Abstract
The nonlinear relationship between public debt and economic growth has been an ongoing controversial subject in economic discourse, with limited attention given to the moderating role of financial development. This dissertation examines the role of financial development in the public debt-growth nexus in 37 African countries from 2000 to 2021. The study employs the System GMM as the baseline model, alongside the DPTM, MMQR, and the JKS Granger non-causality test. The baseline results indicate that public, external, and domestic debt have a negative relationship with economic growth. Financial development does not moderate the relationship between public debt and economic growth but significantly moderates the effects of external and domestic debt on economic growth. The DPTM on the debt-growth nexus reveals that public debt consistently dampens economic growth both above and below 82.200%, while external debt promotes growth below 11.358%, beyond which it constrains growth. Domestic debt enhances growth both above and below 14.441%. When financial development is considered the threshold variable, public and external debt have the same threshold of 0.082, and domestic debt has a threshold of 0.083. All debt types promote growth below their specified thresholds and constrain growth above their thresholds. The MMQR revealed that all debt types decrease economic growth in upper quantiles. The JKS test reveals bidirectional causality between public debt, domestic debt, and economic growth, with unidirectional causality from external debt to economic growth. The study further finds that there is no causality between financial development and economic growth. Unidirectional causality is observed from external debt to financial development, and from financial development to domestic debt. These findings suggest that African nations should invest in enhancing financial systems, ensuring that debt outcomes yield higher impacts on economic growth.