IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v11y2023i2p51-d1057542.html
   My bibliography  Save this article

Exploring The Role of High Government Debt on Economic Growth: A Nonlinearity and Threshold Analysis for Africa’s Developing Countries

Author

Listed:
  • Nokwanda Mqolombeni

    (Department of Economics, University of Zululand, Faculty of Commerce, Administration, and Law, KwaDlangezwa 3886, South Africa)

  • Devi Datt Tewari

    (Department of Economics, University of Zululand, Faculty of Commerce, Administration, and Law, KwaDlangezwa 3886, South Africa)

  • Kehinde Damilola Ilesanmi

    (Department of Economics, University of Zululand, Faculty of Commerce, Administration, and Law, KwaDlangezwa 3886, South Africa)

Abstract

Purpose: This paper empirically investigated the impact of high government debt on economic growth, using a panel data of 12 developing countries in Africa for the period between 1991 and 2020. Furthermore, it sought to find the existence of nonlinearity between government debt and economic growth. The study used a cross-country panel data approach estimated through the panel smooth transition regression to find the threshold effect. The results reveal a threshold of 60.5% of government debt on economic growth, suggesting an inverted U-shaped relationship between government debt and economic growth for the whole sample. After this threshold, additional government debt starts impeding economic growth. The estimated slope parameter of 18.11 supports the smoothness of government debt from a low regime to a high regime of debt. In the lower debt regime, government debt boosts economic growth; however as the level of debt growth surpasses the peak point, economic growth decreases. By implication, policymakers should have strict debt management policies in place to keep the level of government debt low, and be able to respond robustly to an economic shock. While resorting to borrowing to finance public spending, especially during economic crises, may be an imperative, it should be done in a circumspect manner so that the borrowings are kept at tolerable levels and reduced and/or repaid when there is a recovery in the economy.

Suggested Citation

  • Nokwanda Mqolombeni & Devi Datt Tewari & Kehinde Damilola Ilesanmi, 2023. "Exploring The Role of High Government Debt on Economic Growth: A Nonlinearity and Threshold Analysis for Africa’s Developing Countries," Economies, MDPI, vol. 11(2), pages 1-15, February.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:2:p:51-:d:1057542
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/11/2/51/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/11/2/51/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 257-279.
    2. Su Dinh Thanh, 2015. "Threshold effects of infl ation on growth in the ASEAN-5 countries: A Panel Smooth Transition Regression approach," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 20(38), pages 41-48.
    3. Jeffrey D. Sachs, 2002. "Resolving the Debt Crisis of Low-Income Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 257-286.
    4. Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
    5. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    6. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
    7. Pierre-Richard Agénor & Joshua Aizenman, 2005. "Financial sector inefficiencies and the debt Laffer curve," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(1), pages 1-13.
    8. Checherita-Westphal, Cristina & Rother, Philipp, 2012. "The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area," European Economic Review, Elsevier, vol. 56(7), pages 1392-1405.
    9. Perron, P, 1993. "Erratum [The Great Crash, the Oil Price Shock and the Unit Root Hypothesis]," Econometrica, Econometric Society, vol. 61(1), pages 248-249, January.
    10. repec:bla:kyklos:v:45:y:1992:i:3:p:363-78 is not listed on IDEAS
    11. Nur Hayati Abd Rahman & Shafinar Ismail & Abdul Rahim Ridzuan, 2019. "How does public debt affect economic growth? A systematic review," Cogent Business & Management, Taylor & Francis Journals, vol. 6(1), pages 1701339-170, January.
    12. Andreas Savvides, 1992. "Investment Slowdown in Developing Countries During the 1980s: Debt Overhang or Foreign Capital Inflows?," Kyklos, Wiley Blackwell, vol. 45(3), pages 363-378, August.
    13. Yolcu Karadam, Duygu, 2018. "An investigation of nonlinear effects of debt on growth," The Journal of Economic Asymmetries, Elsevier, vol. 18(C), pages 1-1.
    14. Victor Owusu-Nantwi & Christopher Erickson, 2016. "Public Debt and Economic Growth in Ghana," African Development Review, African Development Bank, vol. 28(1), pages 116-126, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yohanes Maria Vianey Mudayen & Lincolin Arsyad & Rimawan Pradiptyo & Sekar Utami Setiastuti, 2025. "Does Public Debt Encourage Economic Growth? An Application of Quantile Regressions to Panel Data for Developing Countries," Economies, MDPI, vol. 13(4), pages 1-31, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Syed Sadaqat Ali Shah & David Dickinson & Kunyu Tao & Chan Wang & Liqing Zhang, 2025. "The Heterogenous Threshold Effects of Public Debt on Economic Growth: Empirical Evidence from Developing Countries," Open Economies Review, Springer, vol. 36(1), pages 243-280, February.
    2. Kassouri, Yacouba & Altıntaş, Halil & Alancioğlu, Erdal & Kacou, Kacou Yves Thierry, 2021. "New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach," International Economics, Elsevier, vol. 168(C), pages 40-55.
    3. Philipp Heimberger, 2023. "Do higher public debt levels reduce economic growth?," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1061-1089, September.
    4. Leila Ben Ltaief, 2014. "Dette publique et croissance économique : investigation empirique pour la zone euro, l’Union européenne et les pays avancés," L'Actualité Economique, Société Canadienne de Science Economique, vol. 90(2), pages 79-103.
    5. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2015. "“On the bi-directional causal relationship between public debt and economic growth in EMU countries”," IREA Working Papers 201512, University of Barcelona, Research Institute of Applied Economics, revised May 2015.
    6. Blessy Augustine & O.P.C. Muhammed Rafi, 2021. "Public Debt - Economic Growth: Evidence of a Non-linear Relationship," BASE University Working Papers 11/2021, BASE University, Bengaluru, India.
    7. Mohd Yousuf Malik & M. K. Agarwal, 2023. "Impact of public debt on economic growth: a case study of Jammu and Kashmir," SN Business & Economics, Springer, vol. 3(7), pages 1-20, July.
    8. Law, Siong Hook & Ng, Chee Hung & Kutan, Ali M. & Law, Zhi Kei, 2021. "Public debt and economic growth in developing countries: Nonlinearity and threshold analysis," Economic Modelling, Elsevier, vol. 98(C), pages 26-40.
    9. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2015. "The causal relationship between debt and growth in EMU countries," Journal of Policy Modeling, Elsevier, vol. 37(6), pages 974-989.
    10. Gopal Prasad Bhatta, PhD & Anu Mishra, 2020. "Estimating Optimum Growth-Maximizing Public Debt Threshold for Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 32(2), pages 1-28, October.
    11. Mihaela Onofrei & Ionel Bostan & Bogdan Narcis Firtescu & Angela Roman & Valentina Diana Rusu, 2022. "Public Debt and Economic Growth in EU Countries," Economies, MDPI, vol. 10(10), pages 1-23, October.
    12. Oguzhan Bozatli & Seref Can Serin & Murat Demir, 2024. "The causal relationship between public debt and economic growth in G7 countries: new evidence from time and frequency domain approaches," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-27, June.
    13. Séverine MENGUY, 2019. "Does public indebtedness constrain or can it favor economic growth? A simple analytical modeling," Bulletin of Applied Economics, Risk Market Journals, vol. 6(2), pages 1-29.
    14. İbrahim Özmen & Mihai Mutascu, 2024. "Public Debt and Growth: New Insights," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8706-8736, June.
    15. Magdalena Osińska & Tadeusz Kufel & Marcin Błażejowski & Paweł Kufel, 2020. "Modeling mechanism of economic growth using threshold autoregression models," Empirical Economics, Springer, vol. 58(3), pages 1381-1430, March.
    16. Proaño, Christian R. & Schoder, Christian & Semmler, Willi, 2014. "Financial stress, sovereign debt and economic activity in industrialized countries: Evidence from dynamic threshold regressions," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 17-37.
    17. Balázs Égert, 2015. "Public debt, economic growth and nonlinear effects: Myth or reality?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 226-238.
    18. Nicholas Oulton, 2013. "Medium and long run prospects for UK growth in the aftermath of the financial crisis," Discussion Papers 1307, Centre for Macroeconomics (CFM).
    19. Yun Jung Kim & Jing Zhang, 2021. "The Relationship Between Debt and Output," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 230-257, March.
    20. Yannis Dafermos, 2015. "The ‘other half’ of the public debt–economic growth relationship: a note on Reinhart and Rogoff," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 12(1), pages 20-28, April.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:11:y:2023:i:2:p:51-:d:1057542. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.