TÁC ĐỘNG CỦA NỢ CÔNG VÀ LẠM PHÁT LÊN TĂNG TRƯỞNG KINH TẾ Ở CÁC NƯỚC ĐANG PHÁT TRIỂN (TT)

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY

NGUYỄN VĂN BỔN

THE EFFECTS OF PUBLIC DEBT AND
INFLATION ON ECONOMIC GROWTH IN
DEVELOPING COUNTRIES

SUMMARY OF ECONOMIC DOCTORAL THESIS

HO CHI MINH CITY - 2016


The work was completed at
University of Economics Ho Chi Minh
The scientific instructor: Prof. Dr. Sử Đình Thành
Reviewer 1: ..................................................................................
Reviewer 2: ..................................................................………....
Reviewer 3: ..................................................................................
The thesis will be defensed in front of Thesis Scoring Board at
University of Economics Ho Chi Minh
at …. day …..month….year 2016
The thesis can be found at:
- Synthesis Scientific Library in Ho Chi Minh City
- Library of University of Economics Ho Chi Minh City


PUBLISHED SCIENTIFIC WORKS
1. Nguyen, V. B. (2016). The role of institutional quality in the
relationship between FDI and economic growth in Vietnam:

Empirical evidence from provincial data. The Singapore Economic
Review, Vol. 00, No. 0 (2016) 1650022.1-23 (23 pages).
2. Nguyen, V. B. (2015). The effects of public debt, inflation and
their interaction on economic growth in developing countries. Asian
Journal of Empirical Research 5(11), 221-236.
3. Nguyen, V. B. (2015). The relationship between public debt and
inflation in developing countries: Empirical evidence based on
difference panel GMM. Asian Journal of Empirical Research 5(9),
102-116.
4. Nguyen, V. B. (2015). Effects of Public Debt on Inflation in
Developing Economies of Asia: An Empirical Evidence Based on
Panel Differenced GMM Regression and PMG Estimation. The
Empirical Economics Letters 14(4), 341-351.
5. Nguyen, V. B. (2015). Effects of fiscal deficit and money M2
supply on inflation: Evidence from selected economies of Asia.
Journal of Economics, Finance & Administrative Science 20(38),
49–53.
6. Nguyen, V. B. (2014). Current Account and Fiscal Deficits:
Evidence of Twin Divergence from Selected Developing Economies
of Asia. Southeast Asian Journal of Economics 2(2), 33-48.
7. Nguyễn Văn Bổn & Nguyễn Minh Tiến (2014). Các nhân tố quyết
định dòng vốn FDI ở các nước Châu Á. Tạp chí Khoa học Trường
Đại học Cần Thơ, 31(2014), 124-131.


1

INTRODUCTION
1. The reason for study
The research background shows there no exists any study to

investigate the simultaneous effects of public debt, inflation, and
their interaction on economic growth for developing countries.
Therefore, the thesis “The effects of public debt and inflation on
economic growth in developing countries” has been chosen to
empirically analyse and investigate.
2. The aim for study
The thesis will focus on the following two objectives:
(1) Clearly determine the relationship between public debt and
inflation for developing countries.
(2) Empirically study the effects of public debt, inflation, and their
interaction on economic growth in these countries.
3. Research methodology
 Clearly determine the relationship between public debt and
inflation for developing countries in the model and empirically
study the effects of public debt, inflation, and their interaction on
economic growth in these countries
 Compare these effects for three samples: the whole sample, Asia,
and Africa.
4. Object and scope of the research
The relationship between public debt and inflation; the effects of
public debt, inflation, and their interaction on economic growth in 60
developing countries in Asia, American Latin, and Africa over the
period of 1990-2014.
5. Scientific significance of the thesis


2
Significant contribute to academic research on this topic and some
developing countries such as Vietnam.
Provide scientifically new findings on the simultaneous effects of

public debt, inflation, and their interaction on economic growth in
developing countries.
Set up the foundations to help policymakers to issue policies to
develop sustainably economy and avoid public debt crises.
6. Structure of the thesis
In addition to introduction, conclusion, appendix, and reference, the
structure of the thesis consists of 5 chapters.
CHAPTER 1
THEORY OVERVIEW
1.1 The foundations of public debt and inflation
1.1.1 Public debt theory
According to IMF (2010), public debt is known as the public sector’s
debt service. Accompanying is the definition about public sector,
consisting of government sector and public organisations. However,
according to WB (2002), public debt is all government debt and
government-guaranteed debt.
The economic impact of public debt
Nautet & Van Meensel (2011) note the impact of fiscal policy – and
then public debt – on economic growth is always a debate among
economists.
The short-term impact
In short-term, the instruments of fiscal policy used to consolidate
budget constraints will reduce economic growth. Indeed, empirical
studies show budget multipliers are positive.
The long-term impact


3
Contrarily, the long-term impact of fiscal consolidation to maintain
the public finance is positive. The impacts consist of reducing longterm interests due to restriction of government bond in the market

and dropping risk premiums. Furthermore, low interests form fiscal
consolidation will make public expenditure effectively or lower tax
burden.
The transfer mechanism
Nautet & Van Meensel (2011) state that there are some ways in
which increasing/decreasing public debt can have a negative/positive
impact on long-term growth. There are three main transfer
mechanisms: First, increasing public debt closely connects to
decreasing government saving, leading to decreasing national net
saving. Second, increasing public debt leads to high interest paying.
Finally, increasing public debt leads to risks of debt default, and
increases risk costs.
1.1.2 Inflation theory
Definition: According to Samuelson & Nordhaus (1989), inflation is
an increase in price level.
Inflation rate (year t) =

price level (year t) − price level (year t − 1)
x100
price level (year t − 1)

According to the website of World Bank, inflation is measured in
consumption price index, which describes annual change (%) about
the expenses that an average person has to pay for a basket of goods
and services in a time period (usually a year). Meanwhile, according
to the website of IMF, inflation measures high price level of a basket
of goods and services in a time period (usually a year).
The economic impact of inflation
- Impact on the distribution of income and wealth.

4
- Impact on the effectiveness of economy.
- Impact on the micro-economy.
1.1.3 The theory of relation between public debt and inflation
Adams et al. (2010) indicate the level of public debt depends upon
weighted borrowing interest rates, the value of domestic currency,
public debt ratio in foreign currency, growth rate, and primary fiscal
surplus. Particularly, ceteris-paribus, increasing/decreasing inflation
leads to decreasing/increasing public debt.
1.2 The analytic framework of public debt, inflation and growth
1.2.1 Public debt and macro-balances
The theory “vicious circle”
Through the analysis and arguments, Samuelson notes that
developing countries in “vicious circle” of poverty are too hard to
escape. To break this vicious circle, he claims it needs to have a lever
from outside, meaning that developing countries need the outside
resources of capital, technology, experts, and management,…
The two-gap model
Chenery & Strout (1966) presents “two-gap model” via analysing the
relationship between foreign capital and economic development. The
main idea of this model is that governments in developing countries
have to utilize domestic resources effectively and use foreign capital
(FDI and ODA capital) as a lever to narrow “investment-saving gap”
and “trade gap”
The three-gap model
The three-gap model is modified and developed from the two-gap
model by Bacha (1990), Solimano (1990), and Taylor (1994).
Accordingly, these researchers add “budget deficit gap” to the model
due to fiscal deficit of governments.

5
1.2.2 Public debt and inflation in the endogenous growth model
Public debt in the endogenous growth model: In his work, Barro
(1990) notes the increasing in public spending to supply public goods
and services as input for private sector’s production.
Inflation in the endogenous growth model: In their work, Chang &
Lai (2000) develop a theoretical model to investigate the impact of
inflation expectation in an endogenous monetary economy.
CHAPTER 2
LITERATURE ON THE EFFECTS OF PUBLIC DEBT AND
INFLATION ON ECONOMIC GROWTH
2.1 The relationship between public debt and inflation
Sargent & Wallace (1981) are the first researchers to suggest the
view of inflationary impact of public debt in indebted countries. This
view is mostly confirmed in empirical studies (Kwon et al., 2009;
Bildirici & Ersin, 2007; Ahmad et al., 2012; Nastansky et al., 2014).
Meanwhile, Davig & Leeper (2011) and Martin (2015) theoretically
analyse the impact of high public debt on inflation. Contrarily,
Akitoby et al. (2014) and Hilscher & Reis (2014) investigate the
impact of inflation on public debt.
2.2 Public debt, inflation and economic growth
2.2.1 Public debt and economic growth
In the strand of positive impact of public debt are the investigations
such as Moore & Thomas (2010), Egbetunde (2012), Al-Zeaud
(2014), Fincke & Greiner (2015b), Spilioti & Vamvoukas (2015).
In the strand of negative impact are studies for single countries such
as : Balassone et al. (2011), Bal & Rath (2014,), Akram (2015), Lee
& Ng (2015), Mitze & Matz (2015). For a group of countries:

6
Schclarek (2004), DiPeitro & Anoruo (2012), Panizza & Presbitero
(2012), Šimić & Muštra (2012), Calderón & Fuentes (2013), Szabó
(2013), Časni et al. (2014), Zouhaier & Fatma (2014), Eberhardt &
Presbitero (2015), Fincke & Greiner (2015a).
Relating to nonlinear growth impact of public debt, there are studies
for groups of developing countries (Maghyereh et al., 2003; Pattillo
et al., 2011; Kaur & Mukherjee, 2012; Craigwell et al., 2012; Wright
& Grenade, 2014), groups of developed countries (Cecchetti et al.,
2011; Checherita-Westphal & Rother, 2012; Minea & Parent, 2012;
Baum et al., 2013; Afonso & Alves, 2014; Mencinger et al., 2014;
Topal, 2014) and mixing groups (Rogoff & Reinhart, 2010; Real et
al., 2014; Égert, 2015).
2.2.2 Inflation and economic growth
Investigations find the positive growth impact of inflation: Mallik &
Chowdhury (2001), Xiao (2009), Raza et al. (2013).
Investigations find the negative growth impact of inflation: Gillman
et al. (2004), Gillman & Harris (2008), Bittencourt (2012), Kasidi &
Mwakanemela (2012), Kaouther & Besma (2014), Bittencourt et al.
(2015), Samimi & Kenari (2015).
Studies find the threshold growth impact of inflation for single
countries: Mubarik & Riazuddin (2005), Risso & Carrera (2009),
Marbuah (2010), Ayyoub et al. (2011), Fakhri (2011), Mohanty et al.
(2011), Bawa & Abdullahi (2012) and Jayaraman et al. (2013). For
groups of developing countries (Bick, 2010; Ghazouani, 2012;
Seleteng et al., 2013; Vinayagathasan, 2013; Baglan &Yoldas, 2014;
Thanh, 2015), groups of developed countries (Omay & Öznur Kan,
2010), and mixing groups (Khan & Senhadji, 2001; Burdekin et al.,

2004; David et al., 2005; Li, 2006; Pollin & Zhu, 2006; Vaona &


7
Schiavo, 2007; Espinoza et al., 2010; López-Villavicencio &
Mignon, 2011; Trupkin & Ibarra, 2011; Jha & Dang, 2012; Kremer
et al., 2013).
2.2.3 The effects of public debt, inflation, and their interaction on
economic growth
There are two studies (Taghavi, 2000; Kočner, 2015) to investigate
the effects of public debt on inflation and growth while the
remaining ones (Chudik et al., 2013; Lopes da Veiga et al., 2015)
study the impacts of public debt and inflation on growth.
2.3 Some comments and research gap
Through literature review from 2000 onwards, the author of the
thesis recognises there is no studies to investigate the simultaneous
effects of public debt, inflation, and their interaction on growth.
Although Akitoby et al. (2014) do not clearly show the interaction
between public debt and inflation, they demonstrate the impact of
this variable. Therefore, this interaction can have a certain impact on
growth because a shock of high inflation have both a direct impact
(from this shock) and an indirect impact (via the interaction) on
growth. It is a research gap for the topic on growth impacts of public
debt and inflation in this thesis.
CHAPTER 3
RESEARCH MODEL AND METHODOLOGY
3.1 The empirical framework
The framework is started by the traditional production function
Cobb-Douglas. Based on the theoretical and empirical studies, then
this function is changed with the following result:

8
𝑌
𝑌
𝑌
( ) −( )
= 𝛾0 + 𝛾1 ( )
+ 𝛾2 (𝐷𝐸𝐵𝑇)𝑖,𝑡 + 𝛾3 (𝐼𝑁𝐹𝐿)𝑖,𝑡
𝐿 𝑖,𝑡
𝐿 𝑖,𝑡−1
𝐿 𝑖,𝑡−1
𝑃𝐼𝑁𝑉
+ 𝛾4 (𝐷𝐸𝐵𝑇 ∗ 𝐼𝑁𝐹𝐿)𝑖,𝑡 + 𝛾5 (
) + 𝛾6 (𝐿𝐴𝐵𝑂)𝑖,𝑡
𝐺𝐷𝑃 𝑖,𝑡
𝐵𝑅𝐸𝑉
+ 𝛾7 (
) + 𝛾8 (𝑇𝐸𝐿𝐸)𝑖,𝑡 + 𝛾9 (𝑂𝑃𝐸𝑁)𝑖,𝑡 + 𝜂𝑖 + 𝜉𝑖,𝑡
𝐺𝐷𝑃 𝑖,𝑡

3.2 Research model and methodology
3.2.1 The relationship between public debt and inflation
∆𝐼𝑁𝐹𝑖𝑡 = 𝛼𝑖𝑡 + 𝛽0 𝐼𝑁𝐹𝑖𝑡−1 + 𝛽1 𝐷𝐸𝐵𝑖𝑡 + 𝑍𝑖𝑡 𝛽′2 + 𝜂𝑖 + 𝜉𝑖𝑡
∆𝐷𝐸𝐵𝑖𝑡 = 𝛼𝑖𝑡 + 𝛽0 𝐷𝐸𝐵𝑖𝑡−1 + 𝛽1 𝐼𝑁𝐹𝑖𝑡 + 𝑍𝑖𝑡 𝛽′2 + 𝜂𝑖 + 𝜉𝑖𝑡
Where ηi ~ iid(0, ση); ζit ~ iid(0, σζ); E(ηi ζit) = 0. INF is inflation and
DEB is public debt; Zit is a set of control variables; ηi is an

unobserved time-invariant, country-specific effect and ζit is an
observation-specific error term.

3.2.2 The effects of public debt, inflation, and their interaction on
economic growth
𝑌𝑖𝑡 − 𝑌𝑖𝑡−1 = 𝛼𝑖𝑡 + 𝛽0 𝑌𝑖𝑡−1 + 𝑋𝑖𝑡 𝛽1′ + 𝑍𝑖𝑡 𝛽2′ + 𝜂𝑖 + 𝜉𝑖𝑡
Where ηi ~ iid(0, ση); ζit ~ iid(0, σζ); E(ηi ζit) = 0. Yit is real GDP per
capita; Xit is interest variables (public debt, inflation and interaction);
Zit is control variables (private investment, labor force, government
revenue, infrastructure, and trade openness); ηi is an unobserved

time-invariant, country-specific effect and ζit is an observationspecific error term.
3.2.3 The estimation method of difference GMM Arellano-Bond
There are some serious problems of econometrics from estimating
empirical equations. So, the thesis uses the estimation method of
difference GMM Arellano-Bond (1991) which are firstly developed
by Holtz-Eakin et al. (1988).
3.3 Research data and selection of variables


9
3.3.1 Research data

Cross-sections and time series are extracted to accommodate
the panel data of 60 developing countries over period of 1990 2014 from World Bank (World Development Indicators) and
International Monetary Fund (World Economic Outlook).
Some missing values of the data set in some countries are filled
with reference to www.tradingeconomics.com
3.3.2 Selection of variables
In short, the thesis determines and calculates the variables in the
empirical model as follows:
 lGDP: a real gross domestic product per capita, proxy for the
economic growth of a country. This variable is used in form of

natural logarithm.
 PDEB: public debt, a share of GDP (%).
 INFL: inflation per year (%).
 PINV: private investment, a share of GDP (%).
 LABO: labor force, a ratio between working age people (15-64)
and total population of a country (%).
 REV: government revenue, a share of GDP (%).
 TELE: infrastructure development. The infrastructure can be
measured in some different ways such as the length of high way
per square kilometer (Du et al., 2008), the length of railway
(Kuzmina et al., 2014) or the fixed telephone subscriptions per
100 people (Bissoon, 2011; Nguyen, 2015). In this study, it is the
fixed telephone subscriptions per 100 people.
 OPEN: trade openness, a share of GDP (%).
CHAPTER 4


10
THE RELATIONSHIP BETWEEN PUBLIC DEBT AND
INFLATION IN DEVELOPING COUNTRIES
4.1. Introduction
The main purpose of this chapter is to apply the estimation method of
difference GMM to empirically investigate the relationship between
public debt and inflation for 60 developing countries over the period
of 1990-2014.
4.2 The variables in the empirical equation
Main variables: Public debt (PDEB) and Inflation (INFL). Control
variables: Economic growth (lGDP), Labor (LABO), Government
revenue (REV), Infrastructure (TELE), Trade openness (OPEN). The
matrix of correlation coefficients is presented in Table 4.1.

Table 4.1 The

matrix of correlation coefficients

PDEB
PDEB

1.000

INFL

.031

INFL

lGDP

PINV

LABO

REV

-.24

-.07**

1.000

-.10

***

-.025

.185***

1.000

LABO

-.16

***

-.041

-.33

***

-.10***

1.000

REV

-.16***

.011

.319***

.217***

-.056*

-.023

.760

***

.088

***

-.16

***

.223***

.268

***

.248

***

-.10

***

***

PINV

TELE

-.16

OPEN
Note:

***

-.023

*** **

,

and

OPEN

1.000

***

lGDP

TELE

-.048
*

1.000

.424

1.000
.111***

1.000

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

4.3 The results and discussion
4.3.1 The Granger relationship between public debt and inflation
Table 4.2 Westerlund co-integration test for the whole sample


11
Dependant variable: Inflation (Lag = 2)
Indep. variable

Gt

Public debt

Gα

-4.602

Note: ***, ** and

*

***

-24.772

Pt
***

-67.926

Pα
***

-47.660***

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.3 Granger test from inflation to public debt for the whole
Dependant variable: Inflation
Statistics F = 312.19***
Indep. variable

Coef

Std. Err

p-value

Inflation (-2)

0.000

Inflation (-1)
Public debt (-2)
Public debt (-1)

Note:

,

0.973

0.193

0.005

0.000

0.062

***

0.014

0.000

***

0.020

0.003

0.015

0.082

-0.062

0.026*

Public debt
*** **

0.005

***

and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software
Table 4.4 Granger test from public debt to inflation for the whole
Dependant variable: Public debt
Statistics F = 1101.92***
Indep. variable

Coef

Std. Err

p-value

Public debt (-2)

-0.106***

0.029

0.000

Public debt (-1)

***

0.030

0.000

1.016

Inflation (-2)

-0.003

0.011

0.786

Inflation (-1)

-0.028

0.018

0.110

*

0.069

0.082

Inflation

Note:

0.120

*** **

,

and

*

denote the significance at 1%, 5% and 10% respectively


12
Source: Stata software

Table 4.5 Westerlund co-integration test for Asia
Dependant variable: Inflation (Lag = 2)
Indep. variable

Gt

Public debt
Note: ***, ** and

Gα

-5.407

*

***

-27.889

Pt
***

-79.123

Pα
***

-102.512***

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.6 Granger test from inflation to public debt for Asia
Dependant variable: Inflation - Statistics F = 454.98***
Indep. variable
Inflation (-2)
Inflation (-1)

Coef

Std. Err

p-value

-0.005

0.004

0.192

0.004

0.000

0.189

***

Public debt (-2)

-0.043

0.047

0.358

Public debt (-1)

0.021

0.078

0.783

Public debt

0.038

0.053

0.478

Note: ***, ** and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.7 Granger test from public debt to inflation for Asia
Dependant variable: Public debt - Statistics F = 529.68***
Indep. variable

Coef

Std. Err

p-value

Public debt (-2)

-0.351

***

0.042

0.000

Public debt (-1)

1.197***

0.043

0.000

Inflation (-2)

0.000

0.004

0.906

Inflation (-1)

-0.006

0.010

0.513


13
Inflation

0.036

Note: ***, ** and

*

0.050

0.478

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.8 Westerlund co-integration test for Africa
Dependant variable: Inflation (Lag = 2)
Indep. variable
Public debt
Note: ***, ** and

*

Gt

Gα

Pt

Pα

-4.484***

-25.402***

-17.131***

-16.007***

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.9 Granger test from inflation to public debt for Africa
Dependant variable: Inflation - Statistics F = 32.07***
Indep. variable

Coef

Std. Err

p-value

Inflation (-2)

0.005

Inflation (-1)
Public debt (-2)
Public debt (-1)

Note:

,

0.836

0.260

0.039

0.000

0.076

***

0.019

0.000

***

0.027

0.003

0.020

0.113

-0.084

Public debt
*** **

0.024

***

0.032
and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.10 Granger test from public debt to inflation for Africa
Dependant variable: Public debt - Statistics F = 485.10***
Indep. variable
Public debt (-2)
Public debt (-1)

Coef

Std. Err

p-value

**

0.047

0.058

***

0.046

0.000

-0.090
1.012


14
Inflation (-2)

0.042

0.060

0.480

Inflation (-1)

-0.225**

0.100

0.026

0.192

0.121

0.113

Inflation
Note:

***, **

*

and

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

4.3.2 The relationship between public debt and inflation in
developing countries for the whole sample

The estimated results in Table 4.11 show public debt, economic
growth, and private investment have positive impacts while labor
force, infrastructure, and trade openness have negative effects on
inflation.
Table 4.11 The effect of public debt on inflation for the whole sample

Dependant variable: Δ Inflation
Model 1

Inflation (-1)

Std.Err

Coef

Std.Err

Coef

Std.Err

-1.27***

0.031

-1.28***

0.031

-1.28***

0.031

0.157

**

0.155

**

0.160

***

0.457

0.403

GDP per capita

1.034

**

Private investment

6.568***

Labor force

Model 3

Coef

**

Public debt

Model 2

-16.67

*

0.388

0.405

0.416

1.312

***

0.457

1.301

2.091

6.045***

2.052

5.869***

2.093

9.111

-22.13

**

9.776

**

9.888

-3.146

**

-1.78***

Gover. revenue

-21.48

0.365

Infrastructure
-1.85***

Trade openness

0.379

1.502

-3.091

1.506

0.366

-1.82***

0.383

Obs

1006

1006

1006

AR(2) test

0.349

0.165

0.165

0.222

0.266

0.223

Sargan test
Note:

*** **

,

and

*

0.893

**

denote the significance at 1%, 5% and 10% respectively

15
Source: Stata software

Table 4.12 The effect of inflation on public debt for the whole sample

Dependant variable: Δ Public debt
Model 1

Public debt (-1)
Inflation

Std.Err

Coef

Std.Err

Coef

-0.548***

0.033

-0.54***

0.034

-0.54***

0.033

0.233

-0.63

***

0.237

**

0.239

***

0.091

-0.43

***

0.123

0.609

2.246***

0.597

3.428

2.407

**

***

0.086

-0.31

2.215***

0.601

2.267***

0.433

***

-0.345

Private

Model 3

Coef

-0.598

GDP per capita

Model 2

-0.554

Std.Err

investment
Labor force
Gover. revenue

-2.662

***

Infrastructure
0.599***

Trade openness
Obs
AR(2) test
Sargan test
Note:

*** **

,

and

*

0.137

-2.68

***

0.438

-2.43

0.464

-0.762

0.594

-0.447

0.623

0.610***

0.139

0.623***

0.137

826

826

826

0.955

0.923

0.853

0.125

0.155

0.147

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

4.3.3 The relationship between public debt and inflation in
developing countries of Asia and Africa
Table 4.13 The effect of public debt on inflation for Asia

Dependant variable: Δ Inflation
Model 1
Coef
Inflation (-1)

-1.31

***

Std.Err
0.044

Model 2
Coef
-1.31

***

Std.Err
0.044

Model 3
Coef
-1.31

***

Std.Err
0.044

16
Public debt

0.712*

0.376

0.721*

0.376

0.654*

0.383

GDP per capita

-0.205

0.232

-0.130

0.259

-0.043

0.280

Private investment

2.842

2.352

2.838

2.348

2.711

2.335

-3.275

5.048

-4.072

5.110

3.683

2.491

2.998

2.620

-1.705

2.165

Labor force
Gover. revenue

3.980

2.452

Infrastructure
Trade openness

-1.252

**

Obs

0.537

-1.286

**

0.538

-1.286

**

0.534

391

391

391

AR(2) test

0.289

0.277

0.243

Sargan test

0.236

0.204

0.169

Note: ***, ** and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.14 The effect of inflation on public debt for Asia

Dependant variable: Δ Public debt
Model 1

Public debt (-1)
Inflation
GDP per capita

Model 2

Coef

Std.Err

Coef

Std.Err

Coef

-0.51***

0.039

-0.51***

0.040

-0.51***

0.040

0.093

**

0.095

*

0.098

-0.20

***

0.046

-0.10

***

0.328

1.296

6.125***

1.366

0.157

***

0.162

-0.212
-0.19

**

***

0.039

-0.197
-0.20

***

0.043

Private investment
Labor force
Gover. revenue

5.897***
-0.51

***

1.199

6.265***

0.153

***

Infrastructure
Trade openness
Obs
AR(2) test

Model 3

-0.49

0.202
-0.120

*

0.071

-0.121

0.252
*

0.072

-0.189

-0.47

Std.Err

0.188
-0.122

0.255
*

347

347

347

0.675

0.695

0.686

0.072


17
Sargan test
Note:

*** **

,

0.205
and

*

0.208

0.162

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.15 The effect of public debt on inflation for Africa

Dependant variable: Δ Inflation
Model 1
Coef

Inflation (-1)

-0.73

Public debt

0.091

GDP per capita

Std.Err

***

0.034

***

0.031

0.100

Private investment

0.464

Labor force

0.117

**

0.222

1.077

1.074

Model 2
Coef
-0.73

Std.Err

***

0.090

0.034

***

0.031

0.102
0.455

0.118

**

0.224

1.053

1.079

Gover. revenue
Infrastructure
Trade openness

-0.134

Obs
AR(2) test
Sargan test
Note:

*** *

, * and

*

0.129

Model 3
Coef
-0.73

Std.Err

***

0.034

***

0.033

0.090

0.103
0.455

0.118

**

0.226

1.051

1.088

-0.003

0.171

-0.700

2.798

-0.702

2.802

-0.127

0.132

-0.126

0.138

437

437

437

0.556

0.561

0.561

0.932

0.910

0.881

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 4.16 The effect of inflation on public debt for Africa

Dependant variable: Δ Public debt
Model 1

Public debt (-1)

Model 2

Model 3

Coef

Std.Err

Coef

Std.Err

Coef

Std.Err

-0.57***

0.053

-0.57***

0.055

-0.56***

0.053


18
Inflation

-1.135**

0.475

-1.118**

0.490

-1.009**

0.468

GDP per capita

-1.27***

0.231

-1.26***

0.238

-1.10***

0.251

Private investment

-0.155

0.433

-0.1620

0.446

-0.229

0.423

-1.516

1.972

-2.509

1.987

-0.951

0.670

Labor force
Gover. revenue
Infrastructure

-49.9

Trade openness

***

0.800

Obs

11.668

***

0.220

-54.1

***

0.828

***

13.204
0.230

-49.3

***

12.895

***

0.220

0.882

356

356

356

AR(2) test

0.852

0.884

0.859

Sargan test

0.491

0.537

0.449

Note: ***, ** and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

4.4 Conclusion
The study empirically investigate the relationship between public
debt and inflation for 60 developing countries over the period of
1990-2014. The estimated results show from the public debt to
inflation, public debt has a positive impact on inflation while in the
reverse direction, inflation has a negative influence on public debt.
CHAPTER 5
THE EFFECTS OF PUBLIC DEBT, INFLATION, AND THEIR
INTERACTION ON ECONOMIC GROWTH IN

DEVELOPING COUNTRIES
5.1 Introduction
The purpose of this chapter is to employ estimation method of
difference GMM Arellano-Bond to empirically study the effects of
public debt, inflation, and their interaction on economic growth for


19
60 developing countries in Asia, American Latin, and Africa over the
period of 1990-2014.
5.2 Variables in the empirical equation
Dependent variable (lGDP): GDP per capita. Main variables: Public
debt (PDEB), Inflation (INFL), Interaction (PDEB*INFL). Control
variables: Private investment (PINV), Labor (LABO), Government
revenue (REV), Infrastructure (TELE), Trade openness (OPEN). The
matrix of correlation coefficients is shown in Table 5.1.
Table 5.1 The matrix of correlation coefficients
lGDP

PDEB

lGDP

1.00

PDEB

-.24***

1.00

**

.031

INFL

-.072

PINV

.185

***

***

-.16

-.041

-.10***

1.00

.011

.217***

-.056*

1.00

-.023

.088

***

-.16

***

.223

1.00

.248

***

-.10

***

.424

.111***

.760

***

***

.268

***

,

and

-.16

OPEN

1.00
1.00

-.16***

Note:

TELE

-.025

.319***

-.023
*

REV

***

REV

*** **

LABO

-.10

-.33

OPEN

PINV

***

LABO

TELE

INFL

-.048

1.00

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

5.3 Results and discussion
Table 5.2 The effects of public debt, inflation, and their interaction on economic
growth for the whole sample
Dependant variable: Δ Economic growth
Model 1

Growth (-1)

Model 2

Model 3

Coef

Std.Err

Coef

Std.Err

Coef

Std.Err

-0.09***

0.0293

-0.08***

0.0291

-0.069**

0.032


20
Public debt

-0.13***

0.0308

-.013***

0.030

-0.13***

0.031

Inflation

-0.67***

0.177

-0.63***

0.180

-0.67***

0.189

0.002

***

0.002

***

0.002

**

0.196

-0.416

0.282

*

0.095
0.510

Publ. debt*Inflation
Private investment

0.008

***

0.439

***

0.157

0.007

0.352

*

0.186

Labor force
Gover. revenue

0.177

*

0.091

Infrastructure
Trade openness

0.251

***

Obs.

0.042

0.008

0.404

**

0.090

0.163

-0.408

0.486

-0.525

0.188

0.257

***

0.041

0.267

***

0.043

766

766

766

AR(2) test

0.246

0.350

0.291

Sargan test

0.674

0.613

0.768

Note: ***, ** and

*

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 5.3 The effects of public debt, inflation, and their interaction on economic
growth for Asia
Dependant variable: Δ Economic growth
Model 1
Coef
Growth (-1)
Public debt
Inflation
Publ. debt*Inflation

-0.21

Std.Err

***

0.135

*

0.779***
-0.01

***

0.045

Model 2
Coef
-0.20

Std.Err

***

0.0431

Coef
-0.18

0.043

**

0.074

0.076

0.121

0.071

0.178

0.293

0.686**

0.278

0.617**

0.271

0.005

***

0.004

**

0.004

**

0.233

***

1.167

-0.01

-0.011
0.480

Labor force

5.093

***

Gover. revenue

1.333***
0.549

***

Std.Err

***

*

Private investment

Infrastructure

Model 3

1.233

4.546

***

1.190

4.209

0.308

1.182***

0.300

0.973***

0.308

0.212

***

0.198

***

0.192

0.511

0.520


21
0.081*

Trade openness
Obs.
AR(2) test
Sargan test
Note:

*** **

,

and

*

0.048

0.098**

0.047

347

347

347

0.836

0.876

0.977

0.349

.236

0.302

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

Table 5.4 The effects of public debt, inflation, and their interaction on economic

growth for Africa
Dependant variable: Δ Economic growth
Model 1
Coef

Std.Err

Model 2
Coef

Std.Err

Growth (-1)

-0.21

***

0.074

-0.1965

Public debt

-0.048**

0.019

-0.039*

0.111

**

Inflation

0.206

*

Publ. debt*Inflation

-0.001

*

Private investment
Labor force

0.226

0.077

-0.19

0.079

0.022

-0.041*

0.023

0.114

**

0.115

*

0.001

Sargan test
Note:

*** **

,

and

*

0.226

0.001

-0.001

0.001

-0.001

-0.097

0.083

-0.087

0.085

-0.094

0.088

1.819

1.373

2.163

1.429

1.908

1.620

0.058

0.059

0.052

0.061

-0.985

2.873

**

0.063

0.149

AR(2) test

Std.Err

**

Infrastructure

Obs.

Coef

*

Gover. revenue

Trade openness

Model 3

***

0.054

0.130

**

0.057

0.139

410

410

410

0.279

0.250

0.239

0.116

0.123

0.106

denote the significance at 1%, 5% and 10% respectively

Source: Stata software

5.4 Conclusion


22
This chapter empirically investigates the effects of public debt,
inflation, and their interaction on economic growth for a panel
sample of 60 developing countries over the period of 1990-2014. The
estimated results show there are differences about these effects
among the whole sample and two sub-samples of Asia and Africa.
CONCLUSION AND POLICY IMPLICATIONS
1. Conclusion
The thesis clearly determines the relationship between public debt
and inflation as well as empirically investigates the effects of public
debt, inflation, and their interaction on economic growth for 60
developing countries worldwide. Accordingly,
(1) The thesis defines the research gap from the effects of the
interaction between public debt and inflation on economic
growth, and develops the empirical framework of the model.
(2) The relationship between public debt and inflation in selected
developing countries is two-way.

(3) There are obvious differences about the effects of public debt,
inflation, and their interaction on economic growth among the
whole sample and two sub-samples of Asia and Africa.
2. Policy implications
(a) Policies relating to the relationship between public debt and
inflation
 The issuance and implementation of policies relating to public
debt should pay attention to the significant determinants of public
debt such as private investment, economic growth, government
revenue and trade openness.