Threshold Effects of Sovereign Debt: Evidence from the Caribbean

Craigwell, Roland and Greenidge, Kevin and Thomas, Chrystal and Drakes, Lisa (2012): Threshold Effects of Sovereign Debt: Evidence from the Caribbean. Published in:

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Debt Problems; Debt Threshold; Panel Data; Threshold Regressions
• Subjects: F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models

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