Public debt management and economic growth: A threshold regression approach

Abstract

This study deals with the impact of national debt on gross domestic product growth, which plays an essential role in economic development when the debt-to-GDP ratio achieves the optimal public debt ratio. The goal of this study is to comprehend the relationship between government debt and GDP growth, which becomes increasingly essential for economic development as the debt-to-GDP ratio approaches the optimal threshold of public debt. The study applied regression threshold models, unit roots, and Pearson correlation tests to the data collected in Vietnam from 2000 to 2020 to determine the optimum national debt-to-GDP threshold. The results show that the correlation between national debt-to-GDP and GDP growth was 85.2%. All the variables are stationary at the first difference and lag after one year, and the 38% threshold is the best level of national debt for GDP growth. This study contributes to the theoretical enhancement of the current knowledge of the factors that offer the Vietnamese government a point of reference for policy recommendations to control national debt successfully.