Threshold Effects of Sovereign Debt : Evidence From the Caribbean

Author/Editor: Lisa Drakes ; Chrystol Thomas ; Roland Craigwell ; Kevin Greenidge
Publication Date: June 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 12/157
Subject(s): Debt problems | Economic growth | Public debt | Sovereign debt

Author's Keyword(s): Debt Problems | Debt Threshold | Panel Data | Threshold Regressions
Publication Date: June 01, 2012
ISBN/ISSN: 9781475504507/1018-5941 Format: Paper
Stock No: WPIEA2012157 Pages: 23
US$18.00 (Academic Rate:
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