Granger causality between public debt and economic growth: further evidence from panel data

This paper examines the causal relationships between public debt and economic growth. To that end, we employ the novel homogeneous approach to testing for Granger non-causality in a heterogeneous panel to a sample of 115 countries from 1995 to 2016. This methodology suits high persistence, moderate time dimension and heterogeneous nuisance parameters. Our results indicate that when examining the pairwise relationship, in most of cases, there is a unidirectional Granger-causality relationship running from debt to growth. Nevertheless, when controlling for the explanatory variables that have been consistently identified as drivers of growth in the literature, in all the cases, we find evidence of bidirectional Granger-causality between public debt and economic growth.