MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYỄN VĂN BỔN THE EFFECTS OF PUBLIC DEBT AND INFLATION ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES SUMMARY OF ECONOMIC DOCTORAL THESIS HO CHI MINH CITY - 2016 The work was completed at University of Economics Ho Chi Minh The scientific instructor: Prof Dr Sử Đình Thành Reviewer 1: Reviewer 2: ……… Reviewer 3: The thesis will be defensed in front of Thesis Scoring Board at University of Economics Ho Chi Minh at … day … month….year 2016 The thesis can be found at: - Synthesis Scientific Library in Ho Chi Minh City - Library of University of Economics Ho Chi Minh City PUBLISHED SCIENTIFIC WORKS Nguyen, V B (2016) The role of institutional quality in the relationship between FDI and economic growth in Vietnam: Empirical evidence from provincial data The Singapore Economic Review, Vol 00, No (2016) 1650022.1-23 (23 pages) Nguyen, V B (2015) The effects of public debt, inflation and their interaction on economic growth in developing countries Asian Journal of Empirical Research 5(11), 221-236 Nguyen, V B (2015) The relationship between public debt and inflation in developing countries: Empirical evidence based on difference panel GMM Asian Journal of Empirical Research 5(9), 102-116 Nguyen, V B (2015) Effects of Public Debt on Inflation in Developing Economies of Asia: An Empirical Evidence Based on Panel Differenced GMM Regression and PMG Estimation The Empirical Economics Letters 14(4), 341-351 Nguyen, V B (2015) Effects of fiscal deficit and money M2 supply on inflation: Evidence from selected economies of Asia Journal of Economics, Finance & Administrative Science 20(38), 49–53 Nguyen, V B (2014) Current Account and Fiscal Deficits: Evidence of Twin Divergence from Selected Developing Economies of Asia Southeast Asian Journal of Economics 2(2), 33-48 Nguyễn Văn Bổn & Nguyễn Minh Tiến (2014) Các nhân tố định dòng vốn FDI nước Châu Á Tạp chí Khoa học Trường Đại học Cần Thơ, 31(2014), 124-131 INTRODUCTION The reason for study The research background shows there no exists any study to investigate the simultaneous effects of public debt, inflation, and their interaction on economic growth for developing countries Therefore, the thesis “The effects of public debt and inflation on economic growth in developing countries” has been chosen to empirically analyse and investigate The aim for study The thesis will focus on the following two objectives: (1) Clearly determine the relationship between public debt and inflation for developing countries (2) Empirically study the effects of public debt, inflation, and their interaction on economic growth in these countries Research methodology  Clearly determine the relationship between public debt and inflation for developing countries in the model and empirically study the effects of public debt, inflation, and their interaction on economic growth in these countries  Compare these effects for three samples: the whole sample, Asia, and Africa Object and scope of the research The relationship between public debt and inflation; the effects of public debt, inflation, and their interaction on economic growth in 60 developing countries in Asia, American Latin, and Africa over the period of 1990-2014 Scientific significance of the thesis Significant contribute to academic research on this topic and some developing countries such as Vietnam Provide scientifically new findings on the simultaneous effects of public debt, inflation, and their interaction on economic growth in developing countries Set up the foundations to help policymakers to issue policies to develop sustainably economy and avoid public debt crises Structure of the thesis In addition to introduction, conclusion, appendix, and reference, the structure of the thesis consists of chapters CHAPTER THEORY OVERVIEW 1.1 The foundations of public debt and inflation 1.1.1 Public debt theory According to IMF (2010), public debt is known as the public sector’s debt service Accompanying is the definition about public sector, consisting of government sector and public organisations However, according to WB (2002), public debt is all government debt and government-guaranteed debt The economic impact of public debt Nautet & Van Meensel (2011) note the impact of fiscal policy – and then public debt – on economic growth is always a debate among economists The short-term impact In short-term, the instruments of fiscal policy used to consolidate budget constraints will reduce economic growth Indeed, empirical studies show budget multipliers are positive The long-term impact Contrarily, the long-term impact of fiscal consolidation to maintain the public finance is positive The impacts consist of reducing longterm interests due to restriction of government bond in the market and dropping risk premiums Furthermore, low interests form fiscal consolidation will make public expenditure effectively or lower tax burden The transfer mechanism Nautet & Van Meensel (2011) state that there are some ways in which increasing/decreasing public debt can have a negative/positive impact on long-term growth There are three main transfer mechanisms: First, increasing public debt closely connects to decreasing government saving, leading to decreasing national net saving Second, increasing public debt leads to high interest paying Finally, increasing public debt leads to risks of debt default, and increases risk costs 1.1.2 Inflation theory Definition: According to Samuelson & Nordhaus (1989), inflation is an increase in price level Inflation rate (year t) = price level (year t) − price level (year t − 1) x100 price level (year t − 1) According to the website of World Bank, inflation is measured in consumption price index, which describes annual change (%) about the expenses that an average person has to pay for a basket of goods and services in a time period (usually a year) Meanwhile, according to the website of IMF, inflation measures high price level of a basket of goods and services in a time period (usually a year) The economic impact of inflation - Impact on the distribution of income and wealth - Impact on the effectiveness of economy - Impact on the micro-economy 1.1.3 The theory of relation between public debt and inflation Adams et al (2010) indicate the level of public debt depends upon weighted borrowing interest rates, the value of domestic currency, public debt ratio in foreign currency, growth rate, and primary fiscal surplus Particularly, ceteris-paribus, increasing/decreasing inflation leads to decreasing/increasing public debt 1.2 The analytic framework of public debt, inflation and growth 1.2.1 Public debt and macro-balances The theory “vicious circle” Through the analysis and arguments, Samuelson notes that developing countries in “vicious circle” of poverty are too hard to escape To break this vicious circle, he claims it needs to have a lever from outside, meaning that developing countries need the outside resources of capital, technology, experts, and management,… The two-gap model Chenery & Strout (1966) presents “two-gap model” via analysing the relationship between foreign capital and economic development The main idea of this model is that governments in developing countries have to utilize domestic resources effectively and use foreign capital (FDI and ODA capital) as a lever to narrow “investment-saving gap” and “trade gap” The three-gap model The three-gap model is modified and developed from the two-gap model by Bacha (1990), Solimano (1990), and Taylor (1994) Accordingly, these researchers add “budget deficit gap” to the model due to fiscal deficit of governments 1.2.2 Public debt and inflation in the endogenous growth model Public debt in the endogenous growth model: In his work, Barro (1990) notes the increasing in public spending to supply public goods and services as input for private sector’s production Inflation in the endogenous growth model: In their work, Chang & Lai (2000) develop a theoretical model to investigate the impact of inflation expectation in an endogenous monetary economy CHAPTER LITERATURE ON THE EFFECTS OF PUBLIC DEBT AND INFLATION ON ECONOMIC GROWTH 2.1 The relationship between public debt and inflation Sargent & Wallace (1981) are the first researchers to suggest the view of inflationary impact of public debt in indebted countries This view is mostly confirmed in empirical studies (Kwon et al., 2009; Bildirici & Ersin, 2007; Ahmad et al., 2012; Nastansky et al., 2014) Meanwhile, Davig & Leeper (2011) and Martin (2015) theoretically analyse the impact of high public debt on inflation Contrarily, Akitoby et al (2014) and Hilscher & Reis (2014) investigate the impact of inflation on public debt 2.2 Public debt, inflation and economic growth 2.2.1 Public debt and economic growth In the strand of positive impact of public debt are the investigations such as Moore & Thomas (2010), Egbetunde (2012), Al-Zeaud (2014), Fincke & Greiner (2015b), Spilioti & Vamvoukas (2015) In the strand of negative impact are studies for single countries such as : Balassone et al (2011), Bal & Rath (2014,), Akram (2015), Lee & Ng (2015), Mitze & Matz (2015) For a group of countries: Schclarek (2004), DiPeitro & Anoruo (2012), Panizza & Presbitero (2012), Šimić & Muštra (2012), Calderón & Fuentes (2013), Szabó (2013), Časni et al (2014), Zouhaier & Fatma (2014), Eberhardt & Presbitero (2015), Fincke & Greiner (2015a) Relating to nonlinear growth impact of public debt, there are studies for groups of developing countries (Maghyereh et al., 2003; Pattillo et al., 2011; Kaur & Mukherjee, 2012; Craigwell et al., 2012; Wright & Grenade, 2014), groups of developed countries (Cecchetti et al., 2011; Checherita-Westphal & Rother, 2012; Minea & Parent, 2012; Baum et al., 2013; Afonso & Alves, 2014; Mencinger et al., 2014; Topal, 2014) and mixing groups (Rogoff & Reinhart, 2010; Real et al., 2014; Égert, 2015) 2.2.2 Inflation and economic growth Investigations find the positive growth impact of inflation: Mallik & Chowdhury (2001), Xiao (2009), Raza et al (2013) Investigations find the negative growth impact of inflation: Gillman et al (2004), Gillman & Harris (2008), Bittencourt (2012), Kasidi & Mwakanemela (2012), Kaouther & Besma (2014), Bittencourt et al (2015), Samimi & Kenari (2015) Studies find the threshold growth impact of inflation for single countries: Mubarik & Riazuddin (2005), Risso & Carrera (2009), Marbuah (2010), Ayyoub et al (2011), Fakhri (2011), Mohanty et al (2011), Bawa & Abdullahi (2012) and Jayaraman et al (2013) For groups of developing countries (Bick, 2010; Ghazouani, 2012; Seleteng et al., 2013; Vinayagathasan, 2013; Baglan &Yoldas, 2014; Thanh, 2015), groups of developed countries (Omay & Öznur Kan, 2010), and mixing groups (Khan & Senhadji, 2001; Burdekin et al., 2004; David et al., 2005; Li, 2006; Pollin & Zhu, 2006; Vaona & Schiavo, 2007; Espinoza et al., 2010; López-Villavicencio & Mignon, 2011; Trupkin & Ibarra, 2011; Jha & Dang, 2012; Kremer et al., 2013) 2.2.3 The effects of public debt, inflation, and their interaction on economic growth There are two studies (Taghavi, 2000; Kočner, 2015) to investigate the effects of public debt on inflation and growth while the remaining ones (Chudik et al., 2013; Lopes da Veiga et al., 2015) study the impacts of public debt and inflation on growth 2.3 Some comments and research gap Through literature review from 2000 onwards, the author of the thesis recognises there is no studies to investigate the simultaneous effects of public debt, inflation, and their interaction on growth Although Akitoby et al (2014) not clearly show the interaction between public debt and inflation, they demonstrate the impact of this variable Therefore, this interaction can have a certain impact on growth because a shock of high inflation have both a direct impact (from this shock) and an indirect impact (via the interaction) on growth It is a research gap for the topic on growth impacts of public debt and inflation in this thesis CHAPTER RESEARCH MODEL AND METHODOLOGY 3.1 The empirical framework The framework is started by the traditional production function Cobb-Douglas Based on the theoretical and empirical studies, then this function is changed with the following result: 10 THE RELATIONSHIP BETWEEN PUBLIC DEBT AND INFLATION IN DEVELOPING COUNTRIES 4.1 Introduction The main purpose of this chapter is to apply the estimation method of difference GMM to empirically investigate the relationship between public debt and inflation for 60 developing countries over the period of 1990-2014 4.2 The variables in the empirical equation Main variables: Public debt (PDEB) and Inflation (INFL) Control variables: Economic growth (lGDP), Labor (LABO), Government revenue (REV), Infrastructure (TELE), Trade openness (OPEN) The matrix of correlation coefficients is presented in Table 4.1 Table 4.1 The matrix of correlation coefficients PDEB PDEB 1.000 INFL 031 INFL lGDP PINV LABO REV -.24 -.07** 1.000 -.10 *** -.025 185*** 1.000 LABO -.16 *** -.041 -.33 *** -.10*** 1.000 REV -.16*** 011 319*** 217*** -.056* -.023 760 *** 088 *** -.16 *** 223*** 268 *** 248 *** -.10 *** *** PINV TELE -.16 OPEN Note: *** -.023 *** ** , and OPEN 1.000 *** lGDP TELE -.048 * 1.000 424 1.000 111*** 1.000 denote the significance at 1%, 5% and 10% respectively Source: Stata software 4.3 The results and discussion 4.3.1 The Granger relationship between public debt and inflation Table 4.2 Westerlund co-integration test for the whole sample 11 Dependant variable: Inflation (Lag = 2) Indep variable Gt Public debt Gα -4.602 Note: ***, ** and * *** -24.772 Pt *** -67.926 Pα *** -47.660*** denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.3 Granger test from inflation to public debt for the whole Dependant variable: Inflation Statistics F = 312.19*** Indep variable Coef Std Err p-value Inflation (-2) 0.000 Inflation (-1) Public debt (-2) Public debt (-1) Note: , 0.973 0.193 0.005 0.000 0.062 *** 0.014 0.000 *** 0.020 0.003 0.015 0.082 -0.062 0.026* Public debt *** ** 0.005 *** and * denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.4 Granger test from public debt to inflation for the whole Dependant variable: Public debt Statistics F = 1101.92*** Indep variable Coef Std Err p-value Public debt (-2) -0.106*** 0.029 0.000 Public debt (-1) *** 0.030 0.000 1.016 Inflation (-2) -0.003 0.011 0.786 Inflation (-1) -0.028 0.018 0.110 * 0.069 0.082 Inflation Note: 0.120 *** ** , and * denote the significance at 1%, 5% and 10% respectively 12 Source: Stata software Table 4.5 Westerlund co-integration test for Asia Dependant variable: Inflation (Lag = 2) Indep variable Gt Public debt Note: ***, ** and Gα -5.407 * *** -27.889 Pt *** -79.123 Pα *** -102.512*** denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.6 Granger test from inflation to public debt for Asia Dependant variable: Inflation - Statistics F = 454.98*** Indep variable Inflation (-2) Inflation (-1) Coef Std Err p-value -0.005 0.004 0.192 0.004 0.000 0.189 *** Public debt (-2) -0.043 0.047 0.358 Public debt (-1) 0.021 0.078 0.783 Public debt 0.038 0.053 0.478 Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.7 Granger test from public debt to inflation for Asia Dependant variable: Public debt - Statistics F = 529.68*** Indep variable Coef Std Err p-value Public debt (-2) -0.351 *** 0.042 0.000 Public debt (-1) 1.197*** 0.043 0.000 Inflation (-2) 0.000 0.004 0.906 Inflation (-1) -0.006 0.010 0.513 13 Inflation 0.036 Note: ***, ** and * 0.050 0.478 denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.8 Westerlund co-integration test for Africa Dependant variable: Inflation (Lag = 2) Indep variable Public debt Note: ***, ** and * Gt Gα Pt Pα -4.484*** -25.402*** -17.131*** -16.007*** denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.9 Granger test from inflation to public debt for Africa Dependant variable: Inflation - Statistics F = 32.07*** Indep variable Coef Std Err p-value Inflation (-2) 0.005 Inflation (-1) Public debt (-2) Public debt (-1) Note: , 0.836 0.260 0.039 0.000 0.076 *** 0.019 0.000 *** 0.027 0.003 0.020 0.113 -0.084 Public debt *** ** 0.024 *** 0.032 and * denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.10 Granger test from public debt to inflation for Africa Dependant variable: Public debt - Statistics F = 485.10*** Indep variable Public debt (-2) Public debt (-1) Coef Std Err p-value ** 0.047 0.058 *** 0.046 0.000 -0.090 1.012 14 Inflation (-2) 0.042 0.060 0.480 Inflation (-1) -0.225** 0.100 0.026 0.192 0.121 0.113 Inflation Note: ***, ** * and denote the significance at 1%, 5% and 10% respectively Source: Stata software 4.3.2 The relationship between public debt and inflation in developing countries for the whole sample The estimated results in Table 4.11 show public debt, economic growth, and private investment have positive impacts while labor force, infrastructure, and trade openness have negative effects on inflation Table 4.11 The effect of public debt on inflation for the whole sample Dependant variable: Δ Inflation Model Inflation (-1) Std.Err Coef Std.Err Coef Std.Err -1.27*** 0.031 -1.28*** 0.031 -1.28*** 0.031 0.157 ** 0.155 ** 0.160 *** 0.457 0.403 GDP per capita 1.034 ** Private investment 6.568*** Labor force Model Coef ** Public debt Model -16.67 * 0.388 0.405 0.416 1.312 *** 0.457 1.301 2.091 6.045*** 2.052 5.869*** 2.093 9.111 -22.13 ** 9.776 ** 9.888 -3.146 ** -1.78*** Gover revenue -21.48 0.365 Infrastructure -1.85*** Trade openness 0.379 1.502 -3.091 1.506 0.366 -1.82*** 0.383 Obs 1006 1006 1006 AR(2) test 0.349 0.165 0.165 0.222 0.266 0.223 Sargan test Note: *** ** , and * 0.893 ** denote the significance at 1%, 5% and 10% respectively 15 Source: Stata software Table 4.12 The effect of inflation on public debt for the whole sample Dependant variable: Δ Public debt Model Public debt (-1) Inflation Std.Err Coef Std.Err Coef -0.548*** 0.033 -0.54*** 0.034 -0.54*** 0.033 0.233 -0.63 *** 0.237 ** 0.239 *** 0.091 -0.43 *** 0.123 0.609 2.246*** 0.597 3.428 2.407 ** *** 0.086 -0.31 2.215*** 0.601 2.267*** 0.433 *** -0.345 Private Model Coef -0.598 GDP per capita Model -0.554 Std.Err investment Labor force Gover revenue -2.662 *** Infrastructure 0.599*** Trade openness Obs AR(2) test Sargan test Note: *** ** , and * 0.137 -2.68 *** 0.438 -2.43 0.464 -0.762 0.594 -0.447 0.623 0.610*** 0.139 0.623*** 0.137 826 826 826 0.955 0.923 0.853 0.125 0.155 0.147 denote the significance at 1%, 5% and 10% respectively Source: Stata software 4.3.3 The relationship between public debt and inflation in developing countries of Asia and Africa Table 4.13 The effect of public debt on inflation for Asia Dependant variable: Δ Inflation Model Coef Inflation (-1) -1.31 *** Std.Err 0.044 Model Coef -1.31 *** Std.Err 0.044 Model Coef -1.31 *** Std.Err 0.044 16 Public debt 0.712* 0.376 0.721* 0.376 0.654* 0.383 GDP per capita -0.205 0.232 -0.130 0.259 -0.043 0.280 Private investment 2.842 2.352 2.838 2.348 2.711 2.335 -3.275 5.048 -4.072 5.110 3.683 2.491 2.998 2.620 -1.705 2.165 Labor force Gover revenue 3.980 2.452 Infrastructure Trade openness -1.252 ** Obs 0.537 -1.286 ** 0.538 -1.286 ** 0.534 391 391 391 AR(2) test 0.289 0.277 0.243 Sargan test 0.236 0.204 0.169 Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.14 The effect of inflation on public debt for Asia Dependant variable: Δ Public debt Model Public debt (-1) Inflation GDP per capita Model Coef Std.Err Coef Std.Err Coef -0.51*** 0.039 -0.51*** 0.040 -0.51*** 0.040 0.093 ** 0.095 * 0.098 -0.20 *** 0.046 -0.10 *** 0.328 1.296 6.125*** 1.366 0.157 *** 0.162 -0.212 -0.19 ** *** 0.039 -0.197 -0.20 *** 0.043 Private investment Labor force Gover revenue 5.897*** -0.51 *** 1.199 6.265*** 0.153 *** Infrastructure Trade openness Obs AR(2) test Model -0.49 0.202 -0.120 * 0.071 -0.121 0.252 * 0.072 -0.189 -0.47 Std.Err 0.188 -0.122 0.255 * 347 347 347 0.675 0.695 0.686 0.072 17 Sargan test Note: *** ** , 0.205 and * 0.208 0.162 denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.15 The effect of public debt on inflation for Africa Dependant variable: Δ Inflation Model Coef Inflation (-1) -0.73 Public debt 0.091 GDP per capita Std.Err *** 0.034 *** 0.031 0.100 Private investment 0.464 Labor force 0.117 ** 0.222 1.077 1.074 Model Coef -0.73 Std.Err *** 0.090 0.034 *** 0.031 0.102 0.455 0.118 ** 0.224 1.053 1.079 Gover revenue Infrastructure Trade openness -0.134 Obs AR(2) test Sargan test Note: *** * , * and * 0.129 Model Coef -0.73 Std.Err *** 0.034 *** 0.033 0.090 0.103 0.455 0.118 ** 0.226 1.051 1.088 -0.003 0.171 -0.700 2.798 -0.702 2.802 -0.127 0.132 -0.126 0.138 437 437 437 0.556 0.561 0.561 0.932 0.910 0.881 denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 4.16 The effect of inflation on public debt for Africa Dependant variable: Δ Public debt Model Public debt (-1) Model Model Coef Std.Err Coef Std.Err Coef Std.Err -0.57*** 0.053 -0.57*** 0.055 -0.56*** 0.053 18 Inflation -1.135** 0.475 -1.118** 0.490 -1.009** 0.468 GDP per capita -1.27*** 0.231 -1.26*** 0.238 -1.10*** 0.251 Private investment -0.155 0.433 -0.1620 0.446 -0.229 0.423 -1.516 1.972 -2.509 1.987 -0.951 0.670 Labor force Gover revenue Infrastructure -49.9 Trade openness *** 0.800 Obs 11.668 *** 0.220 -54.1 *** 0.828 *** 13.204 0.230 -49.3 *** 12.895 *** 0.220 0.882 356 356 356 AR(2) test 0.852 0.884 0.859 Sargan test 0.491 0.537 0.449 Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively Source: Stata software 4.4 Conclusion The study empirically investigate the relationship between public debt and inflation for 60 developing countries over the period of 1990-2014 The estimated results show from the public debt to inflation, public debt has a positive impact on inflation while in the reverse direction, inflation has a negative influence on public debt CHAPTER THE EFFECTS OF PUBLIC DEBT, INFLATION, AND THEIR INTERACTION ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES 5.1 Introduction The purpose of this chapter is to employ estimation method of difference GMM Arellano-Bond to empirically study the effects of public debt, inflation, and their interaction on economic growth for 19 60 developing countries in Asia, American Latin, and Africa over the period of 1990-2014 5.2 Variables in the empirical equation Dependent variable (lGDP): GDP per capita Main variables: Public debt (PDEB), Inflation (INFL), Interaction (PDEB*INFL) Control variables: Private investment (PINV), Labor (LABO), Government revenue (REV), Infrastructure (TELE), Trade openness (OPEN) The matrix of correlation coefficients is shown in Table 5.1 Table 5.1 The matrix of correlation coefficients lGDP PDEB lGDP 1.00 PDEB -.24*** 1.00 ** 031 INFL -.072 PINV 185 *** *** -.16 -.041 -.10*** 1.00 011 217*** -.056* 1.00 -.023 088 *** -.16 *** 223 1.00 248 *** -.10 *** 424 111*** 760 *** *** 268 *** , and -.16 OPEN 1.00 1.00 -.16*** Note: TELE -.025 319*** -.023 * REV *** REV *** ** LABO -.10 -.33 OPEN PINV *** LABO TELE INFL -.048 1.00 denote the significance at 1%, 5% and 10% respectively Source: Stata software 5.3 Results and discussion Table 5.2 The effects of public debt, inflation, and their interaction on economic growth for the whole sample Dependant variable: Δ Economic growth Model Growth (-1) Model Model Coef Std.Err Coef Std.Err Coef Std.Err -0.09*** 0.0293 -0.08*** 0.0291 -0.069** 0.032 20 Public debt -0.13*** 0.0308 -.013*** 0.030 -0.13*** 0.031 Inflation -0.67*** 0.177 -0.63*** 0.180 -0.67*** 0.189 0.002 *** 0.002 *** 0.002 ** 0.196 -0.416 0.282 * 0.095 0.510 Publ debt*Inflation Private investment 0.008 *** 0.439 *** 0.157 0.007 0.352 * 0.186 Labor force Gover revenue 0.177 * 0.091 Infrastructure Trade openness 0.251 *** Obs 0.042 0.008 0.404 ** 0.090 0.163 -0.408 0.486 -0.525 0.188 0.257 *** 0.041 0.267 *** 0.043 766 766 766 AR(2) test 0.246 0.350 0.291 Sargan test 0.674 0.613 0.768 Note: ***, ** and * denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 5.3 The effects of public debt, inflation, and their interaction on economic growth for Asia Dependant variable: Δ Economic growth Model Coef Growth (-1) Public debt Inflation Publ debt*Inflation -0.21 Std.Err *** 0.135 * 0.779*** -0.01 *** 0.045 Model Coef -0.20 Std.Err *** 0.0431 Coef -0.18 0.043 ** 0.074 0.076 0.121 0.071 0.178 0.293 0.686** 0.278 0.617** 0.271 0.005 *** 0.004 ** 0.004 ** 0.233 *** 1.167 -0.01 -0.011 0.480 Labor force 5.093 *** Gover revenue 1.333*** 0.549 *** Std.Err *** * Private investment Infrastructure Model 1.233 4.546 *** 1.190 4.209 0.308 1.182*** 0.300 0.973*** 0.308 0.212 *** 0.198 *** 0.192 0.511 0.520 21 0.081* Trade openness Obs AR(2) test Sargan test Note: *** ** , and * 0.048 0.098** 0.047 347 347 347 0.836 0.876 0.977 0.349 236 0.302 denote the significance at 1%, 5% and 10% respectively Source: Stata software Table 5.4 The effects of public debt, inflation, and their interaction on economic growth for Africa Dependant variable: Δ Economic growth Model Coef Std.Err Model Coef Std.Err Growth (-1) -0.21 *** 0.074 -0.1965 Public debt -0.048** 0.019 -0.039* 0.111 ** Inflation 0.206 * Publ debt*Inflation -0.001 * Private investment Labor force 0.226 0.077 -0.19 0.079 0.022 -0.041* 0.023 0.114 ** 0.115 * 0.001 Sargan test Note: *** ** , and * 0.226 0.001 -0.001 0.001 -0.001 -0.097 0.083 -0.087 0.085 -0.094 0.088 1.819 1.373 2.163 1.429 1.908 1.620 0.058 0.059 0.052 0.061 -0.985 2.873 ** 0.063 0.149 AR(2) test Std.Err ** Infrastructure Obs Coef * Gover revenue Trade openness Model *** 0.054 0.130 ** 0.057 0.139 410 410 410 0.279 0.250 0.239 0.116 0.123 0.106 denote the significance at 1%, 5% and 10% respectively Source: Stata software 5.4 Conclusion 22 This chapter empirically investigates the effects of public debt, inflation, and their interaction on economic growth for a panel sample of 60 developing countries over the period of 1990-2014 The estimated results show there are differences about these effects among the whole sample and two sub-samples of Asia and Africa CONCLUSION AND POLICY IMPLICATIONS Conclusion The thesis clearly determines the relationship between public debt and inflation as well as empirically investigates the effects of public debt, inflation, and their interaction on economic growth for 60 developing countries worldwide Accordingly, (1) The thesis defines the research gap from the effects of the interaction between public debt and inflation on economic growth, and develops the empirical framework of the model (2) The relationship between public debt and inflation in selected developing countries is two-way (3) There are obvious differences about the effects of public debt, inflation, and their interaction on economic growth among the whole sample and two sub-samples of Asia and Africa Policy implications (a) Policies relating to the relationship between public debt and inflation  The issuance and implementation of policies relating to public debt should pay attention to the significant determinants of public debt such as private investment, economic growth, government revenue and trade openness 23  Keep inflation at a suitable low level to avoid deflation which is detrimental to production and consumption, and at once to avoid instable society due to the increasing of prices (b) Policies relating to economic growth from the effects of public debt, inflation, and their interaction General recommendations: the issuance of policies in developing countries should pay attention to the negative impacts of public debt and inflation Governments should promote private investment, create suitable revenues and set up convenient conditions for activities of exports/imports Separate recommendations for Asia and Africa Asian countries: Although public debt and inflation in these countries promote economic growth, their interaction has a negative impact Therefore, increasing public debt or shocks of inflation can be detrimental to economic growth African countries: In spite of positive impact of inflation, public debt and their interaction have negative effects on growth So, these governments should limit borrowing to promote economic growth Limits of the thesis and research tendency in future (a) Limits of the thesis  Separate public debt into domestic debt and foreign debt  The research sample of developing countries only consists of 60 countries  The number of countries in the sub-sample of American Latin is small  The difference GMM Arellano-Bond has some disadvantages (b) Research tendency in future 24  In case there are data enough for all developing countries, the research sample should be enlarged  The study should combine the threshold impacts of public debt and inflation on economic growth in a single country  The future study should separate public debt into domestic debt and foreign debt  The future study should apply different estimation methods such as the system GMM Arellano-Bond and FE-2SLS ... Asian Journal of Economics 2(2), 33-48 Nguyễn Văn Bổn & Nguyễn Minh Tiến (2014) Các nhân tố định dòng vốn FDI nước Châu Á Tạp chí Khoa học Trường Đại học Cần Thơ, 31(2014), 124-131 1 INTRODUCTION