Public Debt, Social Spending and Economic Growth: An Analysis for Developing Economies

Abstract

The current study attempts to investigate the effect of public debt on economic growth through social spending in developing economies. Aside from the core goal, it also aims to look into how the public debt affects economic growth in selected developing economies over the period of 2000 to 2019. For this purpose, estimation technique of System Generalized Method of Moments (System GMM) is applied. Two models are used in the analysis. In first model, social spending is carried out to capture the impact of external public debt on economic growth while in second model it is used to measure the effect of total public debt on economic growth. The study finds that external public debt and total public debt have negative and significant impact on economic growth through social spending. Our analysis, therefore, recommends a more productive use of public debt fund in order to boost economic growth.