Public Debt and Economic Growth in Switzerland

Abstract

Economic theory suggests that a realistic level of borrowing is beneficial for both developing and developed economies in achieving sustainable level of economic growth. However, as a result of insufficient domestic resources to fund the “development projects”, required for the economic progress, most of the countries strongly rely on internal (domestic) and external (international) capitals such as public debt, foreign direct investment (FDI) and remittances. Keeping in mind this significance, this study analyzes the role of public debt, FDI and remittances in accelerating the economic growth in Switzerland. For getting this purpose achieved, the study gathers the data from world development indicators (WDI) for the period of 1997-2016. The study uses public debt, FDI and remittances as predictors, while economic growth is taken as outcome variable. The study applies auto regressive distributive lag (ARDL) model to analyze the data. Results of the study show positive influence of public debt, FDI and remittances on the economic growth of Switzerland which is in line with the economic theory. Based on the findings, the study suggests articulating and implementing policies aimed at attracting more inflows of foreign capital that will positively contribute to economic growth in the long run. The study furthers the government of Switzerland to keep debts to the GDP threshold as low as possible.