A Sovereign Debts and Gdp in Piigs Countries: A Panel Smooth Transition Approach

Abstract It occurred at the end of 2008, and its effects quickly reached many countries in record time and exploded as a public debt in the European Union and the Eurozone. The countries most affected by this financial crisis were Portugal, Ireland, Italy, Greece and Spain which were named as PIIGS countries in Europe. The impact of public debt on economic growth in PIIGS countries is analyzed in this study. This paper focused on arriving at empirical evidence of the existence of a non-linear effect of external debt on GDP in PIIGS countries This study used panel data models using non-linear panel threshold regression (PSTR) approaches for a sample of European countries represented by PIIGS From 1990 to 2022. Several conclusions were drawn from this study. First, the use of a regime switching test based on the Hansen approach confirmed the existence of a non-linear relationship between external debt and GDP and the analysis showed that the threshold and its effect do not vary with the level of economic development. In the mentioned countries, in addition, the results showed a negative impact of external debt on the growth of these countries, mainly due to the size of the debt and the structural deficit in the balance of payments and the primary budget. JEL Classification : C21 C33 C58 H63 E62