Asymmetric and threshold effects of public debt on economic growth in SADC: a panel smooth transition regression analysis

Bongumusa Prince Makhoba, Irrshad Kaseeram and Lorraine Greyling

African Journal of Economic and Management Studies, 2021, vol. 13, issue 2, 165-176

Abstract: Purpose - This study aims to interrogate dynamic asymmetric relationships between public debt and economic growth in Southern African Developing Communities (SADC), over the period 2000–2018. Design/methodology/approach - The study employed a panel smooth transition regression (PSTR) technique to analyse dynamic asymmetric relationships between public debt and economic growth, and the threshold effect at which public debt hampers economic growth. Findings - The findings indicate that there is a significant nonlinear effect of debt on economic growth in SADC. The study discovered a debt threshold of 60% to GDP at which debt beyond this threshold deteriorates long-term growth. The low-debt regime was found to be positive and statistically significant, while the high-debt regime is detrimental for long-term growth. Fiscal policymakers ought to consider the adoption of well-coordinated debt policies that aims to strike a balance between sustainable public debt and economic growth, within a reasonable threshold target. Originality/value - The study focusses on asymmetric and threshold analysis of public debt on economic growth in SADC using sophisticated panel smooth transition regression (STAR). This study provides rigorous empirical evidence within the SADC perspective in which previous studies have predominantly been confined in advanced economies.

Keywords: Public debt; Economic growth; Panel smooth transition regression (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-04-2021-0146

DOI: 10.1108/AJEMS-04-2021-0146

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