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Threshold Effect of Public Debt on Economic Growth: An Empirical Investigation for Selected North African Countries

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  • Wissem Khanfir

Abstract

In this paper, we examine the non-linear relationship between public debt and economic growth, using panel data for 4 North African countries (Tunisia, Algeria, Morocco and Egypt) from 2003 to 2012. Applying a Panel Threshold Regression (PTR) model proposed by Hansen (1999), we got empirical results indicating that public debt lower than 42,8% of GDP is positively effected by economic growth. However, beyond this threshold of public debt, this relationship becomes negative, which implies that public debt seems to reduce economic growth. Therefore, the policy implication is to address fiscal consolidation and reduce public debt so as to stimulate the economic growth of the 4 North African countries.

Suggested Citation

  • Wissem Khanfir, 2019. "Threshold Effect of Public Debt on Economic Growth: An Empirical Investigation for Selected North African Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 429-436, September.
    • Handle: RePEc:nwe:eajour:y:2019:i:3:p:429-436
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    Cited by:

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    More about this item

    Keywords

    economic growth; Public debt; PTR model;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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