Sovereign Debt, Economic Growth, and Institutional Quality: Evidence from Developing Countries (2006-2023)

The current study aimed to examine the impact of public debt on economic growth and explore its feasibility as an economic tool to promote the growth in the developing countries. The study used a sample of 29 debt-burdened developing countries from 2006 to 2023. The study employed the public debt variable as a percentage of GDP to test the impact of public debt on the growth. It also utilized a lagged debt service variable to capture the cumulative impact of the debt service burden on the growth through period. The study also used an institutional index, which was composed from three sub-indices: control of corruption, government effectiveness, and the role of law, to examine the extent to which institutional quality in these countries contributed in controlling the use of public debt and directing it to push the growth. In addition to several control variables affecting growth were used. Comparing static models using different statistical criteria, the REM model was chosen to examine this relationship, and the results were confirmed using the GMM model as a robustness test. The results revealed that the sovereign debt has a negative impact on economic growth at the 1% significance level in the study sample. Moreover, the study results found that economic growth was negatively impacted by the debt burden represented by lagged debt service payments at the 5% significance level. The study also concluded that the governance index was ineffective in mitigating the negative impact of sovereign debt on the growth