Causality between public debt, public debt service and economic growth: Evidence from South Africa

Talknice Saungweme and Nicholas Odhiambo

No 25745, Working Papers from University of South Africa, Department of Economics

Abstract: This paper explores the causality between public debt and economic growth, and betweenpublic debt service and economic growth in South Africa covering the period 1970 ? 2017. Thestudy employed the autoregressive distributed lag (ARDL) bounds testing approach tocointegration and the multivariate Granger-causality test. The empirical results indicate thatthere is unidirectional causality from economic growth to public debt, but only in the short run.However, the study fails to establish any causality between public debt service and economicgrowth, both in the short run and in the long run. In line with the empirical evidence, the studyconcludes that it is economic growth that drives public debt in South Africa, and that the causalrelationship between public debt and economic growth is sensitive to the time frameconsidered. The paper recommends that South Africa should prioritise the implementation ofappropriate policies and strategies that could drive economic growth in order to uphold asustainable public debt level.

Keywords: Economic growth; Granger-causality; public debt; public debt service; South (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-afr and nep-gro
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