Public Debt and Sustainable Development: Does Institutional Quality Matter? Evidence From Cross‐Country Panel Data

ABSTRACT The research examines the public debt‐institutional relationship and the Sustainable Development Goals (SDGs) for the period 2002–2023 for 141 countries. Countries are categorized by their institutional quality (low, medium, and high level). A dependent variable is used to represent complex development growth, namely the SDG index. Utilizing an institutional quality index consisting of 6 governance indicators, the moderating effects of institutional quality on the relationship between public debt and other indicators are assessed by including an interaction term between the two in the analysis. To address cross‐country heterogeneity and distributional effects, the estimators that are used to evaluate the robustness of the model are the Augmented Mean Group, Dynamic Common Correlated Effects, and Driscoll–Kraay estimators. Public debt negatively affects the SDG index in low‐governance countries, but facilitates progress in middle‐governance nations. In high‐governance countries, institutions do act as buffers to negative effects and boost efficiency.