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Investigating asymmetric effects of public debt on economic growth in South Africa: a smooth transition regression (STAR) approach

Bongumusa Prince Makhoba (Economics, University of Zululand, KwaDlangezwa, South Africa)
Irrshad Kaseeram (Economics, University of Zululand, KwaDlangezwa, South Africa)
Lorraine Greyling (Economics, Faculty of Commerce Administration and Law, University of Zululand, KwaDlangezwa, South Africa)

African Journal of Economic and Management Studies

ISSN: 2040-0705

Article publication date: 13 August 2021

Issue publication date: 18 August 2021

322

Abstract

Purpose

The primary purpose of the study is to analyse the asymmetric effects of public debt on economic growth, using secondary data over the period 1980–2018 in South Africa.

Design/methodology/approach

This study estimated a Smooth Transition Regression (STAR) and Nonlinear Autoregressive Distributed Lag (NARDL) approach, using time series data to analyse the asymmetric effect of public debt on economic growth in South Africa.

Findings

The findings revealed a significant nonlinear relationship between public debt and economic growth in South Africa. The results showed an inverted U-Shape relationship, implying a significant positive influence of public debt on economic growth during the low-debt regime. While during a high-debt regime, public debt exerted a significant negative effect on economic growth. The study proposes that policymakers ought to consider targeting a sustainable debt threshold that would enhance efficient use of public finances consistent with long-term economic prosperity.

Originality/value

This paper asymmetries and threshold effects between public debt and economic growth in South Africa, through the application of dynamic nonlinear models namely, Smooth Transition Regression (STAR) and Nonlinear Autoregressive Distributed Lag (NARDL) approach. Studies on the relationship under examination have predominantly been confined in advanced economies. This study provides rigorous empirical evidence from the South African perspective.

Keywords

Citation

Makhoba, B.P., Kaseeram, I. and Greyling, L. (2021), "Investigating asymmetric effects of public debt on economic growth in South Africa: a smooth transition regression (STAR) approach", African Journal of Economic and Management Studies, Vol. 12 No. 3, pp. 486-498. https://doi.org/10.1108/AJEMS-02-2021-0072

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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