Threshold Effects of Sovereign Debt: Evidence from the Caribbean

Roland Craigwell, Kevin Greenidge, Chrystal Thomas and Lisa Drakes

MPRA Paper from University Library of Munich, Germany

Abstract: This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55–56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.

Keywords: Debt Problems; Debt Threshold; Panel Data; Threshold Regressions (search for similar items in EconPapers)
JEL-codes: C23 C24 F34 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Threshold Effects of Sovereign Debt: Evidence From the Caribbean (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40936

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