General Government Debt and Growth in Sadc Countries

Abstract

This study empirically investigates the relationship between government debt and economic growth
in a sample of 10 Southern African Development Community (SADC) members from 1995 to 2017. The study
disaggregates the SADC data into different samples: full sample and a sample of non-Heavily Indebted Poor
Countries and employs the fixed effects two-stage least squares (FE-2SLS) estimator to account for possible
endogeneity bias due to reverse causation between government debt and economic growth. Results are
presented for the entire sample and sub-sample (non-Heavily Indebted Poor Countries). While the impacts of
government debt are similar in direction (negatively related to economic growth) for the full and sub-sample,
it is not significantly related with economic growth in the sub-sample. That is, the estimated coefficient varies
substantially, depending on the particular sample of countries chosen. This implies that government debt, at
moderate level, has no impact on growth while after a certain threshold the effects become growth reducing.
Inflation, military expenditure and trade openness were also found to have a negative significant relationship
with government debt in SADC. However, population growth and investment were found to have a significant
positive relationship with government debt.