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Empirical modeling of South Africa’s external debt on economic growth (1994 -2020): NARDL Cointegration approach

Stungwa, Sanele (2022): Empirical modeling of South Africa’s external debt on economic growth (1994 -2020): NARDL Cointegration approach. Published in: Munich Personal RePEc Archive : pp. 1-11.

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Abstract

The objective of this study is to examine the asymmetric relationship between external debt and economic growth in South Africa for a period spanning from 1994 to 2020. The study consumed an annual time series data. The study further used bounds test cointegration to investigate the long run relationship between GDP and external debt. However, the long run relationship was not found, therefore, the long run NARDL cannot estimated. The short run findings of the study state that the positive and negative shocks in foreign debt stock is -0.198 and -0.288 for each, respectively. Every 1% rise in the foreign debt stock reduces GDP growth by 0.198 percent, whereas every 1% reduction in the external debt stock boosts GDP growth by 0.288 percent When the foreign debt stock value is positive, GDP increases faster than when it is negative. Conversely, falling foreign debt leads to faster GDP growth than rising external debt. Because the estimated elasticities range greatly in importance and direction, it seems that a change in ED has an uneven impact on GDP. Therefore, South African policymakers should concentrate on enacting measures that would allow the South African economy to decrease its foreign debt.

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