Public Debt, Economic Growth and Inflation in African Economies

José Augusto Lopes da Veiga,Alexandra Ferreira‐Lopes,Tiago Neves Sequeira

doi:10.1111/saje.12104

José Augusto Lopes da Veiga, Alexandra Ferreira‐Lopes + Show 1 more

Open Access

https://doi.org/10.1111/saje.12104

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Abstract

AbstractWe analyse the relationship between public debt, economic growth and inflation in a group of 52 African economies between 1950 and 2012. The results indicate that the limits of public debt are negatively related to economic growth and exhibit, from a given level of debt, an inverted U behaviour regarding the relationship between economic growth and public debt. Briefly, the high levels of public debt are coincident with reduced rates of economic growth and rising levels of inflation. Our results for three specific geographical areas resemble those of the overall analysis, despite some differences. In North African countries, the growth rates of the gross domestic product (GDP) and inflation also show an inverted U behaviour as the ratio of public debt/GDP increases. The highest rate of economic growth is recorded when the ratio of public debt/GDP is below 30% of GDP and corresponds to an average inflation rate of 5.33%. An identical behaviour of the GDP growth rates and inflation also appears in Sub‐Saharan countries until the third interval (60–90%). However, the highest growth rate of the GDP and GDP per capita is registered when the public debt/GDP ratio is in the second interval (30–60%). For the countries of the Southern Africa Development Community, the highest average rate of economic growth (6.8%) is similar to North African countries, when the ratio public debt/GDP is below 30% of GDP, with an average inflation rate of 11%. A number of robustness analyses were performed and the great majority of them confirm the general analysis.

Highlights

Public debt in African countries is an issue of global concern
The results suggest that the relationship between public debt and economic growth differs between countries and that there is some support for a nonlinear relationship in the long term, but no evidence of a threshold of common debt for countries over time
This pooled analysis of 52 economies is sectioned into three geographical areas, namely North Africa, Sub-Saharan Africa, and the Southern Africa Development Community (SADC) countries. 4.2.1

Summary

Introduction

Public debt in African countries is an issue of global concern. The burden of public debt and widespread indebtedness of these economies has been the subject of spirited debate amongst economists, academics, policy makers, and the general public. Analysing long historical series from a database developed by the department for tax affairs of the IMF, and using regression analysis between the stock of public debt and GDP growth, they conclude that there is no solid evidence to prove that high debts adversely affect economic growth For these authors, this issue should not be neglected, as high debt levels may be associated with sporadic and volatile economic growth, the relationship is very weak. Eberkardt and Presbitero (2014) studied the long-term relationship between debt and growth in a large panel of countries They investigated the problem of public debt limit using empirical models and dynamic time series, and presented important inputs to enrich the ongoing debate about public debt and growth initiated by the work of Reinhart and Rogoff. The third section addresses the issue of data collection and methodology i.e., the various sources used and the constraints encountered in the process; while the fourth and the fifth sections present the results of the analysis and conclusions, respectively

Public Debt and Economic Growth

Public Debt and Inflation

Data and Analysis

Results

Analysis by Geographical Areas

North Africa

Conclusion