Causality between public debt, public debt service and economic growth: Evidence from South Africa

Abstract

This paper explores the causality between public debt and economic growth, and between public debt service and economic growth in South Africa covering the period 1970 – 2017. The study employed the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and the multivariate Granger-causality test. The empirical results indicate that there is unidirectional causality from economic growth to public debt, but only in the short run. However, the study fails to establish any causality between public debt service and economic growth, both in the short run and in the long run. In line with the empirical evidence, the study concludes that it is economic growth that drives public debt in South Africa, and that the causal relationship between public debt and economic growth is sensitive to the time frame considered. The paper recommends that South Africa should prioritise the implementation of appropriate policies and strategies that could drive economic growth in order to uphold a sustainable public debt level.