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Fact of the Week: High Government Debt Leads to Significant Declines in Economic Growth for R&D Intensive Industries

Fact of the Week: High Government Debt Leads to Significant Declines in Economic Growth for R&D Intensive Industries

March 31, 2025

Source: Can Sever, “Government Debt and Growth: The Role of R&D,” (working paper no. 2025/036, International Monetary Fund (IMF), February 2025).

Commentary: Over the past two decades, the U.S. national debt has surged by 370 percent, reaching $36.2 trillion. Simultaneously, economic growth has decelerated in the United States and other similarly advanced economies. A report by the IMF indicates that rising government debt in advanced economies results in a decline in economic growth, particularly affecting industries that depend heavily on research and development (R&D), such as high-tech industries. In its analysis of various manufacturing industries in advanced economies over the past 40 years, the report reveals that R&D-intensive industries, such as machinery manufacturing, experienced a growth rate that was 0.5 percentage points per year lower than that of non-R&D-intensive industries. This finding sheds light on the slowdown in economic growth within advanced economies, as R&D-intensive sectors are crucial for driving innovation and expansion. According to its model, the report shows that the adverse effects on R&D-intensive industries can last for up to 10 years.

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