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Threshold Effect of Public Debt on Domestic Investment: Evidence from Selected African Countries

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  • Walid BENAYED

    (Faculty of Economics and Management of Sfax, University of Sfax, Tunisia)

  • Foued Badr GABSI

    (Faculty of Economics and Management of Sfax, University of Sfax, Tunisia)

  • Samia OMRANE BELGUITH

    (Faculty of Economics and Management of Sfax, University of Sfax, Tunisia)

Abstract

In this paper, we study the non-linear relationship between total public debt and domestic investment, across a panel of 10 African economies from 1981 to 2010. Our analysis, based on a panel threshold approach proposed by Hansen (1999), confirms the significance of the nonlinear relationship between public debt and domestic investment. The results indicate that public debt lower than 47.31 percent of GDP is positively associated with domestic investment. However, once the debt exceeds this threshold, the relationship between public debt and investment becomes negative. Moreover, we find some evidence that at this level, public debt limits the government’s ability to undertake countercyclical policies.

Suggested Citation

  • Walid BENAYED & Foued Badr GABSI & Samia OMRANE BELGUITH, 2015. "Threshold Effect of Public Debt on Domestic Investment: Evidence from Selected African Countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(605), W), pages 189-198, Winter.
    • Handle: RePEc:agr:journl:v:xxii:y:2015:i:4(605):p:189-198
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    Cited by:

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    3. Iliyasu, Ibrahim & Gambo, Suleman Lawal, 2021. "Does Debt Servicing Crowd-Out Federal Government Expenditures in Nigeria?," African Journal of Economic Review, African Journal of Economic Review, vol. 10(1), December.
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    5. Adeniyi, Oluwatosin & Adekunle, Wasiu & Orekoya, Samuel, 2018. "Non-linear Relation between External Debt and Economic Growth in Nigeria: Does the Investment Channel Matter?," MPRA Paper 99975, University Library of Munich, Germany, revised 07 Apr 2019.

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