TITLE:
A Granger Causality Test on the Impact of Public Debt on the Economic Growth of Sierra Leone
AUTHORS:
Ezekiel K. Duramany-Lakkoh, Hassan Jalloh, Abdul-Majid Abu
KEYWORDS:
Debt Management and Growth, Grander Causality Test on Debt, Debt and Economy Growth
JOURNAL NAME:
Modern Economy,
Vol.13 No.7,
July
22,
2022
ABSTRACT: This study uses the grader causality, Johansen co-integration,
and error correction model tests to establish the relationship between public
debt on the economy of Sierra Leone from 1986-2015. The economic implications
of using government debt as a drive to fund expansionary fiscal policy and inform policymakers to consider the economic
viability of government-funded projects and the social cost of pursuing
them. To achieve the core objective, this study analyses the impact of public
debt on the Sierra Leone economy using the Vector Autoregression (VAR) model
approach to investigate the impact of public debt on the key macroeconomic
variables of real GDP, Domestic Debt (DDB) and External Debt (EXT). The study
established that economic growth proxied by RGDP responds differently to the
various components of public debt, which were external and domestic debts.
Specifically, the external debt had an insignificant negative effect on
economic growth in Sierra Leone. Domestic debt, on the other hand, had a
significant positive effect on economic growth. The overall results of the
study revealed that there exists a long-run relationship between total public
debt and RGDP in Sierra Leone.