Debt Threshold and Economic Growth: Time Series Analysis of Ghana

Godwill Atta Boakye Williams Abayaawien Atuilik Ernest Geraldo Yaw
Abstract
Purpose: This study aims to investigate the critical impact of public debt on economic growth in the post-COVID era, with a particular focus on Ghana. Policymakers in governments, central banks, and international organizations need to understand when public debt becomes unsustainable and begins to hinder economic development. The goal is to determine the debt threshold at which public debt adversely affects economic growth. Design/Methodology/Approach: The research employs annual time series data from 1975 to 2021 to explore the relationship between public debt and economic growth in Ghana. Methods used in the analysis include the Augmented Dickey-Fuller (ADF) test, the Phillips-Perron (PP) test, and threshold regression analysis. Findings: The study identifies a debt threshold of 50.15% of Ghana's GDP. When public debt is below this threshold, it positively influences economic growth. However, once the debt exceeds this threshold, the impact on economic growth becomes negative. These findings underscore the importance of monitoring sustainability indicators such as the debt-to-GDP ratio, debt service-to-revenue ratio, and primary surplus or deficit to evaluate a country's debt management capabilities and ensure long-term economic stability. Originality: This research provides a nuanced understanding of the debt-growth relationship in the context of a developing country, particularly in the aftermath of the COVID-19 pandemic. By identifying a specific debt threshold for Ghana, the study offers valuable insights for policymakers aiming to balance public debt levels and economic growth, contributing to the broader discourse on sustainable funding and economic prosperity in developing regions.
This work is licensed under a Creative Commons Attribution 4.0 License.

ISSN(Online): 3065-176X

Frequency: Quarterly

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