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Threshold Effects of Sovereign Debt: Evidence From the Caribbean
Author:
Ms. Lisa Drakes null

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Ms. Chrystol Thomas null

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Roland Craigwell null

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Kevin Greenidge null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 157
Language:
English
Publication Date:
01 Jun 2012
DOI:
https://doi.org/10.5089/9781475504507.001
ISBN:
9781475504507
ISSN:
1018-5941
Pages:
23
Keywords:
WP; real GDP; least squares; percentage point; Debt Problems; Debt Threshold; Panel Data; Threshold Regressions; threshold estimation technique; growth rate; GDP ratio; growth-reducing effect debt; CARICOM government; threshold debt regression; debt variable; debt level; government spending; GDP cost; threshold estimation techniques of Hansen; Threshold analysis; Fiscal stance; Caribbean
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55-56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund