Threshold Effects of Sovereign Debt: Evidence From the Caribbean
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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. 2012/157
Subject:
Econometric analysis Expenditure External debt Fiscal policy Fiscal stance Public debt Threshold analysis
English
Publication Date:
June 1, 2012
ISBN/ISSN:
9781475504507/1018-5941
Stock No:
WPIEA2012157
Pages:
23
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