The Impact of Governance Quality on Public Debt Volume: OPEC Countries Evidence

Document Type : reserch

Authors

1 Assistant Professor, Agricultural Planning, Economic and Rural Development Research Institute (APERDRI). Tehran. Iran.

2 Master of Management, Faculty of Islamic Governance, Islamic Azad University, Isfahan Branch, Isfahan, Iran

Abstract

The issue of public debt management and deviations from optimal debt policy for developed and developing economies has attracted much political as well as academic attention. Theoretically, improving the quality of institutions and taking steps towards achieving good governance can help countries manage public debt effectively. This study examines how governance affects public debt accumulation in 15 member countries of the Organization of the Petroleum Exporting Countries (OPEC) over the period 2004-2016. Six global governance indicators (right to voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption) were used to measure the quality of governance in these countries. By extracting research model data from the World Bank and the International Monetary Fund using four dynamic panel data regression estimation methods including differential and generalized method of moments (GMM), one-stage and two-stage, to test that governance quality has a negative effect on public debt, significantly. The research findings indicate a negative effect of political stability and absence of violence/terrorism indicators, regulatory quality and control of corruption on the public debt-to-GDP ratio. The indicators of the right to express opinions and accountability, government effectiveness, and rule of law have no significant effect on the level of government debt accumulation, and in the case of the regulatory quality index, it even increases the accumulation of public debt. These findings have important implications for policymakers in these countries, which are currently facing major fiscal and external imbalances due to high costs of war and terrorist attacks, low oil prices and declining trade. Proper management of public debt is an urgent task, especially since public debt management problems often stem from policymakers’ lack of attention to the costs of bad governance and poor macroeconomic management.

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References

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Journal of Exalted Governance
Volume 6, Issue 1 - Serial Number 21
Vol. 6, No. 1, Spring 2025
July 2025
Pages 143-171

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