Does Public Debt Matter For Economic Growth?: Evidence From South Africa

Abstract

This paper investigates the dynamic relationship between accumulated public debt ratio and real GDP growth in the South African economy over the period 1980-2014. Using two macroeconomic control variables – inflation rate and Openness trade – the link between public debt and real GDP growth is found to depend upon the level of indebtedness of the country. Indeed, public debt in South Africa becomes an impediment to economic growth if it crosses the limit of 31.37% of GDP.

Our empirical results have therefore important implications for fiscal policymakers in South Africa to foster economic growth in a context of high public debt level.