External Debt and Economic Growth in China: A Quantile Regression Analysis with Insights from the Belt and Road Initiative

Abstract

This paper examines the causal relationship between external debt and economic growth in China between 2000 and 2024 with a focus on the Belt and Road Initiative. The study uses data from the World Bank and IMF and perform panel unit root tests, pooled ordinary least squares, generalized method of moments, quantile regression, and threshold analysis to test linear and non-linear effects. The study concludes that external debt has a negative impact on GDP growth; and that a positive impact is observed on external debt stock up to a limit of about 40 % of GNI. The further complexity is brought about by BRI-related lending that offers short-term growth dividends yet creates possible long-term sustainability concerns. Gross capital formation, openness to trade and foreign exchange reserves are important growth promoting factors, but current account deficit enhances adverse debt outcomes. Quantile regression shows asymmetric effects in growth distributions with more severe negative consequences in the lower growth quantiles. The study therefore advises sound debt management, use of BRI investments to achieve sustainable growth and to improve institutional quality to reduce debt risk.

Keywords:

External Debt; Economic Growth; Belt and Road Initiative; Quantile Regression; China; Threshold Analysis; Foreign Exchange Reserves