The Relationship between Government Debt and Economic Growth in Developing Countries: Evidence from China’s Debt Data

Purpose - In order to explore the relationship between government debt and economic growth in developing countries. Design/Methodology/Approach - This paper selects on the panel data of government debt of 31 provinces and cities in China from 2013 to 2019 as samples. In addition, considering the strong heterogeneity between regions in china, this paper divides the total samples into two parts: the eastern part and the western part. In the research process, this paper empirically analyzes whether there is a non-linear relationship between government debt and economic growth by using GMM method, which takes the lag value of government debt as a tool variable, and calculates the threshold between them. Findings - The empirical results show that there is a nonlinear relationship between the overall government debt and economic growth, and there is a 65% threshold (debt turning point); There is a nonlinear relationship between the government debt and economic growth in the western region, and the debt turning point is slightly lower than that of the whole, about 57%-58%; There is no nonlinear relationship in the economically developed eastern region. Research Implications - The deterioration of COVID-19 will lead to government debt expansion and economic growth slowdown. On this basis, the study of the relationship between government debt and economic growth can provide a reasonable debt scale standard for government and reduce the risk of government debt.