Sustainability of Public Debt and Economic Growth in Cote d’Ivoire: is There a Threshold Effect?

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By:Koffi Pokou, Sethlare Lexi, Golesego Mongale

DOI: https://doi.org/10.30564/jesr.v3i3.753

Abstract:

The development of Ivorian public debt in recent years has raised concerns. Is its current level capable of boosting the economy or, on the contrary, being at the source of a recession? This paper analyzes the effect of the level of indebtedness on economic growth in Côte d’Ivoire using the Threshold Autoregressive (TAR) model over the period 1970-2018. The results obtained in the short run shed light on the no relationship between public debt and economic growth. In the long run, on the other hand, there is a bi-directional granger causality between public debt and the sustainability of economic growth. The non-linearity between the variables of interest has been studied and the results show the presence of a threshold effect: beyond 48.03 percent of GDP, any increase in public debt by 1% should reduce economic growth by 0.28%. Thus, the study questions the relevance of the criterion set by the WAEMU: public debt <70% of GDP.

References:

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