Does the size of a country's national debt with respect to the size of its economy affect its economic growth prospects?
To find out, we created the following chart showing a relationship between the inflation-adjusted economic growth rates for the member nations of the Organization of Economic Cooperation and Development (OECD) against their "publically-held" debt-to-GDP ratios in 2011:
What we see is that high levels of national debt with respect to the size of a nation's economy, would appear to have a medium-strength effect upon its real rate of economic growth. For every 10% increase in a country's national debt with respect to its GDP, it would appear that its real economic growth rate is reduced on average by roughly 3/8th of a percent. A 26% increase in a nation's debt-to-GDP ratio then would coincide with the shaving of a full percent off its real GDP growth rate.
That matters because economic growth is exponential. A nation whose economy grows at an average rate of 3% per year will double in size in roughly 24 years. A nation whose economy grows a full percent less than that at an average rate of 2% per year will take 36 years to double in size. The difference between the two growth rates is very noticeable.
Looking at the United States' position on the chart, we note that the debt indicated in the chart applies only to the "publically-held" portion of its national debt - if we included the "intragovernmental" portion of its national debt, as would represent a more correct accounting of how much money the U.S. government has really borrowed, it would be over 100% of GDP in 2011.
Data Sources
CIA World Factbook. Country Comparison: Public Debt. Accessed 27 May 2012.
CIA World Factbook. Country Comparison: GDP - Real Growth Rate. Accessed 27 May 2012.
Labels: gdp, national debt
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
Thanks in advance!
Closing values for previous trading day.
This site is primarily powered by:
CSS Validation
RSS Site Feed
JavaScript
The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.
Other Cool Resources
Blog Roll
