The Divergent Paths: How Public Debt and Demographic Transitions Shape Economic Growth Trajectories in Emerging and Advanced Economies

Abstract

This study examines the differential impacts of public debt and demographic transitions on economic growth across BRICS and G7 economies from 1999 to 2023. Using an extensive panel data approach with fixed effects, dynamic specifications, and threshold analyses, this study finds that BRICS and G7 countries exhibit markedly different debt-growth and demographic-growth relationships. While debt levels significantly constrain growth in BRICS countries (-0.082% per percentage point of debt/GDP), G7 economies demonstrate greater resilience at higher debt thresholds. The old-age dependency ratio more severely impacts G7 economies, where a 1% increase in this ratio associates with a 0.14% decrease in growth, compared to a positive effect in BRICS nations, reflecting their demographic dividend advantages. These findings reveal opposite fiscal space conditions between country groups: BRICS economies maintain substantial fiscal space (49.5%), while G7 nations face negative fiscal space (-3.7%). The COVID-19 pandemic particularly challenged both groups' fiscal responses, with G7 countries demonstrating greater policy mobilization capabilities. The research provides empirical evidence for differentiated policy approaches, suggesting that emerging economies should prioritize debt management while developed economies must urgently address demographic challenges to maintain growth trajectories.