Is there a debt-threshold effect on per capita GDP growth in South Africa? : A threshold regression model

Woldu, Gabriel Temesgen and Szakálné Kanó, Izabella (2023) Is there a debt-threshold effect on per capita GDP growth in South Africa? : A threshold regression model. HUNGARIAN STATISTICAL REVIEW, 6 (1). pp. 32-54. ISSN 2630-9130

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Abstract

The effect of public indebtedness on output has attracted much public attention in the aftermath of the financial crisis. The study examined the impact of public debt on per capita GDP growth of South Africa using quarterly data spanning from 1960 to 2019. This study applied the threshold regression model to find the tipping point of public debt at an aggregated level and disaggregated level, domestic and foreign debt. The findings of the threshold regression revealed a non-linear impact of total public debt; domestic debt and foreign debt on growth with a turning point – beyond which the debt-to-GDP ratio has a negative impact on long-term growth at about 34.9 percent, 30.3 percent and 4.19 percent of GDP respectively. The findings of this study rule out the policy option for excessive dependence on higher debt to stimulate economic growth for South Africa. Thus, the South African government should ensure that public debt management policies are consistent with the growth-maximizing public debt threshold.

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