| Summary: | If it has been empirically demonstrated that public debt has a positive impact on investment and growth as long as it remains below a given optimal threshold, beyond that threshold, the debt becomes unsustainable. Thus, the purpose of this paper is to assess the optimal debt threshold and the contribution of the quality of institutions to the country's economic growth. The results of the estimates show that in the short and long run, the quality of institutions and inflation negatively affect economic growth, while external debt, government spending and trade openness have a positive and significant effect on economic growth. Note, however, that in the long run the negative effect of the quality of institutions is not significant.
The optimal debt threshold corresponds to the marginal impact of the debt, identified by the quadratic method. After evaluation, this threshold is approximately 83% (82.66%). This rate represents the level of debt beyond which the marginal impact of debt on economic growth becomes negative.
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