The impacts of economic growth, investment, and environmental degradation on public debt: New evidence from the ASEAN-5 countries

Amri, Sulong and Miguel Angel, Esquivias and Mohd Shahidan, Shaari and Hafizah, Abdul Rahim (2024) The impacts of economic growth, investment, and environmental degradation on public debt: New evidence from the ASEAN-5 countries. Journal of Infrastructure, Policy and Development, 8 (8). pp. 1-25. ISSN 2572-7931

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Abstract

This study explores the impact of environmental degradation on public debt in the largest Southeast Asian (ASEAN-5) countries. Prior research has not examined environmental degradation as a possible determinant of public debt in the ASEAN region. As such, the primary objective is to examine key determinants of public debt, notably economic growth, trade openness, investment, and environmental degradation. Utilizing the Fully Modified Ordinary Least Squares (FMOLS) method and data from 1996 to 2021, the study reveals a negative correlation between investment and public debt. Conversely, a positive relationship exists between economic growth, environmental degradation, and public debt levels. These findings hold significant implications for policymakers seeking to craft effective economic and environmental strategies to ensure sustainable development in the ASEAN-5 region. Stronger economic growth can drive up public debt. Importantly, the study highlights the importance of tailored approaches, considering each country’s unique fiscal and developmental characteristics. Applying the Two-Gap Model enhances the understanding of these complex dynamics in shaping public debt and its relationship with environmental factors.

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