Granger causality between debt and growth: Evidence from OECD countries

This paper analyzes the possible presence of Granger causality between debt and growth in 16 OECD countries from 1980 to 2009. This is done considering not only government debt but also non-financial corporate and household debt. The panel bootstrap Granger causality test applied allows us to control for both the presence of cross-country heterogeneity and cross-sectional dependence. Our results barely provide evidence against the null hypothesis according to which government debt does not cause real GDP growth. More interestingly, we find evidence against the absence of causality from non-financial private debt – especially that of households – to growth.