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Theoretical and Applied Economics
No. 3 / 2022 (632), Autumn

Financial development and public debt. Estimating the role of institutional quality

Nankai University, China
Muhammad RAMZAN
Jiangsu University, China
Nankai University, China

Abstract. Maintaining a sustainable debt level has emerged as a critical issue, particularly when public debt exceeds a certain threshold level. This paper examines the impact of public debt on financial development as mediated by institutional quality. For this purpose, we use FE (LSDV) and system GMM estimators. Our empirical findings demonstrate that public debt has negative impact on financial development, but this negative impact turns positive when it interacts with institutional quality. This implies that public debt is a function of institutional quality, and policymakers must maintain the threshold level of institutional quality in order to make better use of the debt.

Keywords: financial development, public debt, institutional quality, FE (LSDV), system GMM.

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016


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