This paper revisits the relationship between debt and growth from a vantage point that considers the totality of private and public debt. We exploit quarter-long timing lags inherent in the response of borrowing to innovations in output to identify the effects of debt on growth in a panel vector autoregressive model. We verify that debt accumulation is negatively related to output growth, with a one standard deviation innovation in the former leading to a 0.2 percentage-point contraction in the latter. This result is robust to the inclusion of exogenous variables in the system, alternative measures of the endogenous variables, and varying temporal treatments. We also find variations depending on the type of debt accumulated, the specific subset of countries considered, and the channels along which debt expansion operates.
LIM, J. (2019). Growth in the Shadow of Debt. Journal of Banking & Finance, 103, pp. 98-112.