Public debt sustainability and economic growth in Malaysia: Threshold and causality analysis

Qaiser Munir (), Sook Ching Kok () and Winnie Abdulnasir ()
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Sook Ching Kok: Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah
Winnie Abdulnasir: Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah

No 5306868, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: The 2008 financial crisis has led to an unprecedented increase in public debt across the world, raising serious concerns about its economic impact. This paper investigates the impact of public debt on long-run GDP growth in Malaysia from the year 1970 to 2013. We employ novel methods and diagnostics from the time-series literature, such as threshold regression approach suggested by Hansen (2000), causality test and cointegration test. The empirical results suggest an inverse relationship between debt and GDP growth, controlling for other determinants of growth. Further, our results suggest that there is strong evidence of causality from growth to public debt. In addition, threshold effect and nonlinearity between debt-growth is examined. We found a non-linear impact of public debt on GDP growth with a turning point?beyond which the public debt-to-GDP ratio has a deleterious impact on long-term growth?at about 50-60% of GDP.

Keywords: Public debt; Economic growth; fiscal policy; Threshold analysis; Causality (search for similar items in EconPapers)
JEL-codes: C50 H63 O40 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2016-11
New Economics Papers: this item is included in nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Proceedings of the Proceedings of the 26th and the 27th International Academic Conference (Istanbul, Prague), Nov 2016, pages 89-105

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:5306868

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