IMF Working Papers

Threshold Effects of Sovereign Debt: Evidence From the Caribbean

By Lisa Drakes, Chrystol Thomas, Roland Craigwell, Kevin Greenidge

June 1, 2012

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Lisa Drakes, Chrystol Thomas, Roland Craigwell, and Kevin Greenidge. Threshold Effects of Sovereign Debt: Evidence From the Caribbean, (USA: International Monetary Fund, 2012) accessed November 21, 2024
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.

Subject: Econometric analysis, Expenditure, External debt, Fiscal policy, Fiscal stance, Public debt, Threshold analysis

Keywords: Caribbean, CARICOM government, Debt level, Debt Problems, Debt Threshold, Debt variable, Fiscal stance, GDP cost, GDP ratio, Government spending, Growth rate, Growth-reducing effect debt, Least squares, Panel Data, Percentage point, Real GDP, Threshold analysis, Threshold debt regression, Threshold estimation technique, Threshold estimation techniques of Hansen, Threshold Regressions, WP

Publication Details

  • Pages:

    23

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/157

  • Stock No:

    WPIEA2012157

  • ISBN:

    9781475504507

  • ISSN:

    1018-5941

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