The World Bank. Following recent concerns about the looming debt crisis in Africa after the HIPC debt relief, this study sought to re-examine the debt threshold effects on growth for Africa using PSTR approach advanced by González et al. (2017) rewrite the Model (1) as follows: From Model (1), testing for linearity is done by either testing the null hypothesis of H0:β0=0 or H0:γ=0. Welcome to EconomicsDiscussion.net! (Intartaglia, Antoniades, & Bhattacharyya, Panel VAR, fixed effect, fixed effect with instrumental variables, system GMM, Panel smooth transition regression (PSTR), Mean, median, winsorized mean & trimmed mean, Highly indebted countries in Euro and non-Euro zone, Minimal spanning tree & hierarchical tree.

(2020), "Threshold effects of public debt on economic growth in Africa: a new evidence", Journal of Economics and Development, Vol. Two of the three studies which revealed the non-existence of non-linear relationship were conducted in the early years of 1851 in Spain (Esteve & Tamarit, 2018) and 1960 onwards in Organization for Economic Cooperation and Development (OECD) and non-OECD countries (Arčabić et al.

For example, construction of public parks.

Underdeveloped countries are inflation-sensitive countries. As a first robustness check therefore, we consider two more control variables, namely, a HIPC completion point dummy to capture the effect of debt relief and inflation. Usually, government bonds are subscribed by the richer income group. Future studies should investigate the effects of public debt on the economic growth in the upper-middle-income economies. Levine, R. and Renelt, D. (1992), “A sensitivity analysis of cross-country growth regressions”, The American Economic Review, Vol. It had a theoretical justification in the belief that government should impose upon itself requirements for orderly debt retirement”. and Woo, J.

352, The impact of high government debt on economic growth and its channels: an empirical investigation for the euro area, Debt, inflation and growth - robust estimation of long-run effects in dynamic panel data models. Public debt, economic growth and nonlinear effects: myth or reality? It will yield neither money revenue nor a future flow of utilities. A sinking fund is a fund for retirement or repayment of funded debt. She writes about the U.S. Economy for The Balance. As a result, the pace of economic growth slows and future living standards will decline.” 3. Disclaimer 8. Baum, A., Checherita-Westphal, C. and Rother, I. Once the debt threshold is reached, further increase in the debt level will slow down the economic growth. Since savings are interest elastic, creation of public debt will raise savings.

For example, Elbadawi et al.

Government spending exerts a negative effect on growth, while the other variables, investment, openness to trade and foreign direct investment, have a positive effect.

The estimated debt threshold for developed countries is found to be much higher than that for developing countries. 1,000 bootstraps (repetitions) and 10 cores are used for WB and WCB tests, PSTR model estimation with two more regressors, Note(s): Between parentheses (.) Is sub-Saharan Africa facing another systemic sovereign debt crisis? The governments can embark with other fiscal initiatives such as providing tax incentives, with an aim to boost the private sector’s contribution as an engine of growth. three regimes. While public debt in the lower regime is either growth neutral (with L-BFGS-B method) or growth enhancing (with CG method), public debt in the upper regime is detrimental to growth for both methods. The control variables are therefore chosen following this growth literature and previous studies on threshold effects modeling (see for example, Kremer et al., 2013; Seleteng et al., 2013). This gives us an area for further research.

Real per capita GDP growth as the level of public debt varies in Africa, 1980–2012, Note(s): Author's calculations using data from IMF (Historical Public Debt database) and WDI (2018).

8) is to achieve higher economic growth (United Nations, 2018). On the other hand, public debt incurred to cover budgetary defi­cits on revenue account or for purposes which do not yield any direct income to the government is classified as unproductive debt. TOS4.

This will be distributed a… A systematic review is aimed to recognize, combine and evaluate all accessible quantitative data obtained from previous literature. "Federal Debt: A Primer." It is otherwise known as redemption by purchase or open market operations. WP/05/223. If interest rates go up on the public debt, they will also rise for all private debt. For middle-income countries, each additional percentage point of debt-to-GDP beyond the threshold reduces annual growth by 0.042% points.

In such a situation it may be difficult for the government to borrow funds from the public in future.

Thus, public debt, in one sense, has the ‘revenue effect’, and, in another sense, has the ‘expenditure effect’. 18 No.

Firstly, as we know, a number of African countries that reached the completion period [5] received debt relief from the World Bank and IMF under the HIPC initiative that started in 1996. The findings were discussed in the next section of this paper. 3673, Domestic Revenue Mobilization and Private Investment, The Regional Economic Outlook, Sub-Saharan Africa, The debt crisis: lessons of the 1980s for the 1990s, Inflation and growth: new evidence from a dynamic panel threshold analysis, Testing for threshold effects in regression models, Journal of the American Statistical Association, A sensitivity analysis of cross-country growth regressions. 201218, CERDI, France. What debt threshold hampers economic growth in Africa? 135-150.

For those two country samples, low public debt is found to be either growth neutral or growth enhancing, but high public debt is found to be detrimental to growth. Thus, additional government spending financed through public borrowing may revive the economy from a state of depression.

Most research has shown that the effects of public debt on economic growth differs across countries; depends on country-specific factors and institutions such as the level of fiscal imbalances, the level of debt sustainability, the level of financial deepening, macroeconomic stability, and political environment. Meanwhile, the non-linear relationship was further divided into six sub-themes based on a debt-to-GDP threshold. Table 2. To test that null hypothesis, González et al.

For these high-performing economies, the debt threshold is lower due to the lack of investments since the investors fear that the governments will impose higher taxes to finance the debt.

On the contrary, during depression, when the borrowed funds are utilized for development projects, it will generate addi­tional purchasing power, employment and income. 28 No. Eberhardt, M. and Presbitero, A. A reduction in the level of national savings will force the interest rate to increase, thus demotivate incoming investors. When the government resorts to this method of liquidating its public debt, the credit of the government suffers.

(2012), “Is high public debt always harmful to economic growth? For governments, borrowing is essentially an alternative means of raising revenue to cover expenditures. That is it can be freely bought and sold in the market. It usu­ally carries a high rate of interest. Prof. Pigou advocated a steep levy on all forms of wealth including estates, machinery, stocks, bonds etc., owned by individuals. The estimated slope parameter (γ) is also statistically significant although it is much higher for the estimation with CG method. In fact, one of the major objectives of government borrowing today is to strengthen the economy by freeing it from the evils of depres­sions and also to build up the economy and stable economic growth.

Short-Term, Medium-Term and Long-Term Debt: 2. Africa Growth Initiative at Brookings, Policy Brief, The debt overhang and the disincentive to invest, Social cohesion, institutions, and growth, Public debt and growth: heterogeneity and non-linearity. and Raissi, M. (2017), “Is there a debt-threshold effect on output growth?”, The Review of Economics and Statistics, Vol. 809-821.

Coupled with these unplanned and unexpected emergency situations like flood, famine, natural calamities etc. This is also called Annual Repayment method. On the principles of political economy and taxation, The debt overhang of developing countries, New tests of the life cycle and tax discounting hypothesis, Uninted Kingdom.

How does public debt affect economic gro .... https://doi.org/10.1080/23311975.2019.1701339, https://www.un.org/sustainabledevelopment/, Medicine, Dentistry, Nursing & Allied Health, TITLE-ABS-KEY ((”public debt” OR ”government debt”) AND (”economic growth” OR ”GDP” OR ”national income”)) AND (LIMIT-TO (PUBSTAGE, ”final”)) AND (LIMIT-TO (PUBYEAR, 2019) OR LIMIT-TO (PUBYEAR, 2018) OR LIMIT-TO (PUBYEAR, 2017)) AND (LIMIT-TO (DOCTYPE, ”ar”) OR LIMIT-TO (DOCTYPE, ”re”)) AND (LIMIT-TO (LANGUAGE, ”English”)) AND (LIMIT-TO (SRCTYPE, ”j”)), Book chapter, review, conference paper, book, editorial, business article, conference review, erratum and short survey, Books, conference proceedings, book series and trade publications, High-income economies (including European Union countries).

45-58. It measures debt owned by the public separately from intragovernmental debt. The quantitative review was conducted by analyzing all 33 articles that have been selected. For instance, in 1917, Soviet Russia repudiated all the internal and external obliga­tions of the state. Short term debts are those debts which mature within a period of three to six months. A systematic review, Department of Finance and Economics, Universiti Teknologi MARA , Melaka, Malaysia, Public debt and economic growth – Economic systems matter, Growth in a time of austerity: Evidence from the UK, Public debt and economic growth Conundrum: Nonlinearity and inter-temporal relationship, Factors hindering economic development: evidence from the mena countries, Crowding-out or crowding-in? However, in extreme cases a government may be forced to repudiate its internal or external debt obligations. For instance, investment affects growth in both regimes, growth in the terms of trade affects economic growth only in the lower debt regime, while population growth and openness to trade affect growth only in the upper debt regime. Under this method, the government may redeem its debt through buying up loans from the market. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. The debt-to-GDP ratio gives an indication of how likely the country can pay off its debt. In October 2020, the total U.S. debt was over $27 trillion. Where did all the growth go? (2019).

However, if public debt is purchased by the individuals, utilizing their idle funds, it will not adversely affect private investment.

And, government spending has the multiplier effect on income and employment. Under this method public debt is repaid in equal installments which include both the interest and the principal, it is done annually.

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