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Determinants of Public Debt in Lower Middle Income Countries

The ever increasing of public debt has been affecting the financial stability of both high and low income countries for years and is a considerable subject to various author all around the world. The aim of this study is to understand which all factors influence the public debt in lower middle-income countries using DGMM regression method. With the dataset of 40 countries during the 1996-2015, the study provides empirical evidences on the role of macroeconomic factors on changes of public debt in lower middle-income countries, including trade openness, interest rates, budget surplus, inflation, economic growth, foreign direct investment, infrastructure, scale of the financial system. However, the unemployment rate does not have any impact whatsoever on debt to GDP ratios of these countries for over the period.