IDEAS home Printed from https://ideas.repec.org/a/ksp/journ1/v2y2015i2p262-275.html
   My bibliography  Save this article

Relationship between Economic Growth and Debt: An Empirical Analysis for Sub-Saharan Africa

Author

Listed:
  • Mohammed Ershad HUSSAIN
  • Mahfuzul HAQUE
  • Richard S. IGWIKE

    (Dillard University, USA)

Abstract

In this study, we examine the connection between economic growth and debt, with the question in mind -“Is debt a burden and bad for economic growth? Employing several sophisticated statistical approaches to investigate the problem and to assess the impact of debt on economic growth in 48 countries of Sub-Saharan Africa from 1995 to 2012, we find evidence of Granger causality between debt and economic growth in 8 out of the 48 sub-Saharan countries during the period of study and validate for the existence of “Debt Laffer Curve.” We also study the relationship between debt and economic growth rate in Granger causality and Dynamic Arellano-Bond panel data estimation frameworks, and find evidence of a negative correlation between the two variables (Debt and GDP) and confirm the findings by testing several versions of the models. Political decision and economic policy are intertwined and need to be examined carefully when implemented for economic growth and our findings lend credence to the politically unpopular austerity measures (constraints on government spending financed by borrowing). There is a limit to the economic growth rate that the government financed expenditure can bring. If the burden of debt is too high then there is a negative impact of debt on the economic growth.

Suggested Citation

  • Mohammed Ershad HUSSAIN & Mahfuzul HAQUE & Richard S. IGWIKE, 2015. "Relationship between Economic Growth and Debt: An Empirical Analysis for Sub-Saharan Africa," Journal of Economics and Political Economy, KSP Journals, vol. 2(2), pages 262-275, June.
    • Handle: RePEc:ksp:journ1:v:2:y:2015:i:2:p:262-275
    as

    Download full text from publisher

    File URL: http://www.kspjournals.org/index.php/JEPE/article/download/222/387
    Download Restriction: no
    File URL: http://www.kspjournals.org/index.php/JEPE/article/view/222
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    2. 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, Oxford University Press, vol. 38(2), pages 257-279.
    3. Panizza, Ugo & Presbitero, Andrea F., 2014. "Public debt and economic growth: Is there a causal effect?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 21-41.
    4. Balázs Égert, 2015. "Public debt, economic growth and nonlinear effects: Myth or reality?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 226-238.
    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. Evelyn Wamboye & Kiril Tochkov, 2015. "External Debt, Labour Productivity Growth and Convergence: Evidence from Sub-Saharan Africa," The World Economy, Wiley Blackwell, vol. 38(5), pages 856-877, May.
    7. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
    8. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank.
    9. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
    10. Manasse, Paolo & Roubini, Nouriel, 2009. ""Rules of thumb" for sovereign debt crises," Journal of International Economics, Elsevier, vol. 78(2), pages 192-205, July.
    11. Baum, Anja & Checherita-Westphal, Cristina & Rother, Philipp, 2013. "Debt and growth: New evidence for the euro area," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 809-821.
    12. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 2010/245, International Monetary Fund.
    13. Ugo Panizza & Andrea F. Presbitero, 2013. "Public Debt and Economic Growth in Advanced Economies: A Survey," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 175-204, June.
    14. Mr. S. M. Ali Abbas & Mr. Jakob E Christensen, 2007. "The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets," IMF Working Papers 2007/127, International Monetary Fund.
    15. Carmen M. Reinhart, 2010. "This Time is Different Chartbook: Country Histories on Debt, Default, and Financial Crises," NBER Working Papers 15815, National Bureau of Economic Research, Inc.
    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. N. Mhlaba & A. Phiri, 2019. "Is public debt harmful towards economic growth? New evidence from South Africa," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1603653-160, January.
    2. Callistus Tabansi Okeke & Chinwe Ann Anisiobi & Chinwe Monica Madueke, 2023. "Public Debt and Economic Growth: Empirical Evidence from Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(3), pages 705-718, March.
    3. Raymond Osi Alenoghena & Justin Amase & Adolphus Arhotomhenla Aghughu, 2022. "The Threshold Effect of Domestic Public Borrowing on the Nigerian Economy," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(5), pages 824-833, May.
    4. H.R.A. Chamini Thilanka & J.G. Sri Ranjith, 2018. "The Impact of Public Debt on Private Investment: Sri Lankan Experience," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 8(8), pages 1-20, August.
    5. Theshne Kisten, 2023. "Macro-financial implications of public debt in South Africa: The role of financial regimes," WIDER Working Paper Series wp-2023-76, World Institute for Development Economic Research (UNU-WIDER).
    6. H.R.A. Chamini Thilanka & J.G. Sri Ranjith, 2018. "The Impact of Public Debt on Private Investment: Sri Lankan Experience," International Journal of Business and Social Research, LAR Center Press, vol. 8(8), pages 1-20, August.
    7. Teboho Jeremiah Mosikari & Joel Hinaunye Eita, 2021. "Asymmetric effect of government debt on GDP growth: evidence from Namibia," Public Sector Economics, Institute of Public Finance, vol. 45(4), pages 543-558.
    8. Bitar, Nicholas & Chakrabarti, Avik & Zeaiter, Hussein, 2018. "Were Reinhart and Rogoff right?," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 614-620.
    9. Sylvester Ohiomu, 2020. "External Debt and Economic Growth Nexus: Empirical Evidence From Nigeria," The American Economist, Sage Publications, vol. 65(2), pages 330-343, October.

    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. Markus Eberhardt & Andrea Filippo Presbitero, 2013. "This Time They're Different: Heterogeneity;and Nonlinearity in the Relationship;between Debt and Growth," Mo.Fi.R. Working Papers 92, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Balázs Égert, 2015. "Public debt, economic growth and nonlinear effects: Myth or reality?," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 226-238.
    3. Bitar, Nicholas & Chakrabarti, Avik & Zeaiter, Hussein, 2018. "Were Reinhart and Rogoff right?," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 614-620.
    4. Talknice Saungweme & Nicholas M. Odhiambo, 2019. "Does Public Debt Impact Economic Growth in Zambia? An Ardl-Bounds Testing Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(4), pages 53-73, October-D.
    5. Swamy, Vighneswara, 2015. "Government Debt and Economic Growth – Decomposing the Cause and Effect Relationship," MPRA Paper 64105, University Library of Munich, Germany.
    6. Cândida Ferreira, 2016. "Debt and Economic Growth in the European Union: A Panel Granger Causality Approach," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(2), pages 131-149, May.
    7. Swamy, Vighneswara, 2015. "The Dynamics of Government Debt and Economic Growth," MPRA Paper 63693, University Library of Munich, Germany.
    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. Nikolaos Antonakakis, 2014. "Sovereign Debt and Economic Growth Revisited: The Role of (Non-)Sustainable Debt Thresholds," Department of Economics Working Papers wuwp187, Vienna University of Economics and Business, Department of Economics.
    10. Markus Eberhardt, 2013. "Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing," Discussion Papers 2013/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    11. Ahmed MAAROUFI & Ghazi BOULILA, 2021. "Non-linear effect of public debt on economic growth: The case of Tunisia," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(629), W), pages 121-134, Winter.
    12. Goldberg, Andrew & Romalis, John, 2015. "Public Debt and Growth in U.S. States," Working Papers 2015-10, University of Sydney, School of Economics.
    13. Guerini, Mattia & Moneta, Alessio & Napoletano, Mauro & Roventini, Andrea, 2020. "The Janus-Faced Nature Of Debt: Results From A Data-Driven Cointegrated Svar Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 24(1), pages 24-54, January.
    14. Haytham Y.M. Ewaida, 2017. "The Impact of Sovereign Debt on Growth: An Empirical Study on GIIPS versus JUUSD Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 607-633.
    15. 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.
    16. De Vita, Glauco & Trachanas, Emmanouil & Luo, Yun, 2018. "Revisiting the bi-directional causality between debt and growth: Evidence from linear and nonlinear tests," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 55-74.
    17. Ruthira Naraidoo & Leroi Raputsoane, 2015. "Debt Sustainability and Financial Crises in South Africa," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(1), pages 224-233, January.
    18. Balẳ Égert, 2015. "The 90% public debt threshold: the rise and fall of a stylized fact," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3756-3770, July.
    19. Jos Mauricio Gil Le n & John William Rosso Murillo & Edgar Alonso Ramirez Hern ndez, 2019. "Public Debt and Stability in Economic Growth: Evidence for Latin America," International Journal of Economics and Financial Issues, Econjournals, vol. 9(4), pages 137-147.
    20. Eberhardt, Markus & Presbitero, Andrea F., 2015. "Public debt and growth: Heterogeneity and non-linearity," Journal of International Economics, Elsevier, vol. 97(1), pages 45-58.

    More about this item

    Keywords

    Economic Growth; Debt; Laffer curve and Investments.;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    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:ksp:journ1:v:2:y:2015:i:2:p:262-275. 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: Bilal KARGI (email available below). General contact details of provider: http://www.kspjournals.org .

    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.