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Public Debt, Economic Growth and Inflation in African Economies

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  • José Augusto Lopes da Veiga
  • Alexandra Ferreira-Lopes
  • Tiago Neves Sequeira

Abstract

We analyse the implications of public debt on economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt affect economic growth and exhibit negatively, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. The highest average rates of real and per capita growth are achieved when public debt reaches 60% of the real GDP and an average inflation rate of 8.2%. When this ratio falls between 60-90%, the average rate of economic growth drops by up to 1.32 p.p. and continues dropping by up to 1.64 p.p. when the ratio exceeds 90%. Briefly, the high levels of public debt are reflected in reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the GDP and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. Identical behaviour of the GDP growth rates and inflation also appears in Sub-Saharan countries until the third interval (60-90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30-60%). For SADC countries, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. The high level of public debt is reflected in reduced rates of economic Growth and increasing inflation rates.
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  • José Augusto Lopes da Veiga & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2016. "Public Debt, Economic Growth and Inflation in African Economies," South African Journal of Economics, Economic Society of South Africa, vol. 84(2), pages 294-322, June.
    • Handle: RePEc:bla:sajeco:v:84:y:2016:i:2:p:294-322
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    Cited by:

    1. Akingbade U. Aimola & Nicholas M. Odhiambo, "undated". "Public Debt and Inflation: Empirical Evidence from Ghana," Working Papers AESRIWP06, African Economic and Social Research Institute (AESRI).
    2. Aimola Akingbade U. & Odhiambo Nicholas M., 2022. "Is the effect of public debt on inflation symmetric or asymmetric? Evidence from the Gambia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(1), pages 41-57, June.
    3. Akingbade U. Aimola & Nicholas M. Odhiambo & Christian Nsiah, 2021. "Public debt and inflation nexus in Nigeria: An ARDL bounds test approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1921905-192, January.
    4. Dumitrescu Iulia Monica & Crespo Nuno & Simões Nadia, 2018. "Trade Competition Measurement and the Choice of Measurement Indexes," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(3), pages 3-14, December.
    5. Xiuyun Yang & Muhammad Nouman Shafiq, 2020. "The Impact of Foreign Direct Investment, Capital Formation, Inflation, Money Supply and Trade Openness on Economic Growth of Asian Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 2(1), pages 25-34, June.
    6. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    7. Jocelyne Zoumenou, 2023. "On the impact of fiscal policy on inflation: The case of fiscal rules," EconomiX Working Papers 2023-21, University of Paris Nanterre, EconomiX.
    8. Busato, Francesco & Albanese, Marina & Varlese, Monica, 2022. "Inflation-based fiscal consolidation: a DSGE approach," MPRA Paper 113838, University Library of Munich, Germany.
    9. Van Bon Nguyen, 2022. "Does governance matter for the public debt–inflation relationship in developed countries? Panel quantile regression approach," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 1153-1173, December.
    10. Bello, Abdulmajeed Kumo & Joshua Adams Ndako & Yusuf, Fadimah & Amodu Amina Ejura, 2023. "Fiscal Dominance and Monetary Policy Efficacy in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(10), pages 857-877, October.
    11. Aimola Akingbade U. & Odhiambo Nicholas M., 2020. "Public Debt and Inflation: A Review of International Literature," Folia Oeconomica Stetinensia, Sciendo, vol. 20(1), pages 9-24, June.
    12. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    13. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    14. Abigail Stiglingh & Lerato Mothibi, 2019. "The link between government expenditure and debt as potential drivers of economic growth in South Africa," Proceedings of International Academic Conferences 9912043, International Institute of Social and Economic Sciences.
    15. Nguyen Van Bon, 2015. "The relationship between public debt and inflation in developing countries: Empirical evidence based on difference panel GMM," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 5(9), pages 128-142, September.
    16. Rutayisire, J.Musoni, 2021. "Public debt dynamics and nonlinear effects on economic growth : evidence from Rwanda," MPRA Paper 110931, University Library of Munich, Germany.
    17. António Afonso, & Emanuel Reis Leão, & Dilson Tiny, & Diptes C. P. Bhimjee, 2017. "Fiscal Sustainability Analysis: The Case of PALOP Economies," Working Papers Department of Economics 2017/14, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    18. Aimola, Akingbade U & Odhiambo, Nicholas M, 2021. "Public debt and inflation: Empirical evidence from Ghana," Working Papers 27063, University of South Africa, Department of Economics.
    19. T. Saungweme & N.M. Odhiambo, 2021. "Public Debt and Inflation Dynamics: Empirical Evidence from Zimbabwe," Working Papers AESRI-2021-07, African Economic and Social Research Institute (AESRI), revised Oct 2021.
    20. Chloe Allison & Neryvia Pillay, 2024. "Cash transfers and prices what is the impact of social welfare on prices," Working Papers 11057, South African Reserve Bank.
    21. Talknice Saungweme & Nicholas M. Odhiambo, "undated". "Public Debt And Inflation Dynamics: Empirical Evidence From Zimbabwe," Working Papers AESRI05, African Economic and Social Research Institute (AESRI).
    22. Akingbade U. Aimola & Nicholas M. Odhiambo & Christian Nsiah, 2021. "Public debt and inflation nexus in Nigeria: An ARDL bounds test approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1921905-192, January.
    23. Franses, Philip Hans & Janssens, Eva, 2018. "Inflation in Africa, 1960–2015," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 261-292.
    24. Thobeka Ncanywa & Marius Mamokgaetji Masoga, 2018. "Can public debt stimulate public investment and economic growth in South Africa?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1516483-151, January.
    25. Godwin Essang Esu,(PhD), 2023. "Fiscal Imbalances, Economic Growth and Macroeconomic Stability in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(8), pages 887-901, August.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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