the impact level of public debt on public spending and economic growth in ASEAN groups of countries in the period from 2001 to 2023 ?
3 What policy recommendations can be made to ASEAN countries to maintain the public debt safety and optimize the use of public debt for sustainable economic growth in the future ?
Overview of the relationship between public debt and economic growth in
Overview of the impact of public debt on economic growth in ASEAN
in the period from 2001 to 2023
ASEAN countries can be categorized into three main groups based on their development levels, which are evaluated through criteria such as GDP per capita, Human Development Index (HDI), economic structure, and industrialization level The first group consists of high-developed ASEAN countries, including Singapore and Brunei.
The high-developed ASEAN countries, including Singapore and Brunei, exhibit impressive economic performance Singapore stands out with one of the highest GDP per capita in the region, driven by its robust service and technological sectors, which significantly contribute to its economy Additionally, it boasts the highest Human Development Index (HDI) in ASEAN, reflecting its superior living standards Meanwhile, Brunei's economy thrives on the exploitation and export of natural resources like oil and gas, resulting in a high GDP per capita and a strong development level In contrast, the medium-developed ASEAN countries comprise Thailand, Malaysia, and Indonesia, each showing varying degrees of economic growth and development.
The medium-developed ASEAN countries, including Malaysia, Thailand, and Indonesia, exhibit diversified economic structures across industrial and service sectors Their GDP per capita is categorized as medium compared to other ASEAN groups In contrast, the less-developed ASEAN countries comprise the Philippines, Vietnam, Lao PDR, Cambodia, and Myanmar.
The less-developed ASEAN countries include the Philippines, Vietnam, Lao PDR, Cambodia, and Myanmar Despite recent strong economic performance, the Philippines continues to grapple with poverty and inequality, with a GDP per capita lower than that of its more developed neighbors Vietnam is experiencing significant growth in industrialization and the service sector, yet its GDP per capita and living standards remain below those of countries like Thailand and Malaysia Lao PDR and Cambodia also face similar developmental challenges as they strive to improve their economic standing.
Nineteen countries in the ASEAN region are classified as least developed economies, relying heavily on agriculture and natural resource exploitation, resulting in low GDP per capita Myanmar, in particular, faces challenges due to its unstable political situation, contributing to its underdeveloped economy and placing its GDP per capita among the lowest in ASEAN.
The ASEAN region consists of three main groups of countries: high-developed, medium-developed, and less-developed Each group exhibits distinct economic structures, development levels, and fiscal management approaches, resulting in varying effects of public debt on economic growth from 2001 to 2023.
Public debt trends in the ASEAN region have been significantly influenced by global economic conditions, fiscal policies, and the diverse levels of economic development among member countries The 2008 global financial crisis prompted a rise in public debt as governments implemented stimulus measures to address economic downturns Similarly, the COVID-19 pandemic in 2020 led to increased public debt as nations focused on strengthening healthcare systems, providing social protection, and fostering economic recovery However, the effects of public debt on economic growth have varied; while some countries have effectively leveraged public debt for growth, others have struggled with rising debt levels, resulting in slower economic growth and concerns regarding debt sustainability, particularly in high-developed ASEAN nations like Brunei and Singapore.
- Public debt characteristics of each high-developed ASEAN country
In Singapore, public debt is primarily internal, with the government borrowing from domestic institutions through government bonds Despite a high public debt-to-GDP ratio, Singapore's strong economic fundamentals and prudent fiscal management have minimized any negative impact on growth Conversely, Brunei has maintained a low level of public debt, largely due to its substantial oil export revenues, and its public debt has not significantly influenced its economic growth or decline, as oil price volatility has played a more critical role.
- Public debt situation in high-developed ASEAN countries
Singapore, despite having the highest public debt-to-GDP ratio in the region, ranging from 80% to 160% between 2001 and 2023, has maintained robust economic growth due to its reliance on international trade and effective financial management that prevents debt from becoming a burden In contrast, Brunei's public debt-to-GDP ratio remained significantly lower, between 3% and 5%, during the same period, benefiting from its oil and gas exports, which provide a stable revenue source and diminish the necessity for public debt to support investment activities.
- The impact of public debt on economic growth of high-developed ASEAN countries
The impact of public debt on economic growth in certain ASEAN countries is minimal, particularly during the analyzed period In Singapore, despite a high public debt level, the relationship with economic growth is not straightforward; effective fiscal management and significant trade openness have allowed the country to sustain stable growth Similarly, Brunei's very low public debt ratio results in an insignificant effect on its growth Notably, neither country has an official public debt threshold, as they do not rely heavily on public or external debt In contrast, medium-developed ASEAN nations like Thailand, Malaysia, and Indonesia present different dynamics regarding public debt and growth.
- Public debt characteristics of medium-developed ASEAN countries
Middle-income ASEAN countries have shown diverse trends in public debt accumulation Malaysia and Thailand have effectively managed their debt through stable fiscal policies that encourage economic growth without resorting to excessive borrowing Meanwhile, Indonesia, which faced elevated debt levels in the early 2000s, has made significant strides in reducing its debt burden and enhancing its fiscal health over the years.
- Public debt situation in medium-developed ASEAN countries
From 2001 to 2023, Malaysia's public debt ratio fluctuated between 40% and 60% of GDP, significantly impacted by the 2008 global financial crisis and the COVID-19 pandemic Despite government efforts to manage public debt, the necessity of financing economic stimulus programs during crises led to an increase in the debt ratio In contrast, Thailand maintained a lower public debt ratio of 30% to 50% of GDP during the same period, although it faced fiscal pressures amid economic downturns and political instability Meanwhile, Indonesia's public debt-to-GDP ratio averaged between 30% and 40%, showing an upward trend during crises Although Indonesia has undertaken various reforms to alleviate its public debt burden, the debt has continued to rise during global economic challenges and pandemics.
- The impact of public debt on economic growth in medium-developed ASEAN countries
From 2001 to 2023, the impact of public debt on economic growth in less-developed countries like Lao PDR, Philippines, Cambodia, Myanmar, and Vietnam has been more pronounced than in high-developed nations These countries frequently utilize public debt to fund infrastructure investments and economic stimulus initiatives However, when public debt surpasses 50% of GDP, the pressure of debt servicing and the risk of default escalate, leading to diminished investor confidence and adverse effects on growth This relationship is non-linear; while low levels of public debt can foster growth through investment, exceeding a certain threshold results in negative consequences due to the burdensome debt and high interest costs.
- Public debt characteristics of less-developed ASEAN countries
Public debt has been instrumental in financing economic development in several countries, with Vietnam serving as a prime example The nation has effectively utilized public debt to support major infrastructure and industrial projects, which have been vital to its swift economic growth.
Lao PDR, Cambodia, Myanmar and Philippines have relied on both domestic and external borrowing to finance their development, with varying levels of success
- Public debt situation in less-developed ASEAN countries
Many countries in the region depend on public debt and international aid to support infrastructure development and combat poverty Vietnam has experienced a notable rise in public debt, with its debt-to-GDP ratio climbing from approximately 30% in the early 2000s to nearly 65% by 2023, as the government invests heavily in infrastructure to stimulate growth, though this increasing debt poses economic challenges Similarly, Laos and Cambodia have seen their public debt-to-GDP ratios rise due to international borrowing for large infrastructure projects In contrast, Myanmar maintains a relatively stable public debt ratio but faces significant challenges from political instability and global economic fluctuations The Philippines' public debt-to-GDP ratio fluctuates between 30% and 40%, with increases during financial crises.
- The impact of public debt on economic growth in less-developed ASEAN countries
The empirical model: TAR model by Kremer et al (2013)
2.2.1 The suitability of applying the TAR model to study the relationship between public debt and economic growth in ASEAN countries in the period from 2001 to
The relationship between public debt and economic growth in ASEAN countries is nonlinear and varies significantly among different groups within the region Consequently, the TAR model emerges as the most suitable framework for analyzing the impact of public debt on economic growth from 2001 to 2023 This model's appropriateness will be detailed in the following sections.
The relationship between public debt and economic growth in ASEAN countries from 2001 to 2023 is nonlinear In certain nations, low levels of public debt can positively influence growth, but exceeding a specific threshold may lead to negative effects The AR model effectively identifies these critical thresholds, facilitating a deeper analysis of this complex relationship.
The TAR model allows ASEAN countries to categorize their economies into distinct regimes based on public debt thresholds, highlighting the varying impacts of public debt over time and across nations For instance, in Singapore, the effects of high public debt levels differ significantly from those at lower levels In contrast, countries like Vietnam and Laos may encounter heightened risks when their public debt surpasses the established safety threshold.
The TAR model enables the evaluation of how various macroeconomic factors, including inflation, trade openness, and fiscal management, influence economic growth alongside public debt These interconnected factors can impact economic growth in complex ways, which will be analyzed across different regimes.
The TAR model is a valuable tool for analyzing economic crisis periods, including the 2008 global financial crisis and the COVID-19 pandemic, as it helps to understand how the relationship between public debt and economic growth can change dramatically during these times.
2.2.2 TAR model by Kremer et al (2013)
This research utilizes the TAR model established by Kremer et al (2013) to analyze the effects of public debt on economic growth across 40 developed and developing nations from 1990 to 2010 The findings from this study contribute to understanding the relationship between public debt levels and economic performance during this period.
𝑔 𝑖𝑡 : the real growth rate of GDP per capita (%)
𝜏𝑔 𝑖(𝑡−1) : The delay annual economic growth (%)
𝐷𝐸𝐵𝑇 𝑖𝑡 : the public debt- to-GDP ratio (%GDP)
𝑋 𝑖𝑡 : set of controlled variables (trade openness, real interest rate, investment-to-GDP ratio, savings rate, inflation, population growth, government expenditure, financial development)
𝛽 𝑖,𝑗 : Coefficients of the autoregressive process for regime i (where i = 1, 2 for each regime)
𝛾: The threshold value determining which regime the series follows
𝜀 𝑖𝑡 : The error term, assumed to be white noise
In our research model, we incorporate control variables such as trade openness and inflation rate, based on the threshold analysis model by Kremer et al (2013) and Ndoricimpa (2020) While these variables do not encompass all factors influencing growth as outlined by endogenous growth theory, previous empirical studies by Levine & Renelt have demonstrated their significance.
(1992), Sala-i-Martin (1997), Gomez-Puig & Sosvilla-Rivero (2017), and Ndoricimpa
In 2020, the trade openness ratio was determined by the total value of exports and imports in relation to GDP, while inflation was measured as the annual percentage increase in the consumer price index.
Research Methodology
Hypothesis
This research analyzes the impact of public debt on economic growth in ASEAN countries from 2001 to 2023, based on the studies of Kremer et al (2013) and Ndoricimpa (2020) The study focuses on three key factors: inflation, trade openness, and the public debt-to-GDP ratio, selected for their significant influence on economic dynamics.
- Factor 1: Public debt-to-GDP ratio (DEBT – Unit: %GDP)
This research focuses on public debt as a crucial factor in evaluating its impact on economic growth in ASEAN countries It posits that the relationship between public debt and economic growth is nonlinear, influenced by the specific public debt thresholds and management capacities of each ASEAN nation.
The inclusion of DEBT in the TAR model is crucial due to its significant influence on economic growth through public investment and stimulus packages However, when public debt exceeds a certain threshold, it can impose a substantial financial burden, potentially leading to economic recession Additionally, DEBT does not operate in isolation; it interacts with other macroeconomic factors like inflation and trade openness Furthermore, the relationship between public debt and economic growth is non-linear, indicating that while moderate levels of public debt may be advantageous, excessive debt can hinder growth.
Inflation significantly influences public debt and economic growth, impacting purchasing power, economic stability, borrowing costs, and the management of public debt.
The TAR model incorporates the impact of inflation on public debt, as a significant rise in inflation can lower the real value of public debt while simultaneously increasing interest rates, thus heightening the debt burden for ASEAN governments Additionally, the correlation between inflation and economic growth is non-linear; while low inflation may foster growth, high inflation tends to hinder it.
26 model can analyze this relationship across different regimes, based on the inflation threshold
- Factor 3: Trade Openness (TRADE - % GDP)
Trade openness (TRADE) quantifies a country's level of engagement in international trade by assessing its exports and imports of goods and services This metric plays a crucial role in shaping the ASEAN economy, particularly within the framework of globalization, highlighting the ASEAN region's status as a vibrant trading hub.
Incorporating TRADE into the TAR model is essential due to its significant influence on economic growth and public debt in ASEAN countries High TRADE levels enable access to international markets, enhancing export opportunities and attracting foreign investment, which is particularly beneficial for nations like Singapore, Malaysia, and Vietnam Furthermore, TRADE interacts with public debt, as countries with robust TRADE often experience strong foreign investment inflows that ease debt repayment and alleviate fiscal pressure However, the varying degrees of TRADE openness among ASEAN nations, such as Singapore's highly open economy compared to Myanmar's lower trade engagement, result in differing impacts on economic growth and public debt across the region.
The inclusion of INF, TRADE, and DEBT variables in the TAR model is essential for analyzing the effects of public debt on economic growth in ASEAN countries from 2001 to 2023 These variables significantly influence the economy and exhibit complex, non-linear interactions By utilizing the TAR model, researchers can effectively examine the dynamics of these relationships, offering a clearer understanding of public debt's impact within the ASEAN context.
Research Model
The research model is built based on TAR model by Kremer et al (2013) written as the form below:
𝐺𝐷𝑃 𝑔𝑟 : The annual economic growth of ASEAN countries (Unit: % GDP)
*Independent Variables: 𝒍𝒈𝑮𝑫𝒑 𝒈𝒓𝒕−𝟏 , DEBT, INF, TRADE
𝑙𝑔𝐺𝐷𝑝 𝑔𝑟𝑡−1 : The delay annual economic growth of ASEAN countries (one of lagged values of 𝐺𝐷𝑃 𝑔𝑟 ) – Explained Variable
DEBT: Public debt-to-GDP ratio (Unit: % GDP) – Threshold Variable
INF: Annual Inflation rate (Unit: %) – Explained Variable
TRADE: Annual Trade Openness (Unit: % GDP) – Explained Variable
*Other terms in TAR model:
𝛽 𝑖,𝑗 : Coefficients of the autoregressive process for regime i (where i = 1, 2 for each regime) r: The threshold value determining which regime the series follows
𝜀 𝑡 : The error term, assumed to be white noise
Data Collection Method
This research aims to analyze the relationship between public debt and economic growth in ASEAN countries from 2001 to 2023 by utilizing a secondary data collection method Secondary data refers to pre-analyzed information obtained from various sources, encompassing both data the researcher has sourced independently and information gathered by others Essentially, this constitutes second-hand information, predominantly consisting of numerical data.
Table 1: The information of data sources of variables
Variables Research Sources Data Sources
3 Vu Xuan Thuy & Nguyen Thi
(WDI) International Monetary Fund (IMF)
2 Vu Xuan Thuy & Nguyen Thi
Results and Analysis
Descriptive statistics and Data Correlation Test
Figure 1: Descriptive Statistic Table for Dataset
Source: Results from STATA 17 software
The data includes one dependent variable which is GDP growth (GDP gr ) and 7 independent variables namely public debt-to-GDP (DEBT), inflation (INF) and trade openness (TRADE)
The descriptive data table above describes several data characteristic, however, this research only concerns 4 characteristics which are the number of observations, mean, minimum, maximum
For the number of observations, there are 230 observations including 10 ASEAN countries namely Vietnam, Indonesia, Cambodia, Philippines, Thailand, Brunei, Malaysia, Myanmar, Lao PDR, Singapore in the period from 2001 to 2023
Concerning mean, minimum and maximum values, it can be observed that:
The average GDP growth rate was 4.97%, with Cambodia achieving the highest growth at 10.7% in 2006 In contrast, Myanmar experienced the lowest GDP growth rate of -12.02% in 2021.
In 2021, the average debt level across the analyzed regions was 48.63%, with Singapore recording the highest debt at 167.8% Conversely, Brunei experienced the lowest debt levels from 2001 to 2005, as it maintained a public debt of zero during that timeframe.
- INF: The mean value of INF was 5.9545%, the highest value was 36.59% which belonged to Myanmar in 2003 while the lowest value was -28% which belonged to Brunei in 2016
- TRADE: The mean value of TRADE was 65.0532%, the highest TRADE value was 228.99% which belonged to Singapore in 2008 while in 2009 Myanmar had the lowest TRADE value which was only 0.11%
This research will examine the correlation matrix among variables to highlight the limitations of individual variable analysis, offering a comprehensive view of the relationship between the dependent variable and explanatory variables in the regression model Additionally, it will present an initial overview of the correlation levels among the explanatory variables.
After running the correlations test in STATA 17 software, the result of correlation matrix is shown below:
Source: Results from STATA 17 Software
According to the results provided above, it can be seen that:
- The correlation coefficient of DEBT has the same sign to correlation of coefficients of INF and TRADE
- The correlation coefficient of INF has the opposite sign to correlation of coefficient of TRADE which means they have an inverse relationship with each other
In general, all correlation coefficients are smaller than 0.8 This means that there is not autocorrelation phenomenon for this dataset.
Research results
This research employs the TAR model to analyze the effects of public debt and identify public debt thresholds across three groups of ASEAN countries: high-developed nations (Singapore and Brunei), medium-developed countries (Indonesia, Malaysia, Thailand), and less-developed countries (Indonesia, Cambodia, Philippines, Vietnam, and Lao PDR) during the period from 2001 to 2023.
4.2.1 High-developed ASEAN countries: Singapore and Brunei a) Brunei
This research posits that Brunei's unofficial public debt ceiling is set at 2.5%, reflecting the average public debt-to-GDP ratio from 2001 to 2023.
The TAR model analysis of Brunei's economic growth from 2001 to 2023 reveals that public debt, inflation, and trade have not influenced economic growth during this period, indicating that the public debt threshold is irrelevant for Brunei's economy.
At a significance level of 5%, the P-value for DEBT is 0.210, exceeding the threshold of 0.05 This indicates that DEBT is not statistically significant, suggesting that public debt did not influence the economic growth of Brunei during this period.
At a significance level of 5%, the P-value for INF is 0.06, indicating that it is not statistically significant since it exceeds 0.05 This suggests that INF did not have a measurable impact on the economic growth of Brunei during this period.
At a significance level of 5%, the P-value for TRADE is 0.309, indicating that it is greater than 0.05 Consequently, TRADE is not statistically significant, suggesting that it did not influence the economic growth of Brunei during this period.
Figure 3: The results of TAR model for the 1 st regime in Brunei
Source: Results from STATA 17 software
Figure 4: The results of TAR model for 2 nd regime in Brunei
Source: Results from STATA 17 software
At a significance level of 5%, the P-value for DEBT is 0.644, indicating that it is higher than the threshold of 0.05 Consequently, DEBT is not statistically significant, suggesting that public debt did not influence the economic growth of Brunei during this period.
At a significance level of 5%, the P-value for INF is 0.434, indicating that it exceeds the threshold of 0.05 This suggests that INF is not statistically significant, implying that it did not influence the economic growth of Brunei during this period.
At a significance level of 5%, the P-value for TRADE is 0.442, indicating that it is higher than the threshold of 0.05 Consequently, TRADE is not statistically significant, suggesting that it did not influence the economic growth of Brunei during this period.
There are two model tests conducted after running model which are Wald Tests and Stationary Test The results show that:
Figure 5: The result of Wald Test for Brunei TAR model
Source: Results from STATA 17 software
The Wald Test results indicate a P-value of 0.6397 at a significance level of 5%, which exceeds the threshold of 0.05 This suggests that the TAR model did not reveal any statistically significant differences between the two regimes in Brunei during the analyzed period.
Figure 6: The result of Stationary Test for Brunei TAR model
Source: Results from STATA 17 software
The Stationary Test revealed a P-value of 0.0026 at a significance level of 5%, indicating a long-term relationship among DEBT, INF, TRADE, and GDP in Singapore.
For Singapore, this research assumes that the concerned threshold level in this period was 50% (the average public debt-to-GDP ratio from 2001 to 2023)
Similar to Brunei, the factors of debt, inflation, and trade did not significantly influence the economic growth of this country; however, this relationship was only evident for a brief period, rather than throughout the entire span from 2001 to 2023.
Figure 7: The results of TAR model for 1 st regime in Singapore
Source: Results from STATA 17 software
At a significance level of 5%, the P-value for DEBT is 0.408, indicating that it is greater than 0.05 Consequently, DEBT is not statistically significant, suggesting that public debt did not influence Singapore's economic growth during this period.
At a significance level of 5%, the P-value for INF is 0.732, indicating it is not statistically significant since it exceeds 0.05 This suggests that INF did not influence the economic growth of Singapore during this period.
At a significance level of 5%, the P-value for TRADE is 0.945, exceeding the threshold of 0.05 This indicates that TRADE is not statistically significant and did not influence the economic growth of Singapore during this period.
Figure 8: The results of TAR model for 2 nd regime in Singapore
Source: Results from STATA 17 software
General Discussion for ASEAN countries
Results Discussion for ASEAN countries
5.1.1 Results Discussion for high-developed ASEAN countries: Singapore and Brunei
In high-developed ASEAN countries like Brunei and Singapore, public debt has no long-term impact on economic growth due to their strict fiscal policies and minimal reliance on public debt, particularly foreign debt These nations leverage financial resources from oil and gas exports and utilize domestic public debt, eliminating the need for a specific public debt threshold.
Brunei's economic growth remains largely unaffected by public debt, inflation, and trade openness due to several key factors The nation relies on oil and gas exports for revenue rather than public debt, maintaining a public debt-to-GDP ratio below 5% from 2001 to 2023 Additionally, Brunei consistently achieves a significant budget surplus, which constrains government debt The country also boasts substantial foreign currency reserves from oil and gas revenues, providing a strong financial position without the need for borrowing to fund development programs Strict fiscal policies further enhance financial stability and mitigate public debt pressure Despite experiencing negative GDP growth during the 2008 financial crisis and the Covid-19 pandemic, the decline was primarily driven by falling oil and gas prices and reduced demand, rather than public debt influences.
For Singapore, there are several reasons for the result of non-impact of public debt, inflation and trade openness on economic growth in short-term period for Singapore
In this research, the focus is on Singapore's public debt, primarily sourced internally, as the nation utilizes internal public debt and national investment funds to bolster public expenditure and investment External public debt is reserved strictly for long-term investments, limiting its impact on short-term spending and public consumption, which makes it challenging to gauge its effect on Singapore's economic growth Notably, Singapore, like Brunei, consistently maintains a budget surplus, minimizing reliance on external public debt and mitigating potential public debt crises During the financial crises of 2007-2008, despite a drop in GDP growth from 9.02% to 1.86%, the public debt-to-GDP ratio remained stable due to prudent fiscal policies that avoided borrowing to cover budget deficits Instead, the government implemented economic stimulus measures funded primarily through sovereign wealth funds and reserves, such as Temasek and GIC From 2020 to 2022, Singapore's public debt did not negatively impact economic growth, thanks to substantial foreign exchange reserves and investment funds that reduced dependence on foreign debt.
From 2001 to 2023, economically advanced ASEAN countries like Brunei and Singapore have demonstrated that their growth is not dependent on public debt, as they possess independent financial resources for public spending and investment Both nations maintain robust fiscal policies that shield them from the negative effects of public debt and crises Additionally, their substantial foreign currency reserves and budget surpluses ensure they have sufficient funds for emergencies, such as the 2008 financial crisis and the COVID-19 pandemic, allowing them to avoid excessive reliance on external public debt for short-term needs.
5.1.2 Results discussion for medium-developed ASEAN countries: Thailand, Malaysia, Indonesia
In medium-developed countries, public debt exhibits a slightly negative effect on economic growth when the public debt-to-GDP ratio is below 50% However, this impact intensifies significantly when the ratio exceeds 50%, indicating a stronger negative correlation between higher public debt levels and economic growth.
47 during this period Both INF and TRADE played a role in helping these countries increase their budgets and reduce their public debt burden during this period
When public debt remained below 50, it still negatively impacted economic growth in these countries, primarily due to two financial crises During the recession and recovery, many nations increased public debt to stimulate their economies; however, factors such as reduced exports, decreased foreign direct investment (FDI), and a global recession hindered growth Consequently, public debt became a burden for medium-developed ASEAN governments, failing to effectively boost economic growth In contrast, a moderate increase in inflation (INF) during this period positively influenced economic growth, as it reduced the real value of debt in domestic currency, allowing governments to repay loans at lower monetary values and alleviating debt burdens Additionally, an increase in trade (TRADE) provided these countries with opportunities to leverage the international market, enhancing their import and export capabilities while attracting foreign investment, thereby promoting economic growth.
In the second case, DEBT significantly impacted economic growth more than in the first case, indicating a detrimental effect on GDP growth for the three countries analyzed Additionally, the influence of inflation (INF) and trade (TRADE) was notably greater during this period This can be attributed to the fact that as DEBT exceeded the public debt ceiling of 50% of GDP, these ASEAN governments increased public spending and investment to stimulate economic growth following financial crises Consequently, they also had to boost INF and TRADE to manage public debt repayment costs effectively and ensure sufficient revenue for future obligations, thereby mitigating the risk of a debt crisis or excessive debt burden.
5.1.3 Results discussion for less-developed ASEAN countries: Vietnam, Lao PDR, Cambodia, Philippines, Myanmar
In less-developed countries, maintaining a public debt-to-GDP ratio below 40% is crucial, as it significantly hampers long-term economic growth Conversely, when the ratio exceeds 40%, economic growth remains unaffected.
During the period when the public debt-to-GDP ratio was below 40%, certain ASEAN countries experienced negative economic growth due to ineffective public debt management Specifically, if these nations utilized public debt for short-term needs or failed to invest in profitable projects, such as quality infrastructure and efficient public management, it resulted in a budgetary burden rather than economic stimulation Despite efforts to keep debt under 40% of GDP, a lack of effective investment in development projects meant that public debt did not enhance economic value Furthermore, between 2001 and 2023, these countries faced global economic shocks that severely impacted budget revenues, leading to unmanageable public debt levels, even at low ratios This weak resilience to global crises heightened their vulnerability, making public debt a significant burden despite its small proportion of GDP.
From 2001 to 2023, the public debt-to-GDP ratio in less-developed ASEAN countries exceeded the critical threshold of 40%, yet this increase in debt did not adversely affect their economic growth Several factors contribute to this phenomenon, which are detailed below.
When public debt exceeds 40%, its detrimental effects on economic growth may reach a saturation point This indicates that additional increases in debt are unlikely to further hinder growth, as the economy has adapted to elevated levels of public debt without experiencing substantial changes in its economic structure.
Many countries obtain debt financing through specialized financial mechanisms, including international aid, debt deferral or restructuring, and concessional loans from organizations like the IMF and World Bank These financial strategies are crucial for managing national debt and fostering economic stability.
Special debt financing during financial crises alleviates repayment pressures and mitigates adverse effects on economic growth, ensuring that public debt does not hinder economic development.
The economies of less-developed ASEAN countries primarily depend on sectors like agriculture, mining, and natural resource exports, which are less influenced by public debt levels These sectors rely mainly on natural resources and domestic production, making them resilient to fluctuations in the government's fiscal position Consequently, even if public debt surpasses 40% of GDP, it does not significantly impact the core economic activities of these nations.
REFERENCES
Chapter 1: Literature Review 1.1 Concepts and Theory of Public Debt
Public debt is defined in various ways across global research, but it is primarily understood from two perspectives The first perspective focuses on the total amount of interest the government incurs when borrowing funds The second perspective considers the potential financial resources available to offset government deficits.
Public debt is defined as the total amount of state loans issued and outstanding, including accrued interest, that must be repaid within a specified timeframe (Levišauskaitė & Rūškys, 2003) It encompasses the debt incurred by all levels of government throughout a financial year (Snieška et al., 2005) Additionally, public debt includes the sum of non-refundable loans, unpaid interest on these loans, and other financial obligations that the government has committed to its creditors (Štuopytė & Guzavičius, 2008).
Public debt is defined as a mechanism for financing government budget deficits through borrowing in the bond market, as outlined by Mankiw and Taylor (2006) This definition emphasizes the role of public debt in managing past government borrowings and ensuring fiscal stability.
Public debt refers to the total amount of a country's debt securities, which are issued to address temporary funding shortfalls in the government budget According to Blanchard (2007), it serves as a crucial reserve for governments to manage these financial gaps effectively.
Public debt, despite varying definitions, is generally understood as a financial resource for governments that encompasses the total amount of unpaid interest on government borrowings This comprehensive understanding highlights the significance of public debt in managing a nation's finances.
10 liabilities and government borrowings to fund the temporary lack of state budget deficit of government
There are four main ways to classify the public debt which are commitments, market, duration and subsectors ways
Public debt can be classified into two main categories: direct debt and indirect debt Direct public debt refers to the liabilities incurred by the government through the issuance of securities in financial markets or borrowing from banks In contrast, indirect public debt is incurred by individuals or entities, both public and private, with the government's guarantee.
Public debt can be classified into two main categories: domestic debt and foreign debt Domestic public debt refers to liabilities incurred within the domestic market, while foreign public debt involves borrowing from international markets and is denominated in foreign currencies.
Public debt can be categorized into two main types: short-term and long-term public debt Short-term public debt refers to obligations that mature within one year, while long-term public debt encompasses those with maturities exceeding one year.
Public debt can be categorized into three main types: central government debt, local government debt, and social security fund debt Central government debt, which constitutes approximately 80% to 90% of total public debt, is incurred by national enterprises, non-budgetary funds, and public enterprises Local government debt arises from municipal enterprises and similar funding sources Lastly, social security fund debt includes obligations from the State Social Insurance Fund, the Mandatory Health Insurance Fund, and other related entities.
1.1.3 Definition of Public Debt Management
Concerning the definition of public debt management, according to Lewis & Viủals
(2014), public debt management can be understood as a process of launching and executing strategies for controlling the government’s public debt to raise the fund for
The government budget should be optimized to minimize costs and maintain a manageable level of risk in the medium to long term Additionally, public debt management must be aligned with the broader objectives of government financial strategies.
1.1.4 Public Debt Theory – Non-linear relationship between public debt and economic growth
The relationship between public debt and economic growth is often characterized as non-linear over the long term, resembling an inverted "U" shape on a graph This indicates that public debt can exert both positive and negative effects on economic growth, depending on the specific economic context and time period.
Research by Cohen & Sachs (1986) and subsequent studies by Cohen (1991, 1992) indicate that countries with low borrowing levels can more easily access capital from domestic and international markets due to their lower risk of default In this context, public debt can positively influence economic development, as these nations can borrow at a low cost and effectively allocate funds to various public projects However, as economic growth progresses, the cost of public debt may rise, potentially slowing growth if countries fail to implement effective debt rescheduling policies, leading to negative debt overhang effects Furthermore, Patillo, Poirson & Ricci (2022) illustrate a non-linear relationship between public debt and economic growth through the Laffer curve, which depicts a "good side" where increased debt repayment corresponds with higher public debt servicing, and a "wrong side" where such repayment diminishes.
When debt servicing costs are high, the impact of debt on investment and productivity reaches a critical point, as illustrated by the Laffer curve This peak represents a threshold where the negative effects of debt outweigh its benefits, forcing governments to incur greater costs in exchange for future advantages While the Laffer curve effectively captures both the positive and negative implications of public debt on economic growth, it does not specify the exact point at which the effects shift from beneficial to detrimental.
1.1.5 Threshold Autoregressive Model (TAR Model)
TAR Model or Threshold Autoregressive Model was first introduced by Howell Tong
The Threshold Autoregressive (TAR) model, introduced in 1980 and further developed by Tong in 1990, effectively captures nonlinearity in time series data This model allows time series to transition between different regimes based on a threshold variable Essentially, the TAR model functions as a piecewise linear autoregressive model, where the behavior of the time series changes depending on whether the threshold variable exceeds a predetermined threshold value.
For the basic structure of the original TAR Model, TAR model tolerates the time series
The two-regime Threshold Autoregressive (TAR) model allows for shifts between multiple autoregressive processes based on whether a lagged value of the series \( y_{t-d} \) or another variable exceeds a specific threshold, denoted as \( r \) This model effectively captures the dynamics of time series data by incorporating regime changes that occur when certain conditions are met.
𝑦 𝑡 : The value of the time series at time t