Abstract:
This research aims to investigate the relationship between public debt and economic growth,
specifically to identify the threshold level of public debt to GDP that could potentially pose a
threat to economic growth. The study employs the traditional extreme bound Analysis (EBA)
approach to find out threshold level. The effectiveness of three extreme bound analysis criteria
is also compared using combinations of two, three, and four variables that is basically
comparison of different criteria of explanatory variable selection. Furthermore, the research
evaluates the differences between traditional and restricted extreme bound analysis
approaches to determine which method produces accurate and reliable results. Based on the
results of this research, the dummy creation method is used to find out the threshold level of
public debt to GDP that could potentially pose a threat to economic growth is 69%. This finding
is higher than the threshold level of 62% that was identified in previous studies because of
changing economic conditions, policy responses, and external factors. Therefore, my research
suggests that governments should be cautious about allowing public debt to exceed 69% of
GDP to maintain sustained economic growth. The findings of this research have significant
implications for policymakers, as this research provide insights into the relationship between
public debt and economic growth, which can inform the development of effective debt
management strategies.
