The Study refers to the Asymmetric relationship between public debt and economic growth in the short and long run and confirms the change in the size and the direction of the relationship over time
In line with its continuous efforts to support the decision-making process in the Arab countries, the Arab Monetary Fund (AMF) has released a study titled " Public Debt in The Arab World: Asymmetric Effects on Economic Growth".
This study examines the asymmetric effect of public debt on economic growth rates in ten Arab countries. The study relies on the regression of time series and cointegration analysis for selected Arab countries based on the data availability. Specifically, it employs the Non-Linear Autoregressive Distributed Lag Model (NARDL) and a multiple structural breaks model.
The outcomes of the analysis suggest the existence of asymmetric relationship between public debt and economic growth in many countries in the sample, both in the short- and/or the long-run. The asymmetric long-run findings demonstrate that the positive changes of public debt are negatively related to GDP growth rates in some countries, implying that more public debt reduces GDP growth rate. On the other hand, the negative changes in public debt are found to have a meaningful impact on economic growth in certain countries, meaning that the drop in debt levels leads to an increased GDP growth rate.
The results of the regression with multiple breakpoints show the presence of structural breaks in the relationship between public debt and economic growth in a sizable number of countries. In general, the study observed changes in the direction and/or the magnitude of the relationship between public debt and economic growth with respect to the structural breaks.
The results imply that the interaction between public debt and growth may not be consistent over time and could vary with respect to various economic conditions. As a result of this study, it is recommended that the impact of public debt on economic growth must be evaluated regularly and in a systematic manner to avoid adverse effects resulting from changes in the level of public debt.
A full version of the study is available at the link: