Page 79 - ES 2020-21_Volume-1-2 [28-01-21]

62 Economic Survey 2020-21 Volume 1

Figure 11a: unlike india, direction of causality between growth and debt
cannot be inferred for the advanced economies

Data on General Government that has been used. Countries include Canada, France, Germany, Greece, Italy, Spain,
UK, USA, Japan
Source: IMF

2.18 However, when the above time-series correlations for the advanced economies is restricted
to the high growth phases over the last two decades, i.e. growth greater than the average growth
for the country over 1980-2018, the result is identical to that obtained for India. Specifically,
higher growth leads to lower debt-to-GDP but not vice versa (Figure 11b). Of course, we see
that the correlation from higher growth leads to lower debt-to-GDP is not very high, even though
it is statistically significant, because the growth rates are not very high even during the high
growth episodes in advanced economies. The inference remain clear that, even in the advanced
economies where GDP growth has been significantly lower than that in a high growth country
such as India, high growth phases lead to lowering of debt.

Figure 11b: Direction of causality: Growth to Debt in high growth
phases in advanced economies

Data on General Government that has been used. Countries include Canada, France, Germany, Greece, Italy, Spain,
UK, USA, Japan
Source: IMF