Sovereign debt and economic growth nexus in Zimbabwe: A dynamic multivariate causality test

Abstract

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.