Financial Professionals

Market Insights

High Debt-To-GDP Implies Low Growth? Not So Fast…


A version of this blog first appeared on the Newfound Research blog site.

An interesting rebuke to the oft-quoted 2010 paper “Growth in a Time of Debt1 by Carmen Reinhart and Kenneth Rogoff was recently announced. For those of us in the quantitative research field, it serves as a meaningful reminder that just because a paper is published and peer-reviewed does not mean the data or the code has been peer-reviewed.

In a nutshell, the Reinhart-Rogoff paper served to identify a “magic” 90% debt-to-GDP level above which median economic growth falls 1% and average growth falls even more. The paper has not been without its critics. Many have argued that the cause-and-effect was backwards – i.e., slow growth leads to higher debt-to-GDP ratios. Nevertheless, it has been highly quoted in political and economic policy discussions.

Until now no one has ever argued that the data itself was wrong. That’s what Thomas Herndon, Michael Ash, and Robert Pollin do in their new paper “Does High Public Debt Consistently Stifle Economic Growth?  A Critique of Reinhart and Rogoff.”2  Reinhart and Rogoff shared their original Excel spreadsheet, and lo and behold, Herndon, Ash, and Pollin found three major issues:

  1. Reinhart and Rogoff selectively excluded years of high debt and average growth;
  2. They used a debatable method of weighting countries; and
  3. There appears to be a coding error that excluded high-debt and average-growth countries.3

The result when recalculated?  High debt-to-GDP actually resulted in +2.2% growth, not the -0.1% growth found by Reinhart and Rogoff.  Potentially more interesting: the team could not identify a break point after which economic growth fell significantly.

Lesson learned: Relying on someone else’s research as a key component of your own models, without first verifying the results, is equivalent to relying on a rumor. That’s why we find it important to do all of our own research and develop all of our own models.  While we constantly read new academic and industry papers, we always attempt to replicate before incorporating any results.


1Reinhart, Carmen M. & Rogoff, Kenneth S., “Growth in a Time of Debt,”, January 2010, National Bureau of Economic Research.

2Herndon, T., Ash, M. & Pollin R., “Does High Public Debt Consistently Stifle Economic Growth?  A Critique of Reinhart and Rogoff,”, April 15, 2013, Political Economy Research Institute.

3For more information about the issues with Reinhart-Rogoff’s findings, see the well-written blog “Researchers Finally Replicated Reinhart-Rogoff, and There Are Serious Problems” on the Roosevelt Institute’s website.

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.