Abstract:
An issue of public debt accumulation and economic growth has become one of the most convoluted global issues since several decades ago. Thus, this study aims to verify the effects of public debt levels on Libyan economic growth, in addition to identifying an optimal level of public debt. By using a set of statistical tests, such as Autoregressive Distributed Lag
(ARDL), and Ordinary Least Squares (OLS), on a sample of annual data during the
time period from 1980 to 2019. Results show that there is an inverse relationship between levels of public debt and economic growth, suggesting that increasing levels of debt will impede future economic growth, while investment rates positively affect economic growth. This means that higher investment rates will push economic growth towards an increase in the future. As for the optimal level of public debt was at 80% of GDP, because an increase in the debt ratio over this rate will lead to a decrease in economic growth rates. Therefore, it is imperative for the fiscal authorities to reconsider a distribution of public expenditures, by concentrating on investment expenditures instead of current expenditures, as well as the public debt rates must not exceed 80% of GDP.
