The threshold effects of public debt on economic growth in MENA countries: Do energy endowments matter?

Abstract

We investigate the effects of public debt on economic growth and examine its viability as a policy tool to spur economic growth using a sample of 14 Middle Eastern and North African countries over the period 1980-2021. We reveal that the relationship between public debt and economic growth varies between oil and non-oil countries. Specifically, we find that the debt threshold hovers around 46%-69% for oil countries and 74%-81% for non-oil countries depending on the specification employed. Furthermore, our findings highlight that the implications of public debt on economic growth are more favorable for non-oil countries, regardless of the actual level of debt in comparison to the threshold. Notably, when a country's debt lies beneath the threshold, the positive impact of borrowing on economic growth is more pronounced for non-oil countries. Similarly, once the level of debt surpasses the threshold, the adverse effects of indebtedness on economic growth are less severe for this particular group of countries. Our findings are critically important for policymakers and demonstrate the importance of a country' energy endowment in moderating the relationship between debt and economic growth.