The economic performance of developed economies with large public debt: Italy and Japan case - Financial analysis and comparative studies

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Table of Contents

CHAPTER 1: INTRODUCTION1

1.1 INTRODUCTION1

1.2 BACKGROUND1

1.3 JAPAN ECONOMIC GROWTH STUMBLES4

1.4 ITALY PUBLIC DEBT HITS RECORD HIGH5

1.5 THEORETICAL FRAMEWORK7

1.6 AIMS8

1.7 OBJECTIVES9

1.6 RESEARCH QUESTION9

1.7 PURPOSE OF THE STUDY9

1.8 SIGNIFICANCE OF THE STUDY10

1.9 PROBLEM STATEMENT11

CHAPTER 2: LITERATURE REVIEW12

2.1 DEFINING PUBLIC DEBT12

2.1.1 INTERNAL PUBLIC DEBT12

2.1.2 EXTERNAL PUBLIC DEBT14

2.2 PUBLIC DEBT AND ECONOMIC PERFORMANCE16

2.3 IMPORTANCE OF MANAGING PUBLIC DEBT TO GDP RATIO17

2.4 ITALIAN DEBT CRISIS18

2.5 JAPANESE NATIONAL DEBT20

2.6 ITALY AND JAPAN: COMPARATIVE REFLECTION21

2.7 PUBLIC DEBT AND DEVELOPED COUNTRIES22

2.7.1 BORROWING POLICY23

2.7.2 EXAGGERATED RISK24

2.8 NATIONAL DEBT AND ECONOMIC GROWTH: THEORY AND EMPIRICISM24

2.8.1 CROWDING KEYNESIAN AND RICARDIAN EQUIVALENCE25

2.9 PUBLIC DEBT GROWTH MODELS26

2.9.1 RISK PREMIUMS AND GROWTH EFFECTS28

2.9.2 PUBLIC CONSUMPTION AGAINST PUBLIC INVESTMENT29

2.10 EMPIRICAL RESULTS30

2.11 THOUGHTS ON JAPAN AND THE UNITED STATES31

CHAPTER 3: RESEARCH METHODOLOGY32

3.1 INTRODUCTION32

3.2 RESEARCH DESIGN32

3.3 RESEARCH METHOD33

3.4 QUALITATIVE V/S QUANTITATIVE DATA34

3.5 DATA COLLECTION METHOD34

3.6 LITERATURE SEARCH35

3.7 DATABASES USED36

3.8 KEYWORDS USED36

CHAPTER 4: DATA ANALYSIS38

4.1 MEASURING ECONOMIC GROWTH (GDP)38

4.2 RELATIONSHIP BETWEEN PUBLIC DEBT AND GDP39

4.3 PUBLIC DEBT AND GROWTH IN ITALY39

4.4 PUBLIC DEBT AND GROWTH IN JAPAN48

CHAPTER 5: CONCLUSION AND RECOMMENDATION59

REFERENCES63

CHAPTER 1: INTRODUCTION

1.1 Introduction

This chapter will be introducing the whole research work, purpose of the study is to explore the relation between public debt and economic performance of the two developed countries with high national debt. The researcher has used debt-to-GDP ratio in order to measure the ability of the economy to repay its public debt and experience increasing economic growth (Bhattacharya, 2006, 10-14). The researcher has focused on evaluating the amount of public debt that has been borrowed by the two nations to meet its government expenditure and its impact on the economic performance (Pannerselvam, 2004, 5-8). The researcher has also explored the policies adopted by the two countries to overcome its debt burden. In order to meet the research objectives and answer the research question the researcher will carry out in depth research on the matter by thoroughly analysing the literature .(Pannerselvam, 2004, 5-8).

1.2 Background

The global financial crisis of 2007-2008 has created a significant impact on the economic performance of many developed countries. As a result of financial crisis many economies have experienced a downfall in their growth, large financial institutions were collapsed, the bailout of banks by national government and downfall of stock market around the world (World Bank, 2007, pp. 10-11).

The financial crisis resulted in failure of many businesses and hence, wealth of consumer declined, due to which a fall in economic activity led to global recession. Many developed countries were hit by the recession, which negatively effected their economic growth. Recently, scholars from both the nations, Japan and Italy have been attracted towards comparing the economic performance of the nations.

Simultaneously both the countries have also gained attention from other countries also, as a result of historical and structural similarities between the two nations. Thus, the researcher will focus on determining the economic performance of the two economies (Jain, 2008, p. 96). Since many years the two countries have been ...