Impacts of Public Debt on Economic Growth in Asia-Pacific Countries
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Universiti Malaysia Sarawak (UNIMAS)
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This study aims to examine the impact of public debt on economic growth in 11 Asia-Pacific countries over the period from 2015 to 2023. In this study, Gross Domestic Product (GDP) is used to measure economic growth. The independent variables include Public Debt (LD), Consumption (CONSMPT), Investment (I), and Government Expenditure (LG). In addition, the Interest Rate (IR) is tested as a mediating variable between Public Debt and GDP. The objective of this study is to study the impact of public debt in Asia-Pacific countries, to examine the impact of public debt on economic growth, and to study the mediating role of interest rate on the relationship between public debt and economic growth. The data used in this study is secondary panel data, covering 11 Asia-Pacific countries which is Malaysia, Japan, South Korea, Taiwan, China, Australia, New Zealand, Philippine, Indonesia, Thailand, and Singapore from 2015 to 2023. This study was analysed using the econometric methods including Pooled Ordinary Least Squares (Pooled OLS), Fixed Effects Model (FEM), Random Effect Model (REM), and Hausman Test. Fixed Effect Method (FEM) was selected as the most suitable method after conducting the Hausman Test. The results of the study reveal that Public Debt has a significant positive impact on GDP, indicating that a higher level of debt can increase economic growth during the 9 years of selected period. At the same time, Interest Rate plays a mediating role, showing that public debt can also affect growth indirectly through changes in borrowing costs. Investment and Consumption were found to have a positive and significant impact on economic growth, while Government Expenditure showed a negative effect, possibly due to inefficient spending or crowding-out effects. This study helps to improve the understanding of how public debt influences growth, both directly and indirectly, in the Asia-Pacific region.