2021, Volume 74 - Issue 2
RSS feed citation: At RePEc
Publication date: 24 May 2021
ECONOMIC RESTRUCTURING AND SOCIALIST CONSTRUCTION IN CHINA: 1950-1978Read the article
SOVEREIGN DEBT AND ECONOMIC GROWTH NEXUS IN ZIMBABWE: A DYNAMIC MULTIVARIATE CAUSALITY TESTRead the article
A PANEL SVAR ANALYSIS OF THE LONG-RUN ECONOMIC IMPACTS OF MIGRATIONRead the article
Talknice SAUNGWEME, Department of Economics, University of South Africa, Pretoria, South Africa
Nicholas M. ODHIAMBO, Department of Economics, University of South Africa, Pretoria, South Africa
This paper examines the causal relationship between both public debt and public debt service and economic growth in Zimbabwe for the period from 1970 to 2017. The purpose of the study is to provide empirical evidence to the question “Do high public debt or public debt service levels enhance or inhibit economic growth in Zimbabwe?”. To avoid the omission-of-variable bias, fiscal balance and savings are used as intermittent variables, thereby creating a multivariate Granger-causality framework. The study employs the autoregressive distributed lag (ARDL)-bounds testing approach. The results indicate that there is: (1) short-run unidirectional causal flow from economic growth to public debt in Zimbabwe; and (2) no causal relationship between public debt service and economic growth, irrespective of whether the causality is estimated in the short run or long run. Therefore, the paper concludes that the sovereign debt overhang in Zimbabwe is mostly a result of low economic growth.
H62, H63, O47
Zimbabwe, Granger-Causality, Economic Growth, Public Debt, Public Debt Service
Abbas, A.S.M. and J.E. Christensen (2007), “The Role of domestic debt markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets”, IMF Working Papers IMF No. 07/127.
African Development Bank (2018a), 2018 African Economic Outlook: Zimbabwe Country Note, available at <https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/country_notes/Zimbabwe_country_note.pdf>.
African Development Bank (2018b), Zimbabwe: Economic Report: Building A New Zimbabwe: Targeted Policies for Growth and Job Creation, available at <https://www.afdb.org/en/documents/document/zimbabwe-economic-report-building-a-new-zimbabwe-targeted-policies-for-growth-and-job-creation-106282>.
Afonso, A. and J. Alves (2015), “The Role of Government Debt in Economic Growth”, Hacienda Pública Española/Review of Public Economics, 215(4), 9-26.
Afxentiou, P.C. (1993), “GNP Growth and Foreign Indebtedness in Middle-Income Developing Countries”, International Economic Journal, 7(3), 81-92.
Afxentoiu, P.C. and A. Serletis (1996), “Growth and foreign indebtedness in Developing Countries: An Empirical Study Using Long-Term Cross-Country Data”, The Journal of Developing Areas, 31(1), 25-40.
Ahlborn, M. and R. Schweickert (2016), “Public debt and Economic Growth – Economic Systems Matter”, CEGE Discussion Paper No. 281.
Amoateng, K. and B. Amoako-Adu (1996), “Economic Growth, Export and External Debt Causality: The Case of African Countries”, Applied Economics, 28(1), 21-27.
Bond, P. (2005), “Zimbabwe’s Hide and Seek with the IMF: Imperialism, Nationalism & the South African Proxy”, Review of African Political Economy, 32(106), 609-619.
Cecchetti, S.G., M.S. Mohanty and F. Zampolli (2011), “The Real Effects of Debt”, BIS Working Paper No. 352, available at <https://www.bis.org/publ/othp16.pdf>.
Cerra, V. and S.C. Saxena (2008), “Growth Dynamics: The Myth of Economic Recovery”, American Economic Review, 98(1), 439-457.
Checherita-Westphal, C. and P. Rother (2012), “The Impact of High Government Debt on Economic Growth and its Channels: An Empirical Investigation for the Euro Area”, European Economic Review, 56(7), 1392-1405.
Davidson, R. and J.G. McKinnon (2004), Econometric Theory and Methods, International Edition, Oxford University Press: United Kingdom.
DeLong, J.B. and L.H. Summers (2012), “Fiscal Policy in a Depressed Economy”, Brookings Papers on Economic Activity, 44(1), 233-297.
Donayre, L. and A. Taivan (2017), “Causality between Public Debt and Real Growth in the OECD: A Country-by-Country Analysis”, Economic Papers, 36(2), 156-170.
Eberhardt, M. and A.F. Presbitero (2015), “Public Debt and growth: Heterogeneity and Non-Linearity”, Journal of International Economics, 97(1), 45-58.
Elmendorf, D. W., and G.N. Mankiw (1999), Government Debt, in: J.B. Taylor, M. Woodford (Eds), Handbook of Macroeconomics (Vol. 1, Chapter 25, pp. 1615-1669), Elsevier, Amsterdam: North Holland.
Ferreira, C. (2009), “Public Debt and Economic Growth: A Granger Causality Panel Data Approach”, Instituto Superior de Economia e Gestão Working Paper No. 24/2009.
Fischer, S. (1991), Growth, Macroeconomics and Development, NBER Working Papers Series, Working Paper No. 3702, available at <https://www.nber.org/system/files/working_papers/w3702/w3702.pdf>.
Fischer, S. (1993), “The Role of Macroeconomic Factors in Growth”, Journal of Monetary Economics, 32(3), 485-512.
Gómez-Puig, M. and S. Sosvilla-Rivero (2015), “The Causal Relationship between Public Debt and Economic Growth in EMU Countries”, Journal of Policy Modeling, 37(6), 974-989.
Gómez-Puig, M. and S. Sosvilla-Rivero (2017), “Public debt and Economic Growth: Further Evidence for the Euro Area”, Institut de Recerca en Economia Aplicada Regional i Pública, Research Institute of Applied Economics, Working Paper No. 2017/15.
Government of Zimbabwe (2008), The Indigenisation and Economic Empowerment Act, Chapter 14:33, Government Printers: Harare.
Government of Zimbabwe (2010), The Indigenisation and Economic Empowerment (General) Regulations, Statutory Instrument 21/2010, Government Printers: Harare.
Huang, Y., U. Panizza and R. Varghese (2018), “Does Public Debt Crowd-Out Corporate Investment? International Evidence”, The Graduate Institute of International Studies, IHEID Working Papers No. 08-2018.
IMF (2005), Zimbabwe: 2005 Article IV Consultation: Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Authorities of Zimbabwe, IMF Country Report No. 05/360.
IMF (2009), Zimbabwe Overdue Financial Obligations to the PRGF-ESF Trust, IMF Country Report No. 09/139, <https://www.imf.org/external/pubs/ft/scr/2009/cr09139.pdf>.
IMF (2013), Public Sector Debt Statistics: A Guide for Compilers and Users, Revised Second Printing, International Monetary Fund: Washington, DC.
IMF (2014), Zimbabwe: 2014 Article IV Consultation – Staff Report; Press Release; And Statement by The Executive Director for Zimbabwe, IMF Country Report No. 14/202.
IMF (2017), 2017 Article IV Report-Debt Sustainability Analysis Zimbabwe: Joint IMF/World Bank Debt Sustainability Analysis, International Monetary Fund: Washington, DC, <https://www.imf.org/external/pubs/ft/dsa/pdf/2017/dsacr17196.pdf>.
Jalles, J.T. (2011), “The Impact of Democracy and Corruption on the Debt-Growth Relationship in Developing Countries”, Journal of Economic Development, 36(4), 41-72.
Karagol, E. (2002), “The Causality Analysis of External Debt Service and GNP: The Case of Turkey”, Central Bank Review, 2(1), 39-64.
Kobayashi, K. (2015), “Public Debt Overhang and Economic Growth”, Public Policy Review, 11(2), 247-276.
Kobayashi, K. and D. Shirai (2017), “Debt-Ridden Borrowers and Economic Slowdown”, CIGS Working Paper No. 17-002E.
Leo, B. and T. Moss (2009), Moving Mugabe’s Mountain: Zimbabwe’s Path to Arrears Clearance and Debt Relief, Centre for Global Development, Washington, DC – November, 13.
Lucas, R.E. (1988), “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22(1), 3-42.
Lütkepohl, H. (1982), “Non-Causality Due to Omitted Variables”, Journal of Econometrics, 19(2-3), 367-378.
MOF (2018), The 2019 National Budget Statement – Austerity for Prosperity, Ministry of Finance and Economic Development, Government Printers: Harare.
Moss, T. and S. Patrick (2006), “After Mugabe: Applying Post-Conflict Recovery Lessons to Zimbabwe”, Africa Policy Journal, 1(Spring), 21-36.
Muyambiri, B. and M.N. Odhiambo (2018), “Financial Development and Investment Dynamics in Mauritius: A Trivariate Granger-Causality Analysis”, SPOUDAI Journal of Economics and Business, 68(2-3), 62-73.
Nyasha, S. and N.M. Odhiambo (2015), “Do Banks and Stock Markets Spur Economic Growth? Kenya’s Experience”, International Journal of Sustainable Economy, 7(1), 54-65.
Owusu-Nantwi, V. And C. Erickson (2016), “Public Debt And Economic Growth in Ghana”, African Development Review, 28(1), 116-126.
Panizza, U. and A.F. Presbitero (2014), “Public Debt and Economic Growth: Is there a Causal Effect?”, Journal of Macroeconomics, 41(C), 21-41.
Pesaran, M.H. and Y. Shin (1999), An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis, In: S. Strøm (Ed.), “Econometrics and Economic Theory in the 20th Century”, The Ragnar Frisch Centennial Symposium Econometric Society Monographs (No. 31: pp. 371-413), Cambridge University Press: Cambridge.
Pesaran, M.H., Shin, Y. and R.J. Smith (2001), “Bound Testing Approaches to the Analysis of Level Relationship”, Journal of Applied Econometrics, 16(3), 289-326.
Puente-Ajovín, M. and M. Sanso-Navarro (2015), “Granger-Causality between Debt and Growth: Evidence from OECD Countries”, International Review of Economic and Finance, 35(C), 66-77.
Qazi, M.A., S.B. Mohammad and S. Alam (2000), “Economic Growth, Export and External Debt Causality: The Case of Asian Countries”, The Pakistan Development Review, 39(4), 591-608.
Reinhart, C.M., V.R. Reinhart and K.S. Rogoff (2012), “Public Debt Overhangs: Advanced-Economy Episodes since 1800”, Journal of Economic Perspectives, 26(3), 69-86.
Reinhart, C.M. and K.S. Rogoff (2010), “Growth in a Time of Debt”, American Economic Review, 100(2), 573-578.
Romer, P. (1986), “Increasing Returns and Long-run Growth”, Journal of Political Economy, 94(5), 1002-1037.
Saungweme, T. and N.M. Odhiambo (2018), “Debt Dynamics in Zimbabwe: Reforms, Trends and Challenges”, International Journal for Quality Research, 12(1), 95-110.
Schwarz, G. (1978), “Estimating the Dimension of a Model”, Annals of Statistics, 6(2), 461-464.
Solow, R.M. (1956), “A contribution to the Theory of Economic Growth”, Quarterly Journal of Economics, 70(1), 65-94.
Soydan, A. and S. Bedir (2015), “External Debt and Economic Growth: New Evidence for an old Debate”, Journal of Business Economics and Finance, 4(3), 500-522.
Teles, V. and C. Mussolini (2014), “Public Debt and the Limits of Fiscal Policy to Increase Economic Growth”, European Economic Review, 66(C), 1-15.
United Nations (2010), Country Analysis Report for Zimbabwe, United Nations Publications: Harare <https://www.unaids.org/sites/default/files/country/documents/zimbabwe_2010_country_progress_report_en.pdf>.
Woo, J. and M.S. Kumar (2015), “Public Debt andGrowth”, Economica, 82(328), 705-739.
World Bank (2018), World Bank Databank, World Development Indicators, available at <http://www.data.worldbank.org>.