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№3 (37) 2019

Demography and social economy, 2019, 3(37): 99-112
doi: https://doi.org/10.15407/dse2019.03.099
UDC 330.55; 330.56(680)

PhD in economic
University of Johannesburg, South Africa
524, South Africa, Johannesburg, Gauteng, 2006, Auckland Park
E-mail: mrmaleka@uj.ac.za
ORCID 0000-0003-0383-9242

PhD in economic
University of Johannesburg, South Africa
524, South Africa, Johannesburg, Gauteng, 2006, Auckland Park
E-mail: mbiyase@uj.ac.za
ORCID 0000-0003-1857-3205

PhD in economic
University of Johannesburg, South Africa
524, South Africa, Johannesburg, Gauteng, 2006, Auckland Park
E-mail: ttzwane@uj.ac.za
ORCID 0000-0003-4039-9944

Language: English
Abstract: Previous research regarding the effect that government debt might have on economic growth has produced mixed results. This can be attributed to the fact that the estimated threshold (the idea of debt threshold level –turning point, above which debt starts reducing economic growth) varies from one study to another, providing inadequate insight regarding the optimal debt level. Related to this point is the fact that previous studies have based their analysis on a single aggregate list of countries, regardless of the disparities in levels of development. The aim of this study is to revisit the relationship between government debt and economic growth in a sample of 10 Southern African Development Community (SADC) members from 1995 to 2017. This study attempts to fill the gap by disaggregating the SADC data into different samples: full sample and a sample of non-Heavily Indebted Poor Countries and employs the fixed effects two-stage least squares (FE-2SLS) estimator to account for possible endogeneity bias due to reverse causation between government debt and economic growth. Results are presented for the entire sample and sub-sample (non-Heavily Indebted Poor Countries). While the impacts of government debt are similar in direction (negatively related to economic growth) for the full and sub-sample, it is not significantly related with economic growth in the sub-sample. That is, the estimated coefficient varies substantially, depending on the particular sample of countries chosen. This implies that government debt has impact on growth when a single aggregate list of countries is analyzed, while it becomes insignificant when a sub-sample of non-Heavily Indebted Poor Countries is considered. In addition, this study also finds that Inflation, military expenditure and trade openness have a negative significant relationship with government debt in SADC. However, population growth and investment were found to have a significant positive relationship with government debt
Key words: Government Debt, Economic Growth, SADC, Fixed Effect.
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