Public Sector Governance, Economic Stability and Mediating Role of Public Debt for World Economies.

Authors

Shamaila Zareen(1) Shamaila Zareen Corresponding author Affiliation PhD scholar, International Islamic University, Islamabad, Pakistan Email addresszareen.2010@yhoo.com Other articles by this author , Faiz Ur-Rahim(2) Faiz Ur-Rahim Affiliation Associate Professor, International Islamic University, Islamabad, Pakistan Other articles by this author , Noor Ahmed(3) Noor Ahmed Affiliation Assistant Professor, Sir Syed C@SE institute of Technology, Islamabad, Pakistan Other articles by this author

  1. PhD scholar, International Islamic University, Islamabad, Pakistan
  2. Associate Professor, International Islamic University, Islamabad, Pakistan
  3. Assistant Professor, Sir Syed C@SE institute of Technology, Islamabad, Pakistan

https://doi.org/10.36923/jcmi.v5i2.587

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Abstract

Several economic theories conclude that the relationship between public sector governance and macroeconomic stability is direct as better public sector governance improves economic stability or reduces macroeconomic instability. However, the literature provides us positive, negative and insignificant relationship between the both. Following the idea, our study aims to evaluate the mediating role of public debt in governance-stability association. For estimation, we have used a panel data of 102 developed and developing nations for the period 1996-2021 and employed one-way random effect estimator for the SUR system, as suggested by Biørn (2014). Our findings show that the public sector governance effectively improves macroeconomic stability through the channel of public debt for developed economies, however in the case of developing economies the role of public debt is quite opposite and relationship is negative. Moreover, public debt contributes positively in maximizing the macroeconomic stability for developed economies and the results demonstrate that well managed and smaller public debt mediates the governance-stability association. In developing economies, the public sector management policy should be reviewed and public debt should be managed at minimum possible level as the developed economies are having a comparatively manageable and constructive public debt. So, it is concluded that public sector governance improves the macroeconomic stability not only directly, but also indirectly through the channel of public sector debt.

Article information

Keywords
public debtmacroeconomic stabilitypublic sectorgovernanceindirect effectSUR model
Section
Articles
Issue
Vol. 5 No. 2 (2024)
Submitted
August 7, 2024
Accepted
December 4, 2024
Published
December 4, 2024
Corresponding author
Shamaila Zareen
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