The findings of this study show that there is no single debt threshold applicable to all African countries; for some groups of countries, nonlinearity in the debt-growth relationship was even rejected. Yet there is a distinction between them. By employing the same ARDL method, the results were different in the case of Malaysia (Burhanudin et al., 2017). Thanh, S.D. Therefore, in modern days, the fund does not accumulate or continue from year to year as explained earlier. This indicates how likely it is that the country will default on its debt.. The important methods are explained below: One simple way of throwing of the burden of debt is to repudiate it. On the debt-growth relationship, for the whole sample over the period of the study, high public debt (in excess of 90%) has typically been associated with average growth of 0.2% vs 2.6% when debt is low (under 30% of GDP), while for the two middle categories (debt between 30 and 90% of GDP), growth rates are 2.1% and 1.5%, respectively. 1, pp. Public debt and economic growth: Is there a causal effect? Since the estimated model is found to be adequate, we continue to the next step of interpreting the results from the estimated PSTR model presented in Table 4. The results of the second and third robustness checks are presented in Tables 7–10. (2017), “Panel smooth transition regression models”, CREATES Research Paper No. Hence the government must find the necessary resources to repay its debt obligation. The debt level that is beyond 90% of the GDP indicates that the countries are among the highly indebted countries. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. 2007:q3–2016:q4). It should be noted that all these variables passed the robustness tests of Levine and Renelt (1992) and Sala-i-Martin (1997). In addition, from one debt category to another, average growth rate seems to decline by the same percentage points except for the last debt category (beyond 90%). The studies that found the threshold to be 90% and above were conducted in Lebanon (Taher, 2017), Israel (Shahor, 2018) and Greece (Pegkas, 2018, 2019). "The Debt to the Penny and Who Holds It." Section 5 presents and discusses the empirical results. In the second extreme regime, coefficients show the marginal effect of the explanatory variables (threshold variable and other control variables) when public debt exceeds the threshold; as discussed in the methodological section, this is captured by β0+ β1. It must be large enough to drive economic growth but small enough to keep interest rates low. That's based on the second quarter 2020 GDP of $19.5 trillion. According to the World Bank, the public debt tipping point is 77%., That could make the owners of the U.S. debt insist on higher interest rates. 2, pp. Lean Library can solve it. Account Disable 11. Developing economics, experiencing capital shortage, usually depend upon borrowed money to finance various development projects. (2011), “Testing for threshold effects in regression models”, Journal of the American Statistical Association, Vol. (2003), Economic Growth, 2nd ed., MIT Press, Cambridge and London. What Is the Public Debt, and When Is It Too High? On the contrary, during depression, when the borrowed funds are utilized for development projects, it will generate additional purchasing power, employment and income. Chudik, A., Mohaddes, K., Pesaran, M.H. Correspondingly debts are serviced and repaid through taxation imposed on the richer income group. In deriving the answers, a systematic review was conducted on selected articles that discussed the relationship between public debt and economic growth. Openness, productivity and growth: what do we really know? It is also called dead-weight debt. The quantitative review was conducted by analyzing all 33 articles that have been selected. The effect depends on the amount of debt and its purposes. These loans are drawn from the central bank by using the credit instrument of treasury bills. As a fourth robustness check, to deal with the potential endogeneity of debt, this study applies a dynamic panel threshold model of Seo and Shin (2016) in which the threshold variable and regressors are allowed to be endogenous.
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