Sustainable Financing for Sustainable Development: Understanding the Interrelations between Public Investment and Sovereign Debt

Abstract

This study investigates the causal relationship between public investment and sovereign debt (i.e., external and domestic public debt) with respect to the limits of public-debt sustainability for four countries with the highest GDP (i.e., the United States, China, Japan, Germany) during the period of 2000–2015. In summary, this study establishes quantitative evidence based on empirical findings to support the claim that sovereign debt is harmful to the financing of public infrastructure if it breaches certain thresholds, as proposed in this study, and according to the literature. By this approach, the findings enable us to make recommendations about the need for mobilizing domestic resources and innovating new financial models to promote sustainable development within the limits of sustainable public debt. In short, this paper concludes that performing a project for sustainable development by implementing unsustainable financing models will always end up with unsustainable economic outcomes.