Threshold Effects of Sovereign Debt: Evidence From the Caribbean
IMF Working Papers, June 1, 2012
Source details
- Canonical URL
- Threshold Effects of Sovereign Debt: Evidence From the Caribbean
Other formats
Bibliographic details
- Authors: Lisa Drakes, Chrystol Thomas, Roland Craigwell, Kevin Greenidge
- Published: June 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475504507.001
Main findings and implications
- There exists a threshold debt-to-gross domestic product (GDP) ratio of 55–56 percent.
- Debt dynamics begin changing well before this threshold is reached.
- At debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth.
- As debt rises beyond 30 percent of GDP, the effects on economic growth diminish rapidly.
- At debt levels reaching 55–56 percent of GDP, the growth impacts switch from positive to negative; beyond this threshold, debt becomes a drag on growth.
Analysis approach and technical focus
- Subject areas: Econometric analysis, Expenditure, External debt, Fiscal policy, Fiscal stance, Public debt, Threshold analysis.
- Keywords emphasized in the study: Caribbean, CARICOM government, debt level, Debt Problems, Debt Threshold, debt variable, Fiscal stance, GDP cost, GDP ratio, government spending, growth rate, growth-reducing effect debt, least squares, Panel Data, percentage point, real GDP, Threshold analysis, threshold debt regression, threshold estimation technique, threshold estimation techniques of Hansen, Threshold Regressions, WP.
- The study uses threshold estimation techniques (including references to Hansen’s methods) and panel data econometric methods to identify nonlinearity in the debt–growth relationship.
Research note (as presented in the working paper)
- "This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate."
Source: IMF Working Paper "Threshold Effects of Sovereign Debt: Evidence From the Caribbean" by Lisa Drakes, Chrystol Thomas, Roland Craigwell, and Kevin Greenidge, June 1, 2012.