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Economic Growth and Public Debt Threshold: New Evidence from An Emerging Economy

Author

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  • Sagire, Lucas

    (Indonesian Ministry of Finance - Directorate General of Taxes, Indonesia)

  • Muriu, Peter W.

    (Indonesian Ministry of Finance - Directorate General of Taxes, Indonesia)

Abstract

The threshold beyond which debt accumulation hinders economic growth in Kenya has not been established. This paper sought to investigate whether a threshold exists in the country’s debt level and its influence on economic growth beyond the threshold. Using annual data from 1980 to 2018, threshold regression technique and statistical loss functions, we found out that there exists a debt-to-GDP threshold of 55.5%. Beyond the threshold, a 10% increase in debt leads to a 1.4% decline in growth. As such, during periods of high debt, policymakers may have to rely on robust economic growth to ensure debt sustainability.

Suggested Citation

  • Sagire, Lucas & Muriu, Peter W., 2021. "Economic Growth and Public Debt Threshold: New Evidence from An Emerging Economy," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 46(4), pages 105-120, December.
    • Handle: RePEc:ris:jecdev:0038
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    References listed on IDEAS

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    More about this item

    Keywords

    Public Debt; Economic Growth; Threshold Regression; Statistical Loss Functions;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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