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

Abstract

PurposeThis 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/approachThe 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.FindingsThe 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/valueThe 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.

The dynamic effect of public debt on economic growth in the era of Macroprudential policy regime: a Bayesian approach

“…Their results indicated a positive relationship between government debt and economic growth. The study by Makhoba et al (2022aMakhoba et al ( , 2022b) contradicts the study by Yang et al (2022) in the case of China. The work documented by Makhoba et al (2022aMakhoba et al ( , 2022b selected emerging and frontier SADC countries using the symmetric transition regression model and found an inverted-shape relationship between debt and growth in the case of South Africa.…”

“…The study by Makhoba et al (2022aMakhoba et al ( , 2022b) contradicts the study by Yang et al (2022) in the case of China. The work documented by Makhoba et al (2022aMakhoba et al ( , 2022b selected emerging and frontier SADC countries using the symmetric transition regression model and found an inverted-shape relationship between debt and growth in the case of South Africa. Meanwhile, for Botswana, Namibia, Zambia and Zimbabwe, they found a U-shape relationship between debt and growth.…”

“…The first strand is those studies that believed in the neoclassical theory, arguing that government debt is detrimental to growth (Checherita-Westphal and Rother, 2012;Alves, 2014;Swamy, 2015;Pegkas, 2018;Asteriou et al, 2021). While the second strand believed in the endogenous growth model, claiming that government debt promotes economic growth (Spilioti and Vamvoukas, 2015;Burhanudin et al, 2017;Jacobo and Jalile, 2017;Yang et al, 2022;Ale et al, 2023;Abille and Kiliç, 2023), The last strand believed in those studies that believe that government debt and economic growth are characterized by a nonlinear relationship in nature (Elbadawi et al, 1997;Pattillo et al, 2004;Perlo-Freeman and Webber, 2009;Kremer et al, 2013;Seletenget et al, 2013;Akhanolu et al, 2018;Seletenget et al, 2013;Alam et al, 2019;Murungi and Okiro, 2018;Mensah et al, 2019;Ndoricimpa, 2020;Makhoba et al, 2022aMakhoba et al, , 2022bMqolombeni et al, 2023;Augustine and Rafi, 2023); even among those studies on NRN, there are contradicting results, as some studies find the invented U-shape (Perlo-Freeman and Webber, 2009;Kremer et al, 2013;Seletenget et al, 2013;Ndoricimpa, 2020;Makhoba et al, 2022aMakhoba et al, , 2022bAugustine and Rafi, 2023;Mqolombeni et al, 2023), while others find the U-shape relationship. While others Public debt and economic growth believed that there is no clear relationship between government debt and economic growth (Ferreira, 2009;…”

“…African countries LM F Fs 5.00 6.90 2.17 Murungi and Okiro, 2018;Mensah et al, 2019;Ndoricimpa, 2020;Makhoba et al, 2022aMakhoba et al, , 2022bMqolombeni et al, 2023;Augustine and Rafi, 2023).…”

China in Africa: An Examination of the Impact of China’s Loans on Growth in Selected African States

“…The study showed that external debt servicing exert negative influences on economic growth while the effect of investment on growth was positive. Makhoba et al (2021) examined the dynamic asymmetric relationships between public debt and economic growth in Southern African Developing Communities (SADC), over the period of 2000-2018. The low-debt regime was found to be positive and statistically significant, while the high-debt regime was detrimental for long-term growth.…”