Debt Thresholds and Growth Traps: Testing the Nonlinear Effects of Public Debt in Egypt

Mohamed  A. Emam, Ahmed El Refaay

doi:10.21608/jocu.2025.385170.1442

Debt Thresholds and Growth Traps: Testing the Nonlinear Effects of Public Debt in Egypt

نوع المستند : مقالات سیاسیة واقتصادیة

المؤلف

Ahmed El Refaay Mohamed A. Emam

قسم الاقتصاد - كلية السياسة والاقتصاد والادارة - جامعة مايو، القاهرة - مصر

10.21608/jocu.2025.385170.1442

المستخلص

This study examines Egypt's nonlinear relationship between public debt and economic growth using semi-annual data from 2000 to 2024. Hansen's (2000) threshold regression model and Bai-Perron tests identify 78.17% and 89.42% as critical debt-to-GDP thresholds, dividing the data into low-, moderate-, and high-debt regimes. While moderate debt levels can support growth, exceeding the upper threshold significantly impairs investment efficiency and exposes the economy to inflation and interest rate vulnerabilities, supporting the debt overhang hypothesis. Inflation has a negative and significant effect on growth across all debt regimes, reflecting macroeconomic instability and real investment return erosion. Egypt must implement targeted fiscal consolidation, improve investment efficiency, and coordinate monetary-fiscal policies to control inflation, according to the study. The persistently negative impact of government expenditure on growth highlights the need for public spending rationalization. Research on regime-specific debt effects provides a nuanced framework for debt management beyond one-size-fits-all policy prescriptions. Fiscal rule design and long-term macroeconomic planning in Egypt are affected. The study concludes that public debt can hinder growth in developing economies with limited fiscal space and external vulnerabilities if not managed properly.

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