Asymmetric effects of public debt on economic growth: Evidence from emerging and frontier SADC economies

Abstract

This study interrogates asymmetric effect of public debt on economic growth among selected emerging and frontier SADC economies. The study estimates a smooth transition regression (STAR) to analyse asymmetric relationship between public debt and economic growth using time series data from 2000 to 2018, extracted from the World Development Indicators. The findings indicate a strong evidence of a significant asymmetric relationship between public debt and growth among emerging and frontier SADC members under consideration. The results revealed the inverted U-Shape effect of public debt on growth in South Africa. While the results for Botswana, Namibia, Zambia and Zimbabwe indicate that there is a U-Shape relationship between public debt and economic growth. The study suggest that policymakers ought to consider curbing public debt level within a sustainable threshold target in order to reduce accompanying debt serving costs, and efficiently use public finances consistent with sustainable economic expansion.

Keywords:

• Public debt
• Economic growth
• Smooth Transition Regression
• SADC

PUBLIC INTEREST STATEMENT

Over the years, the majority of African economies have recorded unsatisfactory levels of economic growth including SADC members. One of the major causes of such an unpleasant economic climate is the lack of well-coordinated public finances and fiscal indiscipline. The primary focus of this research paper is to analyse dynamic asymmetric effects of public debt on economic growth among selected emerging and frontier SADC economies. This paper allows us to analyse the net effect of the low-debt regime and high-debt regime on economic growth through the estimation of a Smooth Transition Regression approach. The empirical findings of the study indicate that there is an inverted U-Shape effect of public debt on growth in South Africa while Botswana, Namibia, Zambia, and Zimbabwe exerted a U-Shape relationship between public debt and economic growth. The study advocate for a regulated common debt threshold target for SADC members to promote healthy public finances consistent with sustainable regional economic integration and development.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Bongumusa Prince Makhoba

Bongumusa Prince Makhoba is a lecturer at the University of Zululand, Department of Economics. Dr. Makhoba holds a Ph.D. in Economics from the University of Zululand. He has published several research articles in various accredited peer-reviewed economics journals in Development Economics, Macroeconomics, and Public Economics with the application of cutting-edge econometric methods for economic policy analysis, as his main area of research expertise.