Governance Capacity and Public Debt in Asian Countries

Abstract

This research focuses on the influence of governance capacity on public debt accumulation in Asian countries. We empirically assess the potential impact of governance capacity on public debt accumulation in 41 Asian countries over the period 2002–2019. Distinct from previous studies that mainly used the frequentist approach, we applied the non-frequentist method, Bayesian analysis. Findings from informative Bayesian linear regressions document that enhancing the governance capacity in voice and accountability, political stability, regulatory quality, the rule of law, and control of corruption affects the size of public debt positively. The findings also show that allocating the government’s budget funds to spur governance capacity in Asian countries could accelerate the level of public debt. Meanwhile, only government effectiveness indicates a negative association with public debt. The results of this paper contribute evidence and crucial implications to policymakers to improve the governance capacity concerning the management of public debt.