New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach

Kassouri, Yacouba; Altıntaş, Halil; Alancıoğlu, Erdal; Kacou, Kacou Yves Thierry

doi:10.1016/j.inteco.2021.08.001

Cited by 15 publications

(10 citation statements)

References 59 publications

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“…This implies that an improvement in the performance of an economy propels public borrowing. Some empirical studies have examined these theories/postulations (see Kassouri et al, 2021;Law et al, 2021;among others), and the current study further advances these discussions with special focus on nonlinearity and threshold effect from the perspectives of both emerging and developed economies.…”

Section: Theoretical Literaturementioning

confidence: 91%

“…Under risk diversification, the access to safe government assets allows banks to take more risk and thus increase their lending to the private sector leading to crowding-in effect (Chebet and Kiemo, 2017). In addition, Kassouri et al (2021) argue that the crowding-in effect is only significant in the short-run when countries are in their early stages of economic development and possess little amount of capital stock. Conversely, the liquidity constraint and debt overhang hypotheses hold that public debt negatively influences investment and by extension economic growth.…”

Section: Theoretical Literaturementioning

confidence: 99%

“…In this sense, there is likelihood of an inverted U-shaped relationship between debt and growth, implying that higher debt levels are associated with lower long-run productivity (Eberhardt and Presbitero, 2015). Meanwhile, reasons have been alluded to regarding the heterogeneous relationship between debt and growth (see Kassouri et al, 2021).…”

Section: Theoretical Literaturementioning

confidence: 99%

“…The new thinking in the debt sustainability analysis is the possibility of nonlinearity between public debt and private investment, whereby the former can either stimulate or undermine the latter depending on the threshold level of public debt (see Chang and Chiang, 2011;Lau et al, 2019;Mabula and Mutasa 2019;Caner et al, 2021;Kassouri et al, 2021;Law et al, 2021). However, there is no study, to the best of our knowledge, that offers a broader perspective to the subject matter whereby the nexus is conducted distinctly for a group of emerging economies as well as the developed economies and whereby a threshold level of debt is simultaneously determined.…”

Section: Introductionmentioning

confidence: 99%

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A Note on Public Debt-Private Investment Nexus in Emerging Economies

Penzin

Salisu

Akanegbu³

2022

BEMP

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We examine the effect of public debt on private investment in selected emerging economies. Using a panel threshold regression model, we estimate a threshold value of about 3 percent, on average, below which public debt stimulates private investment. Our additional analysis involving selected developed economies suggests that the crowding out effect is less evident relative to the emerging economies as higher public debt stocks do not seem to significantly undermine their private investments. These results have implications for debt sustainability and maintaining a reasonable public debt–GDP ratio is crucial for sustainable investment growth.

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Section: Theoretical Literaturementioning

confidence: 91%

Section: Theoretical Literaturementioning

confidence: 99%

Section: Theoretical Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A Note on Public Debt-Private Investment Nexus in Emerging Economies

Penzin

Salisu

Akanegbu³

2022

BEMP

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“…The findings indicate that the increase in public debt raises long‐term interest rates, increases taxation, and creates greater uncertainty, and vulnerability, especially when debts exceed a certain threshold. Kassouri et al (2021) and Law et al (2021) found a public debt threshold of 25.09 and 51.65 (percentage of GDP) respectively, beyond which debt exerts a negative impact on economic growth in developing countries.…”

Section: Review Of Literaturementioning

confidence: 99%

Macroeconomic implications of escalating stock of public debt: Evidence from sub‐Saharan African economies

Olaoye¹,

Tabash

Omokanmi³

et al. 2022

African Development Review

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The study investigated the effect of public debts on macroeconomic indicators, such as inflation and the exchange rate, using a panel of 25 sub-Saharan African (SSA) economies. The study contributed to extant studies by looking at the separate effect of domestic and foreign debts on inflation and exchange rate. We adopted a battery of econometric tools such as the Driscoll-Kraay standard errors and the dynamic panel threshold model. The results show that foreign debts worsen the inflation rate and expose the economy to unanticipated movements in the exchange rate, whereas domestic debts help to reduce the inflationary pressure. The study also found a nonlinear relationship between public debts and macroeconomic indicators of inflation and exchange rates. This implies the further accumulation of foreign debt will heighten the inflation rate and expose the region to unanticipated movements in the exchange rate. The study recommends that governments and policymakers in SSA should ensure that foreign debts are sufficiently hedged against currency and interest rate risks to reduce the exposure of SSA economies to exchange rate risks. The study also recommends that governments adhere strictly to the maximum debt limit of 60.59% (of gross domestic product), otherwise inflation and exchange rates may worsen.domestic debts, exchange rate, foreign debts, inflation, public debt | INTRODUCTIONOne major issue that is attracting the attention of scholars and policymakers globally, and in sub-Saharan African (SSA) countries, in particular, is the rapid increase in the level of public debts over the last few decades (Akram, 2016;

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Soaring inflation in sub-Saharan Africa: A fiscal root?

Olaoye¹,

Omokanmi²,

Tabash

et al. 2023

Qual Quant

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The study investigates the effect of fiscal policy on the inflation rate in a panel of 44 sub-Saharan African (SSA) countries over the period 2003–2020 using a non-linear system generalized method of moments (system GMM) and the dynamic panel threshold estimation techniques. The results show that the recent increase in inflation rate has a fiscal nature and that monetary policy alone may not provide an effective response. Specifically, the results indicate that a positive shock to fiscal policy (captured by public debts) has a positive and statistically significant effect on inflation, while a negative shock to public debt has a statistically non-significant impact on the inflation rate. Also, money supply exerted a positive and insignificant impact on inflation, indicating that the current inflation rate in the region may not be induced by money supply. However, the joint effect of public debts and money supply shows that public debts aid the effect of money supply on the inflation rate, albeit, not in the proportion predicted by the quantity theory of money. Further, the results also found a public debt threshold point of 60.59% of GDP. This implies the current inflationary pressure may be rooted in fiscal policy and that further accumulation of public debts beyond the benchmark established in the study would worsen the inflationary pressure in SSA. Importantly, the study found that for fiscal policy to spur growth and reduce inflationary pressure in SSA, the inflation rate should be managed and brought within a single-digit framework of 4%. The research and policy implications are discussed.

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New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach

Cited by 15 publications

References 59 publications

A Note on Public Debt-Private Investment Nexus in Emerging Economies

A Note on Public Debt-Private Investment Nexus in Emerging Economies

Macroeconomic implications of escalating stock of public debt: Evidence from sub‐Saharan African economies

Soaring inflation in sub-Saharan Africa: A fiscal root?

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