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Growth Debt Case Study - Instructions

In 2010, two Harvard professors, Reinhart and Rogoff, published a paper Growth in a Time of Debt. Here is a link to their paper. The results showed that a country’s growth rate slows down if the debt to GDP ratio exceeds 90%. This was an influential paper: it was used in the UK in the early 2010’s to support the case for the Government austerity programme at that time.

The paper provides data on the debt-to-GDP ratio and annual growth rate for 20 countries over many years. The analysis groups these country-year level data into 4 categories depending on the size of the debt-to-GDP ratio:

  1. below 30%
  2. between 30% and 60%
  3. between 60% and 90%
  4. above 90%

It then averages the growth rate by country and by debt-to-GDP category. Final it takes an average of the growth-rate for each debt-to-GDP category across all countries.

The spreadsheet provided reproduces the essence of the spreadsheet built by Reinhart and Rogoff for their paper.

This case study lasts about one hour and is in three parts:

  1. In your groups, review and test the spreadsheet. Does it meet best practices? Are there any mistakes? (30 minutes)
  2. Each group will present their conclusions to the class (15 minutes)
  3. Class discussion: What lessons can be learned from this case study? (15 minutes)

Once you have completed your testing, you may be interested in the following links of articles published in 2013 and later.