Abstract:
We examine the effect of public debt on private investment in selected emerging
economies. Using a panel threshold regression model, we estimate a threshold value
of about 3 percent, on average, below which public debt stimulates private investment.
Our additional analysis involving selected developed economies suggests that the
crowding out effect is less evident relative to the emerging economies as higher public
debt stocks do not seem to significantly undermine their private investments. These
results have implications for debt sustainability and maintaining a reasonable public
debt–GDP ratio is crucial for sustainable investment growth.
