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Threshold Effects of Sovereign Debt

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Author Info

  • Lisa Drakes
  • Chrystol Thomas
  • Roland Craigwell
  • Kevin Greenidge

Abstract

This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55-56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/157.

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Length: 23
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/157

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Related research

Keywords: Debt problems; Economic growth; Public debt; Sovereign debt; external debt; debt threshold; real gdp; gdp growth; gross domestic product; debt sustainability; debt service; debt overhang; debt intolerance; debt ratios; growth rates; debt ratio; gdp per capita; central bank; growth rate; total factor productivity; debt service payments; growth model; external shocks; debt management; foreign debt; economic growth rates; external debt service; debt restructuring; gnp; debt dynamics; economic growth theory; national debt; debt stock; stock of debt; debt crisis; business cycle; debt thresholds; government debt;

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References

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  1. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
  2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  4. Williams, Martin & Daniel, Clive, 1991. "Government Activity and Economic Performance in a Small Developing Economy. ," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 44(2-3), pages 269-281.
  5. Daniel Boamah & Winston Moore, 2009. "External Debt and Growth in the Caribbean," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 139-157, July-Dece.
  6. Geoffrey J. Bannister & Luis-Diego Barrot, 2011. "A Debt Intolerance Framework Applied to Central America, Panama and the Dominican Republic," IMF Working Papers 11/220, International Monetary Fund.
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Cited by:
  1. repec:idb:brikps:82321 is not listed on IDEAS
  2. Charles Amo Yartey & Machiko Narita & Garth Peron Nicholls & Joel Chiedu Okwuokei, 2012. "The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean," IMF Working Papers 12/276, International Monetary Fund.

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