Asymmetric and threshold effects of public debt on economic growth in SADC: a panel smooth transition regression analysis

PurposeThis study aims to interrogate dynamic asymmetric relationships between public debt and economic growth in Southern African Developing Communities (SADC), over the period 2000–2018.Design/methodology/approachThe study employed a panel smooth transition regression (PSTR) technique to analyse dynamic asymmetric relationships between public debt and economic growth, and the threshold effect at which public debt hampers economic growth.FindingsThe findings indicate that there is a significant nonlinear effect of debt on economic growth in SADC. The study discovered a debt threshold of 60% to GDP at which debt beyond this threshold deteriorates long-term growth. The low-debt regime was found to be positive and statistically significant, while the high-debt regime is detrimental for long-term growth. Fiscal policymakers ought to consider the adoption of well-coordinated debt policies that aims to strike a balance between sustainable public debt and economic growth, within a reasonable threshold target.Originality/valueThe study focusses on asymmetric and threshold analysis of public debt on economic growth in SADC using sophisticated panel smooth transition regression (STAR). This study provides rigorous empirical evidence within the SADC perspective in which previous studies have predominantly been confined in advanced economies.

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

PurposeThe 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/approachThis 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.FindingsThe 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/valueThis 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.

Urbanization, Industrialization and Inequalities in Africa: does threshold matter?

This paper examines the impact of urbanization and industrialization on observed inequalities in a sample of 48 African countries. We specify and estimate a panel data model using the Generalized Method of Moments-System (GMM-S) over the period 1980-2016 along the different dimensions of inequality. Our results show that urbanization increases income, environmental and housing inequalities in Africa, while industrialization reduces them. Our results remain robust with the use of Panel Smooth Transition Regression Model (PSTR) and Panel Transition Regression Model (PTR). We suggest taking into account the disparities identified in the inclusive urbanization and industrialization policies of African cities.

Is Inequality Slowing Down Africa’s Industrialization?

Africa has also experienced a decline in the level of industrialization for at least three decades. Examining the dynamics of industrialization, and its effect on inequality, therefore remains a strikingly topical issue. This paper assesses the effects of industrial transformation on inequality in Africa over the period 1980-2016. Using a sample of 48 African countries, we estimate a dynamic panel data model using the Generalized Method of Moments in System (GMM-S). Our results show that strong industrialization would reduce inequality in Africa. The robustness of the results is tested using a PSTR (Panel Smooth Transition Regression) model and a PTR (Panel Transition Regression) model. The study recommends that economic, social and environmental disparities be taken into account in the process of industrial transformation on the continent.

Industrialization, Servicification And Environmental Kuznets Curve: Non-Linear Panel Regression Analysis

This paper investigates whether the impact of income on CO2 emissions is invariant to endogenously estimated threshold levels for the economic structure (ES) represented by value added in manufacturing, industry and services sector shares in GDP for a panel of 54 economies over the 1971–2017 period. Our panel smooth transition regression estimation results strongly suggest that the sensitivity of CO2 emissions to income is substantially much higher in countries with higher manufacturing and industry sector shares whilst it is much lower in servicified economies. Given the argument that manufacturing is the engine of growth, this finding may not necessarily downgrade the crucial importance of an industrial policy which places the manufacturing at the core. The empirical findings in this paper suggest that countries may better to design and implement a strategic and systematic industrial policy which promote the use of emission reduction technologies and encourage manufacturing and industrial sectors with lower carbon emissions.

Analyzing the Economic Development-Driven Ecological Deficit in the EU-15 Countries: New Evidence From PSTR Approach

This study empirically analyses the nonlinear impact of economic activities on ecological balance indicators that estimate the balance between economies' pressure on nature and the biologically productive resources areas affected by human activity and the earth's ecological carrying capacity. In measuring this balance, ecological balance sheet indicators are divided into four sub-components; cropland, forest area, fishing grounds and grazing land. The sample of the study consists of the EU-15 countries over the period 1995–2016. In order to render the study robust with respect to econometric issues like potential endogeneity bias, cross-country heterogeneity, time instability and nonlinearity, the study adopted panel smooth transition regression (PSTR) method. The empirical findings reveal that the economic activities carried out up to a certain threshold level do not force the ecological balance as nature can compensate for the resulting externalities, but beyond this threshold, waste accumulation and pollution exceed nature’s capacity to absorb. Consequently, the results of the study are not in line with the expectation of the Environmental Kuznets Curve (EKC) hypothesis with inverted U-shaped curve, but indicate a need for implementation of active environmental policies for the improvement of the environment.