Public debt is one of the instruments commonly used by developing countries to support development, including the provision of infrastructure and the implementation of programs aimed at improving public welfare. However, the effectiveness of public debt in promoting economic growth and improving people’s quality of life remains a topic that warrants further examination.
“More than two-thirds of developing countries currently rely on public debt as a primary source of development financing, yet few know whether such debt actually promotes economic growth and improves people’s quality of life,” said Yohanes Maria Vianey Mudayen, an alumnus of the Doctoral Program in Economics at the Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM), in a 3 Minute Thesis presentation entitled Public Debt: An Obstacle to Economic Growth in Developing Countries?|
Yohanes conducted research to examine the relationship between public debt, economic growth, and human development in developing countries. As part of his dissertation research, he used panel data on 127 developing countries covering the 2012–2019 period, sourced from the World Bank’s World Development Indicators (WDI) and Transparency International.
The first part of the study employed a fixed-effects quantile regression approach with bootstrapping across quantiles ranging from 10% to 90%. The results showed that public debt was associated with slower economic growth in developing countries, particularly in the 30%-90% quantile range of economic growth.
These findings indicate that government debt does not automatically lead to faster economic growth. Its impact needs to be considered alongside a country’s economic conditions and the way governments manage and use debt-financed resources. In addition to public debt, the study also found that trade, inflation, government expenditure, corruption, and foreign direct investment influence economic growth.
The second part of the study examined the relationship between public debt and human development, which is closely related to people’s quality of life, using the dynamic panel Generalized Method of Moments (GMM), specifically the First-Difference GMM (FD-GMM) approach. This aspect differs from economic growth because development is assessed not only by economic performance but also by human well-being.
The results showed that the level of public debt had no significant effect on human development. The study also found that prior levels of human development, economic growth, government expenditure on education, and corruption helped explain changes in human development.
These findings emphasize that the issue of public debt should not be viewed solely in terms of the size of government borrowing. Equally important is how debt is managed and utilized to support development needs.
“The findings underscore the need for fundamental improvements in prudent and sustainable debt management through gradual and measured fiscal consolidation, budget deficit control, and the prioritization of productive expenditure. In addition, greater debt transparency and accountability, stronger institutional capacity, and improved economic governance are essential,” he concluded.
The full video of the 3 Minute Thesis presentation titled “Public Debt: An Obstacle to Economic Growth in Developing Countries?” is available at http://ugm.id/DampakUtangPublikTerhadapPerekonomian.
Reporter: Najwa Anggi Namira
Editor: Kurnia Ekaptiningrum
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