Fiscal policy, sovereign debt and economic growth in SADC economies: A panel vector autoregression analysis

Abstract

This study estimates a Panel Vector Autoregressive (PVAR) approach to analyse the impact of fiscal policy and public debt on economic growth in Southern African Developing Communities (SADC). The study further estimated the fixed effects (FE) and random effects (RE) to verify the robustness of empirical findings. The results provide rigorous empirical evidence of a positive response of GDP growth due to shocks in government expenditure, employment, and public debt while gross capital formation exerts a negative effect on economic growth. The study proposes that fiscal authorities ought to focus on the adoption of prudent fiscal policies as a credible stabilization tool at the disposal of policymakers to safeguard stable and yet productive public finances consistent with sustainable economic prosperity. These may include addressing infrastructural development, soaring fiscal deficit, creation of jobs, and creating a conducive environment for both labour and capital-intensive projects to flourish in the SADC economies.

Keywords:

• fiscal policy
• public debt
• economic growth
• panel vector autoregressive

PUBLIC INTEREST STATEMENT

Over the recent years, SADC members have recorded a soaring fiscal deficit with sluggish economic growth rate. Such trends remain a major economic concern for these developing economies. This economic condition has been worsening over the last decade due to structural economic issues which contribute to slow economic growth and accumulating sovereign debt. The primary purpose of this study is to empirically analyse the impact of fiscal policy and public debt on economic growth in Southern African Developing Communities. A Panel Vector Autoregressive (PVAR) approach was employed in the study allows us to investigate interrelationships between fiscal policy instruments and economic growth in SADC. The results of the study revealed a positive response to GDP growth due to innovative shocks in fiscal policy adjustments such as government expenditure, public debt, and employment. The findings of this research ought to be valuable to fiscal authorities among SADC members for economic policy analysis.

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 advanced econometric methods for economic policy analysis, as his area of research interest.