Much-cited research by Harvard economists Carmen Reinhart and Kenneth Rogoff, regarding the relationship between a country’s level of debt and its growth prospects, has been questioned by researchers who claim to have found flaws in the data and methodology used.
Reinhart and Rogoff’s 2010 paper ‘Growth in a time of debt
’ (opens as pdf), concluded that a debt-to-GDP ratio above 90 per cent was harmful to a country’s growth. It found that GDP growth collapses from 3-4 per cent to -0.1 per cent when this ratio is exceeded, and has subsequently been cited by many economists, commentators and politicians, including US congressman Paul Ryan and UK chancellor George Osborne.
A trio of economists at the University of Massachusetts – Thomas Herndon, Michael Ash, and Robert Pollin – have thrown doubt on various aspects of the research. In a new paper, ‘Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff
’, they found a coding error in the calculations which had excluded five countries from the results. They also found other gaps and ‘unconventional weighting’ of summary statistics. As the paper’s abstract states, the researchers find that ‘when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 per cent is actually 2.2 per cent, not -0.1 per cent’.
Reinhart and Rogoff were quick to respond to the criticism, and their response is published on the Financial Times’ website
. They conceded that there had been a coding error, but defended the omission of other data, saying that at the time of the paper’s publication, some of it was simply not available. They also defended their decisions around weighting in the paper and concluded that Herndon, Ash and Pollard’s results were not dramatically different since ‘they, too, find lower growth associated with periods when debt is over 90 per cent.’
Commenting on the response, FT economics editor Chris Giles said it showed that we should ‘be very wary of relatively small sample cross-country comparisons to tell us anything meaningful about policy’.